Gift Taxes and You

I haven't posted much on the gift tax. (actually, I haven't posted at all about the gift tax). But there is a first time for everything.

Joel Schoenmeyer posted on how to take full advantage of the Federal annual gift tax exclusion. You can read the post here. Currently, you can make a gift of $12,000 per year to anyone you want without having to pay taxes or even file a gift tax return. In 2009, the exclusion goes up to $13,000.

Under Mr. Schoenmeyer's plan, you could make a $12,000 on December 31, 2008, and then a $13,000 gift to the same person the next day on January 1, 2009, for a total of $25,000, tax free and without even filing a return. And you can do this for as many people as you want.

Many people use gifting to reduce the size of their estates in order to avoid or reduce estate tax exposure. The disadvantage of this is that, since you really can't predict when you are going to die, you run the risk of giving away too much of your estate too soon.

Thanks to Mr. Schoenmeyer for his useful post!