Definition:
The annual gift tax exclusion is the amount of money that an individual can give to another person each year without incurring gift tax. It allows for a certain amount of gifts to be made without being subject to federal gift tax.
Key points about the annual gift tax exclusion:
- Amount: The annual gift tax exclusion amount changes each year. As of 2023, it is $17,000 per person, per year.
- Gifts to spouse: Gifts made to a spouse are not subject to gift tax, regardless of the amount.
- Gifts to charity: Gifts made to qualified charities are not subject to gift tax.
- Lifetime gift tax exemption: In addition to the annual exclusion, individuals also have a lifetime gift tax exemption. This is the total amount of gifts that can be made during a person’s lifetime without incurring gift tax. As of 2023, the lifetime gift tax exemption is $13 million per person.
Why is the annual gift tax exclusion important?
- Estate planning: The annual gift tax exclusion can be a valuable tool for estate planning, as it allows individuals to reduce their taxable estates.
- Gift-giving: It allows individuals to give gifts to loved ones without incurring gift tax.
It’s important to note that while the annual gift tax exclusion can be a useful tool, it’s subject to change and may not be sufficient for larger gifts. If you are considering making a significant gift, it’s recommended to consult with a tax professional to ensure that you are complying with all applicable laws and regulations.
