The annual gift tax exclusion permits gift-tax-free asset transfers to reduce your estate without affecting your lifetime gift tax exemption.
Example: In 2024, any person can gift up to $18,000 to another individual, free of gift tax. A married couple wanting to gift the maximum amount could combine each of their individual maximum amounts to give $36,000 to as many people as they desire. For example, if a couple has 5 grandchildren, they could give away $180,000 without any gift tax consequences. The 2025 annual gift tax exclusion will be $19,000 (married couples $38,000). Limits/Exceptions: Gifts above $18,000 (or $36,000 as a couple) per recipient will require filing a gift tax return and may reduce your lifetime estate and gift tax exemption. It’s worth noting that direct payment of tuition or medical expenses is not considered a taxable event and is not subject to the annual limitation. Keep in mind: If your estate is federally taxable, seldom exists a bad time to make annual exclusion gifts.
Next Steps: As always, consult your f inancial advisor and tax professional before making these annual gifts. In partnership with Kovitz, our team is prepared to assist you in navigating annual gift tax exclusion nuances.
Strategically selling investments for a loss to offset capital gains can reduce tax liabilities. Net capital losses can also offset up to $3,000 of the current year’s ordinary income. The unused excess net capital loss can be carried forward to use in subsequent years.
Example: Suppose you bought 1000 shares of Company A stock for $50 per share in January 2025, and the price dropped to $40 per share by December 2025. You also bought 1000 shares of Company B stock for $30 per share in March 2025, and the price rose to $40 per share by December 2025. You decide to sell both stocks before the end of the year. Here is how you can use capital loss harvesting to offset your capital gains: You sell 1000 shares of Company A stock for $40 per share, resulting in a capital loss of $10,000 ($40,000 – $50,000). You sell 1000 shares of Company B stock for $40 per share, resulting in a capital gain of $10,000 ($40,000 – $30,000). You use the capital loss from Company A to offset the capital gain from Company B, resulting in a net capital gain of $0 ($10,000 – $10,000). You can expect to pay no capital gains tax on the sale of both stocks, saving you money on your taxes and you may choose to reinvest the proceeds from the sale of both stocks in a similar (but not identical) investment to maintain your portfolio allocation. Of course, you might like Stock A (that had the loss) and you can repurchase it 31 days later without consequences.
Keep in mind: Capital losses harvested must first offset gains of the same type, and the wash-sale rule (selling a security to capture a loss and then buying a similar security back within 30 days) can disallow a loss.
When Not to Use: If realizing the capital loss would not provide a tax benefit due to your income level or there are minimal capital gains to offset. To be sure, those that think the long-term prospects of a specific stock are positive in nature should look elsewhere to harvest losses.
Next Steps: As always, consult your financial advisor and tax professional before harvesting losses. Our team is prepared to assist you in navigating capital loss harvesting.
Individual Retirement Accounts (IRAs) are a great way to save for retirement and reduce your expected tax bill. There are many other types of accounts that can help, too.
Example: Many employers offer 401(k), 403(b) and 457(b) retirement accounts. For 2025, the contribution limits are $23,000 for those under 50 years old and $30,500 for those above. In addition to employee contributions that are made pre-tax (lowering adjusted gross income or AGI), many employers offer contribution matching programs that can equate to 3% or more of one’s salary.
Keep in mind: While 401(k) plans get a lot of attention, there are other opportunities to reduce tax bills in the current year or in the future. Options inlcude 529 plans for future education expenses, Health Savings Accounts (HSAs) for qualified medical expenses and self-employed plans like SEP IRA, SIMPLE IRA and Solo 401(k) plans (which may also have higher contribution limits than traditional IRAs).
When Not to Use: If you can contribute to a retirement account, we recommend doing so, right up to the full dollar amount permissible. There are rare circumstances where it might be beneficial to contribute to another type of account first, such as 6 an HSA, but in general, its hard to lose by contributing to a retirement account over a long period of time.
Next Steps: If you personal financial situation is complicated or if you own your own business, we suggest that you consult your financial advisor and tax professional before making elections. Our team is prepared to assist you and perform periodic reviews to keep you on the path to financial success.
You can try The Prudent Speculator free for 30 days. Memberships start at just $28/mo.
Our memberships include a variety of high-value content, including:
