Imagine your child is getting married and you want to help pay for their wedding. You’ve been saving for years and now have $30,000 set aside for their big day, which you plan to hand over in the form of a check.
However, before you pass along that much cash, it’s important to understand the potential tax implications of making a $30,000 gift. A gift that size could require you to pay the federal gift tax, which can reach up to 40%. The good news is you may avoid paying gift taxes altogether, but there are reporting requirements and other limitations to keep in mind. Consult a financial advisor to minimize your gift tax obligations.
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Federal Gift Tax at a Glance
The federal gift tax applies when you transfer money or property to someone else without receiving something of equal value in return. Gift tax rates range from 18% to 40% based on the size of the gift.
However, not all gifts trigger this federal tax. The IRS allows you to give away up to $17,000 ($34,000 for married couples) per year to each individual without owing any taxes on the gift. This is called the annual exclusion, and in 2024 it will increase to $18,000 per person.
However, gifts that exceed this annual exclusion aren’t necessarily taxed either. Instead, they reduce the amount of money or property you can give away tax-free over the course of your lifetime. This lifetime limit is known as the basic exclusion amount or lifetime exemption and it’s adjusted each year for inflation.
The gift tax only applies when you exhaust your lifetime exemption. In 2023, a person can give away up to $12.92 million over the course of their lifetime without triggering the gift tax (this will increase to $13.61 million in 2024). For example, if someone were to give away $13 million, they would pay gift taxes on only $80,000. And if you need additional help planning for major gifts, consider matching with a financial advisor.
How the Gift Tax Could Affect a $30,000 Wedding Gift
If you want to give a child $30,000 to help pay for a wedding, there are a few different ways it could be structured.
As a gift solely from you to your child, a $30,000 wedding gift would avoid most tax liability on its own. The gift only exceeds the $17,000 annual exclusion for 2023 by $13,000, so that’s all that could potentially be taxable if you’re single.
If this is your first time exceeding the annual exclusion, there’s more good news. In that case, the $13,000 excess would simply reduce your $12.92 million lifetime exclusion by that amount. You would not actually have to pay any gift tax unless you exceed your remaining lifetime exclusion, though you still have to fill out Form 709.
Alternatively, you could gift both your child and their future spouse $15,000 each and avoid the annual exclusion threshold (remember, you can gift up to the annual exclusion amount per year per person).
To make sure you structure your gifts in your best interest, talk it over with a financial advisor.
How to Avoid Gift Tax on a $30,000 Wedding Gift
But what if you’re quite wealthy and you’ve already exceeded your lifetime limit? If it looks like you’re going to owe taxes on your $30,000 wedding present, there are a few more ways you could potentially avoid them:
- Gift-splitting with spouse: If you’re married, you and your spouse could consent to split the gift on your tax returns. This would let you each make $17,000 in gifts (in 2023) without exceeding the annual exclusion. This way, you could give your child up to $34,000 tax-free.
- Pay expenses directly: Another way to get around the gift tax is to pay wedding vendors directly rather than gifting the cash to your child.
- Spread gifts over multiple years: You could also give up to the annual exclusion per year over multiple years and avoid triggering the gift tax.
Limits and Risks of Avoiding the Gift Tax
While there are a number of ways you can legally avoid paying the gift tax, there are still requirements and risks to consider. Some of those include:
- Proper reporting: Gift amounts over $17,000 must be reported to the IRS on Form 709 to track lifetime exclusion. Failing to file Form 709 can lead to penalties.
- Mutual consent: Gift-splitting requires that both spouses consent and file Form 709. Failing to demonstrate mutual consent can also lead to IRS penalties. Additional considerations may come into play when gift-splitting if you live in one of the nine community property states.
- State gift tax: Two states – Connecticut and Minnesota – impose state gift taxes. This could lead to tax even if federal gift tax is avoided.
- Lifetime limits will decrease in 2026. The Tax Cuts and Jobs Act (TCJA) doubled the lifetime gift and estate tax exemption limit in 2018 for individual filers. But starting in 2016, that generous cap will revert to pre-2018 levels (adjusted for inflation). Keep in mind that a financial advisor can help you navigate and interpret tax law changes.
Bottom Line
Most people can avoid having to pay federal gift tax when contributing $30,000 to a child’s wedding. This is because of the generous lifetime exclusion amount gifts. However, you’ll still need to properly report gifts over the annual exclusion amount on your tax return. For 2023, this amount is $17,000. In 2024, the exclusion amount goes up to $18,000. For taxpayers whose gifts may exceed the lifetime $12.92 million tax-free exclusion amount, gift-splitting and other strategies may provide a way to fund a wedding without incurring a tax.
Tax Planning Tips
- If you are thinking of making a large financial gift, meet with a financial advisor to review how it could impact your taxes and estate plan.Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- As tax season approaches, SmartAsset’s Federal Income Tax Calculator can tell you how much you may owe in federal, state and local income taxes next time you file.
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