How to use gifting strategies to reduce tax liability

Gifting is an effective way for high-net-worth individuals to reduce future estate tax liability and transfer wealth efficiently. But how much can you give without triggering gift taxes?

Understanding gifting limits is the first step towards building a tax-efficient gifting plan. With proper planning and the right strategies, you can determine how to use gifting to reduce tax liability, transfer assets efficiently and optimize your estate plan.

How much can you gift without tax?

For 2025, the IRS has set the following thresholds:

• Lifetime gift and estate tax exemption: $13.99 million per individual (or $27.98 million for married couples). This unified exemption applies to both taxable gifts made during life and transfers at death.
• Annual gift tax exclusion: $19,000 per recipient (or $38,000 for married couples) is the maximum gift without tax. You can give this amount to an unlimited number of individuals without reducing your lifetime exemption.

Previously, the historically high exemption level, established under the Tax Cut and Jobs Act, was scheduled to sunset at the end of 2025. However, the One Big Beautiful Bill Act (OBBB), signed into law on July 4, 2025, sets the new exemption at $15M and provides for it to be indexed for inflation beginning in 2027.

Does gifting money reduce taxable income?

Gifting provides a powerful way to reduce taxable assets in your estate.

The annual gift tax exemption covers gifts made to an individual recipient in a tax year. This means that a taxpayer can make multiple gifts amounting to $19,000 without using their lifetime exemption on gifts or incurring tax.

Any gift made to a U.S. citizen spouse is generally not subject to gift tax because of the unlimited marital deduction. Additionally, when a married couple makes a joint gift to a third party, they can effectively double their annual exclusion amount.

For 2025, this means a couple can give $38,000 per recipient without using any of their lifetime exemption. This arrangement typically requires filing a gift tax return (Form 709) to elect gift-splitting, even if no tax is owed.

What are the tax advantages of gifting money?

Gifting tax rates offer several tax advantages for high-net-worth individuals, especially under current U.S. tax law.

When you make gifts during your lifetime, the value of those assets (and any future appreciation) is removed from your estate. This can significantly reduce potential estate tax liability, which is 40% on amounts above the exemption.

Some gifting strategies you can use to protect your estate include:

Gifting to trusts

When you gift assets directly to heirs, those assets leave your estate immediately. However, gifting to a trust, such as an irrevocable trust, grantor retained annuity trust or spousal lifetime access trust, offers several advantages.

• Control over distribution: You can set terms for how and when beneficiaries receive funds.
• Tax efficiency: Assets gifted to a trust use your lifetime gift tax exemption, but any future appreciation occurs outside your taxable estate.
• Generation-skipping benefits: Certain trusts allow you to leverage the generation-skipping transfer tax exemption, creating long-term wealth for multiple generations.

Gifting when value is low

Often, the best time to gift is when the value of assets is low, so the amount of lifetime exemption used is also low. This allows you to transfer the most assets that could experience appreciation.

However, the basis of an asset that is received as a gift is a carryover basis, which means the donor may also potentially transfer an income tax liability to the beneficiary. Taxpayers need to carefully weigh the options and discuss the impact of their decisions with their tax and legal advisors.

Charitable gifting

Another means of reducing your future estate tax liability and your current income tax liability is by charitable gifting.

Charitable contributions have long been a key tool for reducing taxable income while supporting causes you care about.

The OBBB introduced several limitations that affect charitable giving strategies starting in 2026:

• Above-the-line deduction for non-itemizers: Taxpayers who take the standard deduction will be able to deduct up to $1,000 for single filers or $2,000 for joint filers for cash gifts to qualified charities. This is a permanent provision, but it applies only to cash gifts and excludes donor-advised funds and private foundations.
• Charitable contribution floor for itemizers: Itemizers will only be able to deduct charitable contributions that exceed 0.5% of their adjusted gross income (AGI). For example, if your AGI is $1,000,000, the first $5,000 of charitable gifts will not be deductible.
• Cap on deduction benefit for high earners: The tax benefit of charitable deductions is capped at 35%, even for those in the 37% marginal tax bracket. This means that a $100,000 gift will yield a maximum tax benefit of $35,000 instead of $37,000 under prior rules.

Why Wipfli

Wipfli’s private client services team can help you navigate charitable giving options, business transition decisions and complex tax considerations. Reach out today to talk about how you can maximize opportunities for your year-end or overall estate plan.

Read more:

• The higher lifetime gift tax exemption helps estate planning
• How itemized deduction rules (Schedule A) changed in 2025
• How the new OBBB SALT deduction may change your tax strategy