You can give up to $15,000 a year to individual family members and friends without reporting it on your taxes. That’s $15,000 to each recipient: children, grandchildren, nieces, nephews, siblings; as many as you want. You can do it again the next year, and for many years after.
What’s more, if you are married and you and your spouse file your taxes jointly, you can double those amounts, gifting $30,000 annually.
Of course, there are some caveats.
- Want to give more? If you give more than $15,000 (or $30,000 if you’re married) in cash or other assets (such as a car or stocks) to one person in the course of a year, you’ll have to file IRS Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, to disclose the gift.
- Use it or lose it. You can’t apply funds you give this year to last year. If you don’t give this year, you’ll have to wait until next year.
- There is a limit. You’ve got a total lifetime exclusion of $11.58 million (which rises to $11.7 million in 2021). If you are married and file jointly, you can double that amount.
- Gifts can be made only to people, not charities. The gift tax exclusion is meant for gifts only, not charitable donations to nonprofit organizations.
- Rules don’t apply to spouses. You can gift any amount to your spouse at any time without worrying about IRS Form 709.
The chance to make a difference
Think about the impact of those gifts. For example, what if you contributed $15,000 to a newborn grandchild’s 529 plan account? Over 18 years, it could grow to more than $52,000. And if the grandchild uses those funds for qualified educational expenses, they can be withdrawn tax free.
The growth of $15,0001
What’s more, you can make five years’ worth of contributions to a 529 account in a single year—up to $75,000 ($150,000 for married couples filing jointly) per child or grandchild—without triggering federal gift taxes.
While the holiday season is a great time to think about giving, these gifts can be made at any time of the year. When thinking about gifting, be sure to consult with your tax, estate planning, and/or financial professional. They can help you devise a plan that meets your needs.
1 Source: John Hancock Investment Management, 2020. The above illustration does not depict any investment and is a hypothetical example for comparison purposes only. The projected values assume an initial lump sum of $15,000 for 18 years at a hypothetical compound annual growth rate of 7%, accrued monthly. This illustration does not reflect the effect of asset charges and account fees that may apply to any investment. These fees would reduce the performance shown in the above illustration. The investment return and principal value of an investment may fluctuate so the distributed investments may be worth more or less than their original value. Tax deferral may work best for long-term goals.
This material does not constitute tax, legal, or accounting advice, and neither John Hancock nor any of its agents, employees, or registered representatives are in the business of offering such advice. It was not intended or written for use, and cannot be used, by any taxpayer for the purpose of avoiding any IRS penalty.