Legal Definitions - annual exclusion amount

The Annual Exclusion amount is the maximum amount of money that one person can give to another person as a gift without having to pay a gift tax or affecting the unified credit. This amount is adjusted for inflation and is currently set at $15,000 per year per recipient.

For example, if you give your friend $10,000 as a gift in one year, you will not have to pay a gift tax on that amount because it is below the annual exclusion amount. However, if you give your friend $20,000 as a gift in one year, you will have to pay a gift tax on the $5,000 that exceeds the annual exclusion amount.

The annual exclusion amount applies to each recipient, so you can give $15,000 to as many people as you want without having to pay a gift tax. For instance, if you have three children, you can give each of them $15,000 per year without incurring a gift tax.

The annual exclusion amount is an important tool for estate planning and can help you transfer wealth to your loved ones without incurring unnecessary taxes.