Did you know there are rules governing how much you can give to help a loved one? The IRS has strict rules under the annual gift tax exclusion that dictate the maximum amount you can give if you don’t want to report the gift on your taxes at the end of the year, which can impact both you and your loved one.
What should you know about the federal rules on gifting?
Here are the details you need to know before you sign that check to minimize the burden on your family members, loved ones, and even charities of your choosing.
Rules on Gifting to Family Members
Those who are financially successful have the ability to support loved ones who may not have the same degree of financial freedom. It’s a generous, compelling idea – especially since the financial support can help those loved ones build a foundation to grow their own future success.
That said, there are specific rules on gifting that apply to sharing your wealth with family members. It’s important to understand the rules in order to avoid any gift taxes your generosity might incur.
What is a Taxable Gift?
Did you know you can give a certain amount of money tax-free to the individual you choose? Knowing where the threshold is can be crucial to prevent the IRS from flagging your gift, marking some of that money for Uncle Sam.
In 2025, you can give up to $19,000 per person ($38,000 as a married couple). However, it is not quite that simple.
For example, say you’re gifting money to your son to help with a down payment for his first house. You and your spouse could each gift $19,000 to that child for a total of $38,000. If your son is married, you and your spouse could also gift $19,000 each to your daughter-in-law. In this way, you and your spouse could essentially gift $76,000 to the couple without incurring any tax penalties.
If your gift is going toward a 529 plan, you can employ the 5-year gift tax exclusion to gift five years’ worth all at once! This is especially handy if those college years are fast approaching and you want to catch up on the account as much as possible.
When deciding to give above and beyond the gift tax exclusion, you may not always be liable for taxes levied on that money (or worse, taxes levied on behalf of the person you gave it to). You can still give larger gifts if you do not exceed the lifetime gift tax exclusion, which fluctuates yearly ($13.99 million in 2025).
Note, however, that your tax exclusion (also known as the unified credit) includes any possible estate taxes as well, so if you use all of your credit against gift taxes, you will have none left over for estate taxes.
Exclusions from the Gift Tax Rule
Some people may not want to give a cash gift without earmarking it for a specific purpose. The gift tax rule does not apply if the money you send is used for a few very specific purposes.
If your loved one uses the money you give them for these exclusions, they do not have to pay taxes on it at the end of the year:
- Tuition for schooling of any kind (K-12 or higher education both apply)
- Paying off medical debt
- Gifts to a spouse
Think long and hard about how you want your money to be used when you give a gift. You do not trigger IRS taxes on the final amount as long as it is under the gift tax exclusion limits discussed above. These exceptions prevent you or your loved one from owing money they can barely afford.
How the Gift Tax Exclusions Work
Last but not least, there are some things to note when giving gifts to your family with the gift tax exclusion.
First, the annual exclusion amount is not the sum total of all you can give in a calendar year. That overall fund means you can give $19,000 to as many people as you want. As long as the gifts do not exceed this number, you can give $19,000 to a dozen people if you want, as long as you stay under the lifetime limit.
The exception to this rule is if you give with a spouse. Each of you can contribute up to the $19,000 exclusion, even if you want to give to the same person. Like in the example above, that means you can give up to $38,000 to each person without filing a gift tax return.
Note that giving money to your spouse is an exception to the rule. You can give as much to your spouse as you want, provided that they are a United States citizen.
Rules on Gifting to Charities
Of course, not everyone wants to give their money directly to a family member. Instead, you may want your gift to impact your local community, your university alma mater, your church, or any other causes you’re passionate about.
Whether you want the funds to go toward a new building for the local animal shelter or cancer research, charitable giving is different from giving to friends or family members.
There is no annual gift tax exclusion on how much you can donate to a qualified nonprofit during a year. However, you do have to abide by the rules for charitable donation deductions if you want to itemize your tax deductions at the year’s end. Donations are capped based on adjusted gross income and the method of giving.
The most straightforward way to give to charity is via cash donations. These are capped at 60 percent of your AGI. Other non-cash donations, such as privately held stock or property, will range from 20 to 50 percent of your AGI. This is also true if you give to a non-qualifying charity (one that is not categorized as a public charity, including private foundations).
Remember that to make the most of these gifts, you must itemize your deductions on Form 1040 at the end of the year. If the standard deduction exceeds what you have given, then doing this may not make sense. The single taxpayer standard deduction is $15,000 for 2025 or $30,000 for married couples filing jointly.
Oftentimes, using a charitable vehicle such as a Donor-Advised Fund or Charitable Remainder Trust is a more efficient way to donate to the causes you support. These vehicles come with even more tax benefits, such as avoiding or offsetting capital gains taxes for real estate and other appreciated assets.
Maximize Your Gift’s Impact with Magellan
No matter the form or direction of your generosity, you’re likely giving because you want to support a cause or individual that you care about. Current tax rules do encourage and even reward you for your generosity, but it’s crucial to truly understand those rules so you can meet the requirements and reap the most benefit – for both you and the recipients of your gift.
Magellan can help you make sense of the federal rules and requirements on gifting, offering you advice on giving generously while maximizing gifts at the end of the year. We provide comprehensive estate, financial, legal, and tax planning in a convenient one-stop shop for our clients.
If you want to learn more about how you can establish a legacy of generosity, reach out to us today!
For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice.
This material provided by Kevin Meaders was written by Axle Eight, a non-affiliate of Magellan Planning Group and Cetera Advisor Networks LLC.