Business and Personal Finance Dictionary

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• GIFT TAX
  
  A gift you make to anybody other than your spouse is taxable if it's worth more than $10,000, and you, rather than the recipient, are responsible for the tax that may be due. However, you can postpone actually paying the tax until the total combined value of all of your lifetime taxable gifts (or the value of your taxable gifts plus your taxable estate) reaches the tax-free limit set by the Federal Unified Gift and Estate Tax Credit. In 2000 and 2001, that amount is $675,000, and it will gradually increase to $1 million in 2006. When the combined total exceeds the limit, you (or your estate) owe federal gift and estate tax on the amount that's over the limit, and you may owe state taxes as well. However, you can avoid gift tax entirely if you make individual gifts that are valued at $10,000 or less. In fact, you can make as many of these nontaxable gifts to as many different people as you wish each year, as long as the combined total value of your gifts to any one person stays below the tax-free limit. (The $10,000 limit is indexed to the inflation rate but will increase only in $1,000 increments, or in any year when inflation hits 10%.) If you want to be even more generous, you and your spouse can give a joint gift of up to $20,000 to as many people as you choose each year without owing gift taxes. And you can give your spouse gifts of any value at any time. These gifts are always tax-free, provided your spouse is a US citizen.
  
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