The annual gift tax exclusion is the amount of money that you can give to an individual each year without worrying about paying gift tax. The amount of the annual gift tax exclusion for 2012 is $13,000 but it will increase to $14,000 in 2013.
Sometimes you may want to make a gift to a person to celebrate a special occasion or to say thank you. However, sometimes, you may want to make a gift to a person because you want to get money out of your name so that at your death, your estate will be smaller and you will pay less estate tax. Because gifts do reduce the size of your estate at your death (and therefore the amount of estate tax that you pay), most gifts made during your lifetime are subject to gift tax.
One notable exception to the rule that gifts given during your lifetime incur a gift tax is the annual gift tax exclusion. The gift tax exclusion lets you give up to $14,000 (in 2013) per person, per year, away gift tax free. There is no limit as to how many $14,000 or less gifts you can give to people each year. You can gift $14,000 or less to as many people as you want, whether they are related to you or not.
If you are married, then you and your spouse can each give up to $14,000 to a person in 2013 gift tax free. So, if you have a child, you can give $14,000 to the child and your wife can give $14,000 to the child for a combined gift of $28,000.
So, if you want to extend the holidays this year, you can consider gifting up to your 2012 gift tax exclusion of $13,000 per person before December 31 and then gift your 2013 gift tax exclusion of up to $14,000 per year for a New Year’s Day surprise gift!