Simple English definitions for legal terms
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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 their unified credit. This gift can be in the form of cash or other assets.
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.