The holiday season is a time of giving—from warm-hearted gestures to grandparent-funded tuition. But what if we told you your generosity could also open the door to serious tax savings?
Let’s unwrap the hidden value behind certain types of holiday gifts—whether you’re a high-net-worth grandparent looking to support your grandchild’s future, a business owner treating your employees, or a savvy taxpayer planning for retirement. Here’s how your gift can bring cheer and reduce your tax liability.
1. Educational Gifts: The Gift of a Future… and a Tax Break
Meet Bob. Bob’s a retired engineer in Great Falls who wants to pay for his granddaughter Lily’s college tuition. Instead of writing her a check, Bob sends the payment directly to the university.
Why this matters:
- IRS rules say direct tuition payments to an educational institution are exempt from gift tax.
- These payments don’t count against the $19,000 annual gift exclusion (2025 limit).
- Bonus: If Lily is a dependent on her parents’ return, they may qualify for the American Opportunity Tax Credit, potentially shaving up to $2,500 off their tax bill.
Tax Win: Bob supports Lily’s future, helps her parents save on taxes, and avoids tapping into his lifetime gift exemption. Triple win.
2. 529 Plans: Supercharged Holiday Gifting
Now, let’s talk about Terry—an aunt who wants to set up her nephew with long-term educational security.
Terry opens a 529 Plan—a tax-advantaged savings account for education—and contributes $19,000 (or $38,000 if she’s gifting with her spouse). But she’s thinking even bigger…
Pro Move: The Five-Year Election
Terry can “superfund” the 529 plan with up to $95,000 in one year ($190,000 as a couple), treated as if it were spread over five years. This reduces her taxable estate while giving her nephew a strong educational start.
Why it’s smart:
- Tax-deferred growth inside the account
- Tax-free withdrawals for qualified education expenses
- Doesn’t eat into Terry’s lifetime estate exemption (currently $13.99 million in 2025)
3. Retirement Contributions: A Gift That Grows with Time
Let’s rewind to Ray, a successful small business owner in McLean. Instead of another gadget for his son—a 24-year-old software engineer—Ray gifts him $7,000 to fund a traditional IRA.
Here’s the magic:
- Ray’s son gets a potential tax deduction if he qualifies (income and retirement plan rules apply).
- The contribution grows tax-deferred, giving time for compound interest to work its wonders.
Even better? Ray could also fund a Roth IRA if his son is eligible—sacrificing the deduction now for tax-free income in retirement. Think of it as planting a money tree in your child’s backyard.
4. Spousal Gifts for the Self-Employed
Say your spouse runs a small photography business. You give them a new $2,000 camera for Christmas. Sweet, right?
It’s also tax-savvy.
If used exclusively for business, the gift can be depreciated or deducted under Section 179, lowering your spouse’s taxable income.
Keep in mind:
- The item must be used in the business
- Keep receipts and documentation in case of an IRS inquiry
In essence, this gift fuels their business while lightening your shared tax load. Love and savings, bundled together.
5. Roth IRA Contributions for Working Children
If your teen has a job—part-time at a bookstore or full-time during summers—you can fund a Roth IRA in their name up to the amount they earned (up to $7,000 in 2025).
This isn’t just a holiday gift. It’s a financial launchpad.
Let’s say 17-year-old Ella earns $3,000 this year. Her parents contribute $3,000 into a Roth IRA.
Why it matters:
- Tax-free withdrawals in retirement
- Decades of compound growth ahead
- A head start in financial literacy and long-term security
6. Employee Gifts: Show Appreciation the Right Way
For business owners, holiday gifts can be both heartfelt and tax-wise—if you follow the rules.
Know the three types:
✅ De Minimis Fringe Benefits
- Think: branded water bottles, fruit baskets, or holiday hams.
- Not taxable to the employee.
- Deductible as a business expense.
⚠️ Cash & Gift Cards
- These are treated as taxable wages, no matter how small.
- You must withhold payroll taxes and report it on W-2s.
❗ High-Value Non-Cash Items
- May be taxable if they exceed the de minimis threshold.
Pro Tip:
When in doubt, err on the side of caution and check IRS Publication 15-B. Or better yet, talk to us—we’ll guide you.
Understanding the Gift Tax Exclusion (And Why It Matters)
In 2025, you can give up to $19,000 per person per year without gift tax consequences. Married couples can split gifts, doubling that to $38,000 per recipient.
If you exceed these amounts:
- You may need to file Form 709, the gift tax return
- Excess gifts count toward your lifetime exemption ($13.99 million in 2025)
Strategic Gifting Tips:
- Spread large gifts across multiple recipients
- Use 529 plans or direct payments for education/medical expenses
- Combine gifts with estate planning to reduce future estate tax burdens
Wrapping It Up: Gifts That Truly Keep on Giving
Strategic holiday gifting isn’t just about the warm fuzzies—it’s about creating real financial impact. Whether you’re gifting education, retirement security, or business assets, there are smarter ways to give that benefit both the giver and the recipient.
So this year, skip the generic gift cards. Instead, talk to us about gifting strategies that build wealth, minimize taxes, and create legacies.
Want to Maximize Your Year-End Tax Planning?
Whether you’re gifting to family, employees, or charitable causes, we can help structure your strategy to reduce taxes and increase impact.
📞 Contact JS Morlu today for a personalized consultation and make this holiday season financially rewarding for everyone involved.