The gift tax law provides a set amount that can be gifted each year without incurring any tax. Monies can be applied in a few different ways, one without setting off any taxes at all. Each year the maximum amount is raised. In 2009, up to $13,000 in property or cash could be given to one person at a time.
How To Use the Gift Tax Exemption
As mentioned before, up to $13,000 can be given to one person. That number increases to $26,000 if filing joint, but each spouse will have to file form 709 for gift splitting. The maximum only applies to one person at a time, not one person only. For example, you have three children you want to give $10,000 each to. Each child can each receive the amount and you, the person giving the gift, will not incur any tax.
Things become a little more convoluted with splitting the amount for married couples. Each spouse is entitled to give $13,000 to whomever they choose, but have to demonstrate that they were sharing their half of the $13,000 that was given to an individual. So if a married couple wanted to give $15,000 to one child and $20,000 to another, no tax will be paid. The logic goes like this: One spouse maxed out their $13,000 to the recipient. The other spouse agreed to use $2,000 of their limit towards the gift. The same applies to the other child. Again, one spouse maxes out their $13,000 limit and the other gives $7,000 of their $13,000, leaving $6,000 left over for a future gift in the same year.
The Unified Credit
This is a credit, applicable to the gift tax, that has a lifetime limit of $345,800. It's use is applied to amounts that go over the annual limit, and can be used up to the aforementioned limit. For example: You've given a gift of $20,000. You're $7,000 over the annual gift tax limit and would normally pay taxes on that balance. At this point, you apply the unified credit and will pay no taxes on the extra $7,000. A balance of $338,800 is now left over to use for the rest of your lifetime.
Legal Assistance With the Gift Tax
Gift tax law is confusing at best. It's best to consult an experienced tax attorney if you're considering giving gifts with a large monetary value. They'll guide you in how best to handle giving the gift.