Annual Gift Tax Exclusion

Nowadays, annual gift tax exclusion is perceived to be helpful by most taxpayers. This tax exclusion helps to reduce the taxable amount in an estate resulting to a lower estate tax. Thus, it keeps the properties still in the hands of the family.

An individual can give away assets, which can be in the form of money or properties, in the form of a gift. This gift is exempted from paying taxes as long as it is on the acceptable exclusion parameters. For the year 2009, the annual gift tax exclusion amount is up to $13,000 if your filing status is single. If your filing status is married, the tax exclusion amount is up to $26,000. According to the Internal Revenue Service (IRS), there are conditions to be considered regarding gift tax exclusion. It must be ensured that the amount of the gift will not exceed the exclusion amount to remain nontaxable. If the gift will be given to a spouse or any political organization, still the gift will be nontaxable. If the gift will be in the form of payment for educational expenses, it will be nontaxable regardless of the amount of the gift. If the value of the gift exceeds the exclusion amount set, the individual must pay the gift tax for the remaining value. If the individual is married, the gift tax for the remaining value will be shared by the individual and the spouse. If the gift generates income, the beneficiary should pay for the income tax incurred but the receiver is not liable on paying the gift tax.

Basically, the donor is the one who is responsible of paying the gift tax if it exceeds the exclusion amount. The IRS has also devised special rules regarding lifetime gift tax exclusion counts. Even if the donor exceeded the reference annual exclusion amount in terms of the value of the gift, there will still be no gift tax because the exceeded value will be deducted to the lifetime gift tax exclusion count. For example, an individual will give a gift that has a total amount of $30,000. Obviously, the value of the gift exceeded the annual exclusion amount of $13,000 for single filing status. The remaining amount of $17,000 will be subjected to gift tax; however, there is the lifetime gift tax exclusion, so the individual will make use of the $100,000,000 (as of 2009) lifetime exclusion amount set. Thus, the lifetime limit will be reduced by $17,000. Even if there is the concept of lifetime gift tax exclusion, this should not be used up too much because it affects the estate exclusion value.