We’re well underway into the giving season, but the clock is ticking if you want any gifts to count toward the 2025 tax year. In other posts, our team has talked about charitable strategies like QCDs and donor-advised funds, but what about gifting to people—your kids, grandkids, friends, or anyone else you want to support?

Smaller gifts, like cash for birthdays, graduations, or weddings, are part of worthy celebrations and often straightforward. Larger gifts—helping with a home down payment, making a sizable 529 contribution, or even gifting a car—are also possible, but they take a bit more planning because of something called the annual gift tax exclusion.

If you’re considering larger gifts to family or friends this season, here’s a simple breakdown of the what, who, and how that you need to know before December 31.

What: Understanding the Annual Gift Tax Exclusion

In the simplest terms, the annual gift tax exclusion is the amount you can give to another person each year without needing to file a gift tax return or dipping into your lifetime exemption. For 2025 and 2026, that amount is $19,000. It’s basically the IRS’s way of putting guardrails around easy, no-paperwork giving.

And a quick note on the bigger picture: If you exceed the annual limit, you’ll be dipping into the lifetime exemption amount, which is the value of assets that can be transferred to others without incurring Federal gift tax. It will require filing a gift tax return (Form 709) so the IRS can track how much of your lifetime exemption you’ve used. Those limits are high at $13.99 million for 2025 and $15 million for 2026, and that’s per person – so double it for married couples. Most people won’t come close to hitting that threshold, but these annual rules still matter for sound planning.

A few details to know:

-You can give $19,000 to as many people as you want. It’s per person, per year.

-Married couples can “split” gifts. This effectively doubles the gift to $38,000 per recipient. (Gift splitting does require filing Form 709, even if you stay within the combined limit.)

-There’s no carry-forward. If you don’t use your annual exclusion this year, it doesn’t roll into next year.

-Since gifting to individuals isn’t charitable giving, there’s no income tax deduction. Consider this as sharing wealth.

Who and Why: When Does This Strategy Make Sense?

We’re in the midst of what’s called “The Great Wealth Transfer”, where a substantial amount of assets(think trillions) will pass over the next couple of decades from the Baby Boomer generation to Millennials and Gen Xers. Rather than wait to pass investments, real estate, and physical assets until after death, many will opt to begin sooner, allowing for a strong financial start for these younger generations. Because of the growth in markets and real estate over the last several decades, planning for family wealth transfer is more relevant than ever. 

Regardless, these gifts tend to work well for high-net-worth individuals as a plan to reduce or minimize the size of a taxable estate. Additionally, it also affords generous folks who still fall within the lifetime exclusion amount to support loved ones now, not just in the afterlife. Many times, the biggest “why” is simply sharing and enjoying wealth with others and being involved in the impact during their lifetime. 

Milestone examples:

-Helping adult children with a first home down payment

-Kicking off a 529 plan

-Helping a grandchild buy a car or get established

How: Making the Gift

Gifts need to be completed by December 31 to count for the year. This means checks cashed and brokerage securities transferred. Deposits into accounts like UTMAs for minors or 529s tend to be pretty quick, but if transferring brokerage securities, starting earlier is advised, as they can take longer to process. Keep in mind that for gifts of securities, the basis will transfer to the recipient, which can lead to capital gains tax if and when those shares are sold.

Exclusions

There are exclusions to the annual limits where payments aren’t considered gifts. A few examples include charitable gifts, transfers between spouses, and tuition paid directly to the school.

In Summary

Most people will never come close to hitting the lifetime exemption, but the annual exclusion is still a great tool for sharing wealth simply and intentionally. Whether you’re hoping to help family members now or looking for smart long-term planning strategies, understanding how the annual limits work can make year-end giving much smoother.