I understand that one can give away up to @$13,000 a year to any individual and that individual does not have to report to IRS or pay tax. My question is:
What about the Giver? Is the amount tax deductible for the Giver?
(If a giver has to pay tax for the amount given away, why would he give away money to anyone but charity?)
SAVAGE SAYS: Well, first thing, the annual gift tax exclusion has jumped to $14,000 in 2013. So you can give away more!? In fact, if you had tons of money, you could give away $14,000 a year to every single friend you have, and to strangers, too!? It is a tax-free gift to your friend, and you don’t get a tax deduction for giving it. You only get a tax deduction for giving money to a registered charity. And you don’t pay tax for making that gift, either.
The idea is that you have a lifetime combined gift and estate tax credit. Anything you give away at death or in your lifetime — EXCEPT these annual gifts — is counted toward that credit. That’s to keep wealthy people from giving lots of money to their children to avoid the estate tax, which now kicks in at estates over $5.25 million.
I’m not sure if the credit amount is scheduled to rise in 2014, but whatever the limit is, you can give it in individual gifts to anyone you choose.