The end of the year has a way of making people generous.

Maybe you want to help your kids with a down payment. Maybe a grandchild's college fund is on your mind. Or maybe you've had a good year and you want to share it with the people who matter most.

Then the question creeps in: Will I owe tax on this?

I get that question a lot this time of year. And the good news is — for most families, the answer is no. But there are rules worth knowing, and a few deadlines that sneak up fast.

Here's what I'd walk you through if we were sitting across the table from each other.

In 2026, the annual gift tax exclusion is $19,000 per recipient. That means you can give up to $19,000 to as many people as you'd like this year — children, grandchildren, friends — without owing any gift tax and without filing any paperwork.If you're married, you and your spouse each have that exclusion. That's $38,000 per recipient, per year, from your household.

You Can Give More Than You Think — Tax-Free 

A few things worth knowing:

The person who receives a gift doesn't pay income tax on it. Gift tax, if it ever applies, falls on the giver.

The exclusion doesn't carry over. It resets January 1. If you don't use it, you lose it.

The deadline is December 31 — and for checks, what matters is when the check clears, not when you write it. If you're doing year-end gifting, do it early in December or use a bank transfer to be safe.

Gift Splitting: Making the Most of Both Exclusions

Sometimes the money comes from just one spouse's account. That's fine — you can still use both exclusions.A married couple can elect to split a gift so it's treated as coming half from each spouse, even if only one of you writes the check. That lets you cover $38,000 per recipient from a single account.

One catch: to make that election, you'll generally need to file IRS Form 709 — even though no tax is owed. It's paperwork, not a tax bill.

What If You Give More Than $19,000?

Giving more than the annual exclusion doesn't mean you'll owe tax. It usually just means you need to file a form.

If you give more than $19,000 to one person this year, you'll file Form 709 by the tax deadline. The amount over $19,000 gets counted against your lifetime gift and estate tax exemption — which in 2026 is $15 million per person, or $30 million for a married couple. Under recent legislation, this higher exemption is now permanent and adjusts for inflation annually.For most families, the lifetime exemption is high enough that gift tax will never be owed. The form is really just the IRS keeping score.Example: Say you give your son $50,000 for a down payment. The first $19,000 is covered by the annual exclusion. The remaining $31,000 reduces your lifetime exemption — but you owe no tax. You file Form 709, and that's it.

Gifts That Don't Count Against the Limit At All

Some gifts sit completely outside the gift tax rules — no annual exclusion used, no lifetime exemption touched.

Direct tuition payments 

Pay a school's tuition office directly — for a grandchild, a child, anyone — and it doesn't count as a gift at all. Any amount. Any school. The key is paying the institution directly. If you hand the money to the student and they pay, it's a regular gift. Books, room, and board don't qualify for this exclusion — but you can still use your annual exclusion for those costs.

Direct medical payments

Same rule. Pay a doctor, hospital, or insurance company directly for someone else's care, and it's excluded entirely. This can be a meaningful way to help aging parents or family members facing large bills.

Gifts to your spouse

If your spouse is a U.S. citizen, gifts between spouses are unlimited with no gift tax. If your spouse is not a U.S. citizen, a separate annual limit applies — $194,000 in 2026.

Charitable gifts

Gifts to qualified charities aren't subject to gift tax. Starting in 2026, there's also a new benefit for people who take the standard deduction: you can deduct cash gifts to qualified charities up to $1,000 for single filers or $2,000 for married couples filing jointly, even without itemizing. This applies to direct cash gifts only — donor-advised funds and private foundations don't qualify for this particular deduction.

Two Strategies I Talk About With Clients Often

Superfunding a 529 Plan

A special rule lets you contribute up to five years' worth of annual exclusion gifts to a 529 education savings account all at once. In 2026, that's up to $95,000 per beneficiary — or $190,000 for a married couple. You elect to spread it over five years on Form 709. 

At AFP, I've found this to be one of the more powerful tools families have for education savings — a larger amount starts growing tax-free sooner, and the account owner keeps meaningful control over how the money is used.A few things to be aware of:

You use up five years of annual exclusions for that beneficiary all at once.

Additional cash gifts to that child during the five-year period would draw from your lifetime exemption.

If you pass away during those five years, a portion of the gift may be added back to your estate — though for most families, that won't create a tax problem.

Paying Tuition Directly

If education is the goal and the student is already enrolled, writing a check directly to the school can be simpler than a 529 and has no dollar limit.

Giving Investments Instead of Cash

Cash is simple. But giving appreciated stock or other investments can sometimes be a smarter move — and sometimes it's not.When you give an investment, the recipient generally takes over your original cost basis. If they sell, they pay tax on the gain from when you bought it. That can work in your favor if they're in a lower tax bracket — they may pay a lower capital gains rate, sometimes 0%.

Kiddie tax warning

Be careful with gifts to children and young adults. Under the kiddie tax rules, investment income above a certain threshold for many dependents under 19 — or full-time students under 24 — can be taxed at the parents' rate. That can offset the expected tax benefit.There's also a trade-off worth considering. 

When someone inherits an investment after your death, they generally receive a step-up in basis to the market value at that time — which can eliminate the capital gain entirely. For highly appreciated assets, holding them and letting them pass through your estate may ultimately save your family more in taxes than gifting them today. This is worth working through with a financial planner before you act.

Giving to Kids

Which Account Makes Sense?

529 Plan — Best for education savings. 

Grows tax-free, and withdrawals for qualified education expenses aren't taxed.

UTMA / UGMA custodial account — Can be used for anything that benefits the child, not just education. 

The money legally belongs to the child, and they take full control when they reach adulthood — typically 18 or 21, depending on your state. That's worth factoring in before you fund one.

Custodial Roth IRA — A strong option if your child has earned income from a job. 

Contributions are limited to the child's actual earned income for the year, but the long-term compounding potential is significant.Each of these works differently. The right answer depends on what you want the money to do.

State Taxes and a Look Ahead to 2027

State gift taxes: Most states don't have one. 

Connecticut is currently the only state with its own gift tax. That said, some states have estate or inheritance taxes with exemptions well below the federal level — so strategic lifetime gifting may also help reduce state estate tax exposure. Rules vary, so it's worth checking how your state handles gifts made in the years before death.

Looking ahead to 2027

Projections put the 2027 annual exclusion at $20,000 per recipient. The IRS typically confirms the official figure in late October or early November. 

If confirmed, a simple opportunity opens up: use your 2026 exclusion in December, then your 2027 exclusion in January. 

Two full years of gifts, a few weeks apart.

Before You Give, Ask Yourself These Questions

Is my own retirement on track?

Do I have enough cash set aside for emergencies?

What do I want this gift to accomplish — and is there a smarter vehicle than a check?

Have I matched the method to the goal: direct tuition payment, a 529, a bank transfer?

Am I keeping good records? Note the date, amount, and recipient of each gift.

Matching the right strategy to the right goal often lets you give more while creating fewer complications down the road.

If you'd like to think through a gifting plan that fits your family, your goals, and your tax picture, I'd love to talk. 

Reach out anytime — that's exactly what I'm here for.

This commentary is for informational purposes only and should not be construed as investment, tax, or legal advice. All investing involves risk, including the possible loss of principal. Past performance does not guarantee future results.