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What is the Annual Gift Tax Exclusion?

What is the Annual Gift Tax Exclusion?

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Published by Michael Davidov
Understand the basics of the gift tax, the unified federal gift and estate tax exclusion, and how much you can gift away without incurring any gift tax in New York.
Understand the basics of the gift tax, the unified federal gift and estate tax exclusion, and how much you can gift away without incurring any gift tax in New York.

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Categories:Types, Legal forms
Published by: Michael Davidov on Feb 18, 2014
Copyright:Attribution Non-commercial

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02/18/2014

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Understand the Basics of the Gift Tax, the Unified Federal Gift and Estate Tax Exclusion, and How Much You Can Gift Away without  Incurring Any Gift Tax in New York
ILANA F. DAVIDOV, ESQ. MICHAEL DAVIDOV, ESQ., CFP®
 
 
What Is the Annual Gift Tax Exclusion? www.davidovlaw.com
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There are taxes on transfers of assets in the United States. One of them is the federal estate tax. To prevent people from giving away assets while they are living to avoid the estate tax, there is also a federal gift tax in place.
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The reason why you are not taxed when you give someone a relatively modest  birthday gift is because there is an annual gift tax exclusion. Most people will never pay the gift tax because of this exclusion. The exact amount of the annual gift tax exclusion is periodically adjusted to account for inflation, and even the base is always subject to change via legislative mandate. This being stated, in 2014 the amount of the annual gift tax exclusion is $14,000.  You can give gifts totaling as much as $14,000 per person to any number of gift recipients per year tax-free. The total can equal any amount of money. For example, let's say that you have a big family. You have 10 children, and they are all married. You are married as well, and your spouse is alive.  You have a $14,000 per person annual exclusion to utilize, and your spouse has his or her own exclusion. As a couple, you could give $28,000 to any number of individuals in a given calendar year free of taxation. So you have 10 married children. You and your spouse could give each couple a total of $56,000: $28,000 to the wife, and $28,000 to the husband. If you
 
 
What Is the Annual Gift Tax Exclusion? www.davidovlaw.com
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multiply this $56,000 by 10, you are looking at a significant transfer of assets tax-free each year. Even if your family is not this large, you can still use this exclusion to transfer quite a bit of money without incurring any gift tax liability. This is especially true if you take advantage of this annual exclusion over a number of years or even decades. To give tax-free gifts using the annual gift tax exclusion you are not confined to direct cash gift giving. There are various different structures utilized in the estate planning field to provide tax efficiency and asset protection. These would include family limited partnerships and irrevocable trusts. If you give a share in a family limited partnership to someone in your family you are technically giving a taxable gift. The conveyance of monetary assets into an irrevocable trust can also be an act of taxable gift giving. Many people will use the unlimited annual gift tax exclusion to incrementally fund irrevocable trusts in a tax-free manner. This exclusion can also be utilized to distribute shares in a family limited partnership tax-free.
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To fully understand the situation when it comes to taxes on gifts, you have to be aware of the unified federal gift and estate tax exclusion. This exclusion exists apart from the annual gift tax exclusion. The gift tax and the estate tax are unified. There is a $5.34 million unified
To fully understand the situation when it comes to taxes on gifts, you have to be aware of the unified  federal gift and estate tax exclusion.
 

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