The annual gift tax exclusion for 2023 allows individuals to give up to $17,000 per recipient gift tax-free. This means you can gift any number of people up to $17,000 each per year without owing any gift tax or reducing your lifetime estate and gift tax exemption amount.
If married, spouses can effectively double the exclusion to $34,000 per recipient by gift splitting and consenting to treat gifts made by either spouse as having been made half by each. To split gifts, a gift tax return must be filed.
Gifts that qualify for the annual exclusion:
- Cash gifts: gifts of cash or cash equivalents like gift cards up to $17,000 per recipient.
- Tuition and medical payments: Payments made directly to educational institutions or medical providers are excluded from gift tax, regardless of the amount.
- 529 plan contributions: Up to 5 years’ worth of the exclusion, $85,000, can be contributed per donor to a 529 college savings plan accelerated into one year without owing gift tax.
Other key points:
- The $17,000 limit applies per donor, per recipient. So spouses together can gift $34,000 to each recipient by gift splitting.
- The annual exclusion also applies to generation-skipping transfer tax. So gifts up to $17,000 per donor, per recipient, skip person, qualify.
- Gifts under the annual exclusion do not reduce your $12.92 million estate and gift tax exemption for 2023.
In summary, the $17,000 annual gift tax exclusion is an effective way for high-net-worth individuals to reduce their future estate tax liability through lifetime gifting. Consulting a tax advisor can help you fully utilize this benefit while navigating the nuances.