Amid all the other fiscal cliff headlines and the American Taxpayer Relief Act provisions, you may have missed the annual gift-tax exclusion changes that automatically became effective January 1, 2013.
The annual gift-tax exclusion increased from $13,000 to $14,000. You can give away up to $14,000 in 2013 to as many different recipients as you choose without any tax considerations. There is no dollar limit on how much yo
u can give as long as you do it in increments of $14,000 per recipient.
These gifts can be made to family, friends, or even perfect strangers. The gifter does not owe a gift tax and the recipient does not owe any income tax as a result of the gift – as long as the gift is truly a gift. The transfer cannot be an attempt to disguise payment for goods or services or a loan.
There are a couple of ways you can give away amounts exceeding the annual $14,000 exclusion without having those amounts count against your annual exclusion. For example, you could pay someone’s tuition or medical expenses as long as the payments are made directly to the educational or medical institution.
Gifts to family and friends or payments of another’s expenses to a financial or medical institution are not deductible on the gifters income tax return. Only payments to a qualifying charitable or educational institution are deductible if the person itemizes their deductions.
