I’m going to go through a number of tax changes that have taken place for 2006 over the next week and this will be part 1 in that series.
The Gift of Money
The amount that you are allowed to give away to an idividual in 2006 increased $1,000 from $11,000 to $12,000 without having to report the gift to the Internal Revenue Service (IRS). This gift is not limited to a single person. You can give up to $12,000 to as many different people as you want without being taxed.
If you’re married, you can give up to $24,000 to one person as a couple – $12,000 from each of you. The IRS, however, will require you to file a gift-tax return to show that each of you is using your $12,000 gift allowance for this year.
It’s possible to give away more than $12,000 to a person, but doing so will trigger funds to be removed from your “lifetime exclusion.” Each person has a lifetime exclusion of $1 million without triggering gift taxes. That means beyond the $12,000 you can give away each year, you can also give away $1 million over yuor lifetime. For example, if you give a gift of $25,000 to an individual this year, $12,000 will be counted as this year’s gift allowance and $13,000 would be deducted from your $1 million lifetime exclusion. This exclusion is important because gift taxes can be as high as 46% of the gift once these numbers are exceeded.