People often ask San Diego estate planning lawyers about the taxes that must be paid when gifts are given. A common question involves reporting a cash gift as income when you are filing your tax returns.
The fact is that you do not have to include cash gifts that you receive because they are not considered to be taxable income. But that does not mean that there are no taxes involved in gift giving.
In truth the taxation started when your income was taxed. You may then take some of the remainder and give it to someone as a gift. It would be logical to assume that you have paid your taxes and there should be no further levies pending.
Unfortunately there is indeed a gift tax in place and it is unified with the federal estate tax.
However, there is an annual exemption. You can give someone a gift totaling as much as $13,000 within a given year (increases to $14,000 in 2013) before the estate tax kicks in. It should be noted that you could give this $13,000 to any number of individuals in a tax-free manner.
It is possible to utilize some of your lifetime estate/gift tax exclusion to give gifts above and beyond $13,000 per person per year. However, you must be aware of the fact that you would be reducing the amount of the exclusion that would be left to be applied to your estate at the time of your passing.