A gift is any transfer to an individual, either directly or indirectly, where full consideration (measured in money or money’s worth) is not received in return. The donor is generally responsible for reporting these gifts via an annual gift tax return, along with paying any tax should it apply.
Generally, gifts may be subject to additional compliance or tax implications depending on the situation. Below are some of the exceptions where gifts are not subject to tax:
1. Gifts that are not more than the annual exclusion for the calendar year (see below for limits)
2. Tuition or medical expenses you pay for someone directly to the institution (the educational and medical exclusions)
3. Gifts to your spouse
4. Gifts to charitable organizations
5. Gifts to a political organization for its use
For 2025, the annual gift exclusion is $19,000 per recipient. This essentially means that the first $19,000 of gifts in present interest to each donee during the calendar year is subtracted from total gifts in figuring the amount of taxable gifts. For a gift in trust, each beneficiary of the trust is treated as a separate donee for purposes of the annual exclusion. A taxpayer can give away $19,000 to as many individuals as he or she wishes. Spouses can each make $19,000 in gifts annually to respective children, grandchildren, friends, etc. By way of example, a couple could make $19,000 gifts to each of their four grandchildren, for a total of $76,000. These annual exclusion gifts do not count towards the lifetime gift exemption (explained further below).
If you gave gifts to someone in 2025 totaling more than $19,000, reporting must be completed via Form 709 (U.S. Gift Tax Return), which is due by April 15, 2026.
For 2025, the estate and gift tax exemption is $13.99 million per individual, up from $13.61 million in 2024. This means an individual can leave $13.61 million to heirs and pay no federal estate or gift tax. A married couple can shield up to $27.98 million from federal estate and gift taxes. Gifts made in excess of the annual gift exclusions throughout a person’s lifetime count against their estate tax exemption amount. The federal estate and gift tax exemptions have increased significantly over the years due to various legislative changes and inflation adjustments.
The top federal estate tax statutory rate remains at 40%.
States often follow different rules within the estate and gift tax realm. For example, Massachusetts does not have a gift tax but has a $2 million filing threshold for estate tax purposes as of 2025. Adjusted federal taxable lifetime gifts are considered when determining whether the $2 million filing threshold has been met. Once the filing threshold has been met in Massachusetts, the full value of the estate is subject to Massachusetts estate tax, with tax rates ranging from 0.8% to 16%. Lifetime gifts can be an effective strategy for reducing Massachusetts estate tax and should be considered in conjunction with personal income tax planning.
There are many planning opportunities available to ensure that you maximize the transfer of wealth to your chosen beneficiaries and minimize the amount of estate taxes paid at death. Gifting may be an important part of your overall estate plan. At Newburg | CPA, we provide our clients with comprehensive estate planning to protect their assets from unnecessary taxation and ensure their wishes are carried out in an organized and cost-effective manner.