The holidays are a time for gratitude, and many employers show appreciation by giving gifts to their staff.
Continue readingWhat Are the Tax Consequences of Employee Gifts?
Year‑End Gifting (2025): What’s New Under the One Big Beautiful Bill Act—and Smart Moves by December 31
As the year winds down, now is the time to lock in 2025 gifts and update your estate plan for new rules taking effect in 2026. Below is a quick snapshot of the current limits, what changes next year under the One Big Beautiful Bill Act (OBBBA), and a checklist of high‑impact strategies to consider before December 31.
2025 key numbers (now through December 31)
- Annual gift tax exclusion: $19,000 per recipient in 2025 ($38,000 if spouses “split” gifts). You can repeat this for as many people as you like. Gifts above the annual exclusion generally require Form 709 reporting.
- Lifetime estate & gift tax exemption: $13.99 million per person for 2025 ($27.98 million per married couple).
- 529 plans (education gifts): You may “superfund” up to 5 years of annual exclusions at once—$95,000 per donor ($190,000 for a married couple) in 2025—with a special election on Form 709.
What changes in 2026 under OBBBA
- Lifetime exemption increases to $15 million per person starting January 1, 2026, indexed in later years—replacing the prior “sunset” that would have cut the exemption roughly in half. For 2025, the exemption remains $13.99 million. Planning note: higher exemptions don’t eliminate the value of gifting today to remove future appreciation from your estate.
High-Impact Gifting Moves to Consider before 12/31
- Use your 2025 annual exclusions fully
- You can give $19,000 to each child, grandchild, or other recipient (double with gift splitting). If gifting appreciated assets, remember the recipient takes your carryover basis. File Form 709 if you exceed the exclusion or elect gift-splitting.
- You can give $19,000 to each child, grandchild, or other recipient (double with gift splitting). If gifting appreciated assets, remember the recipient takes your carryover basis. File Form 709 if you exceed the exclusion or elect gift-splitting.
- Fund education efficiently with 529 plans
- Make $19,000 (or $38,000 if splitting) per beneficiary this year, or use the 5 year “superfunding” election to give $95,000 / $190,000 in 2025 and spread it over five years for gift tax purposes (Form 709 required for the election).
- Make $19,000 (or $38,000 if splitting) per beneficiary this year, or use the 5 year “superfunding” election to give $95,000 / $190,000 in 2025 and spread it over five years for gift tax purposes (Form 709 required for the election).
- Pay tuition and medical bills directly (the “Med Ed” exclusion)
- Unlimited payments directly to schools for tuition and to medical providers for qualified medical expenses are not taxable gifts and do not use up annual or lifetime exemptions. Note: pay the institution/provider—not the individual.
- Unlimited payments directly to schools for tuition and to medical providers for qualified medical expenses are not taxable gifts and do not use up annual or lifetime exemptions. Note: pay the institution/provider—not the individual.
- Lock in appreciation shifts even though the exemption rises in 2026
- With OBBBA increasing the exemption next year, some urgency has eased. Still, gifting in 2025 can remove future growth from your estate and may reduce state estate tax exposure or enhance asset protection (e.g., gifts to irrevocable trusts such as SLATs, GRATs, or sales to intentionally defective grantor trusts).
How We Can Help
Every family’s situation is unique. Our team can help you:
- Prioritize which recipients/vehicles (cash, securities, 529s, trusts) make the most sense for your goals.
- Coordinate Form 709 filings (including gift splitting and 529 five year elections).
- Evaluate whether trust strategies (e.g., SLATs/GRATs) fit your plan in light of the 2026 changes.
Let’s talk before December 31 so your 2025 gifts are executed and documented properly.
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Helping a Family Member Buy a Home
Making a family loan isn’t the only way to assist a loved one with purchasing a home. If you aren’t concerned about being paid back, a straightforward option is gifting cash. In 2025, you can give up to $19,000 to anyone without federal gift tax consequences under the gift tax annual exclusion.
If your loved one is married, you can gift up to $38,000 to the couple tax-free. If you’re married, you and your spouse can jointly give up to $76,000 to the couple, all without federal gift tax consequences (4 x $19,000).
Gifts exceeding these limits reduce your lifetime gift and estate tax exemption, which for 2025 is $13.99 million ($27.98 million for married couples). State tax consequences must also be considered. Contact the office to explore the best approach for your situation.
408-252-1800
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Business Gifts: What’s the Tax Treatment?
During the holiday giving season, keep the following tax limits in mind. Your business can deduct only up to $25 per person per year for gifts to recipients such as clients and business partners. You can also generally deduct $25 per person per year for employee gifts.
If gifts to employees are infrequent and of minimal value (de minimis), they generally aren’t taxable to workers. Although the IRS doesn’t specify a dollar amount for a gift to qualify as a de minimis benefit, you should aim to spend $100 or less. However, if you give cash or cash-equivalents (such as gift cards), the gifts are considered compensation and taxable to employees regardless of the amount.
Photo by Antoni Shkraba: https://www.pexels.com/photo/person-giving-a-gift-box-5493207/
Use It or Lose It: Your 2024 Gift Tax Annual Exclusion
As the year winds down, you may want to combine estate planning with tax savings by taking advantage of the gift tax annual exclusion. It allows you to give cash or property up to a specified amount to an unlimited number of family members and friends each year without gift tax implications.
That specified amount is subject to annual inflation adjustments. For 2024, the amount per recipient is $18,000. Notably, in 2025, this amount will increase to $19,000 per recipient. Why is this significant? The amount was stagnant at $15,000 for several years (2018 to 2021). Beginning in 2022, the amount has increased by $1,000 annually due to inflation.
Each year you need to use your annual exclusion by December 31. The exclusion doesn’t carry over from year to year. For example, if you don’t make an annual exclusion gift to your granddaughter this year, you can’t add the $18,000 unused 2024 exclusion to next year’s $19,000 exclusion to make a $37,000 tax-free gift to her next year.
For frequently asked questions on gift taxes, visit the IRS website. Contact the office with any additional questions.
408-252-1800
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Tips on the Tax Treatment of Gifts
Gift tax returns generally do not need to be filed unless you give someone, other than your spouse (if he or she is a U.S. citizen), money or property worth more than the gift tax annual exclusion for that year. Here are four more tips regarding the tax treatment of gifts:
1. The annual exclusion amount for 2023 is $17,000. You and your spouse can make a gift of up to $34,000 to a third party without making a taxable gift.
2. You do not have to file a gift tax return to report gifts to political organizations or qualified charities or for gifts made by paying someone’s tuition or medical expenses, as long as the payment is made directly to the institution.
3. Making a gift does not ordinarily affect your federal income tax. You cannot deduct the value of gifts you make (other than deductible charitable contributions).
4. Generally, the person who receives your gift will not have to pay any federal gift tax because of it. Also, that person will not have to pay income tax on the value of the gift received.
If you have any questions about the gift tax, please contact the office for assistance.
San Jose: (408) 252-1800
Watsonville: (831) 726-8500