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How to Avoid Gift Tax

How to Avoid Gift Tax?

It might be challenging to deal with how to avoid gift tax and related complexities. With careful preparation, you can pass on assets to your loved ones despite paying needless taxes.

The IRS has established some guidelines and standards that can help you comprehend how to avoid gift tax.

Exemptions from Gift Tax 2025

The IRS permits people to give up to $19,000 per recipient per year without imposing a gift tax. For married couples, this sum doubles to $38,000 per recipient under a gift-splitting clause. 

A permanent exception of $13.99 million per person is also available. It allows for significant tax-free transfers over a person’s lifetime.

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How to Avoid Gift Tax?

Use the following smart strategies to avoid gift tax this year:

Use the Annual Exclusion

You can transfer money without incurring taxes if you provide gifts that fall within the yearly exclusion limit. For example, a married couple with three kids and five grandkids can give up to $304,000 without their lifetime exemption being affected.

Pay Directly for Education and Medical Expenses

The gift tax does not apply to payments given directly to:

  • Medical providers for medical expenditures.
  • Educational institutions for tuition.

To be eligible for the exemption, these payments must be made directly to the provider or institution.

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Establish Irreversible Trusts

Creating irreversible trusts helps you lower future gift and estate taxes by removing assets from your taxable estate.  Trusts, such as Grantor Retained Annuity Trusts (GRAT), are especially worthwhile for transferring appreciating assets to beneficiaries and reducing taxation legalities.

Volunteer for a 529 Education Savings Plan

You can make up to $85,000 per beneficiary (or $170,000 for married couples) in one year without paying gift tax if you front-load annual gift tax exemptions into a 529 Plan, which are worth five years. This method works well for paying for a child’s or grandchild’s education.

Distribute Big Gifts Over Several Years

To keep under the yearly restrictions, consider distributing the gift over several years if you want to give more than the annual exclusion. For instance, giving $38,000 to one person over two years ($19,000 annually) eliminates gift tax and the requirement to submit a gift tax return.

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Make Plans for 2026

Notably, after December 31, 2025, the increased lifetime exemption is expected to shrink dramatically, possibly to almost $7 million per person. Before this change occurs, consider giving significant gifts to maximize tax-free transfers.

The Bottom Line

Proactive financial preparation and a thorough comprehension of IRS regulations are necessary to learn how to avoid gift tax. You may efficiently transmit money to your loved ones without imposing needless tax obligations. Contact L&Y Tax Advisor for individualized financial planning.