Year End Tax Gifting

You can give up to $12,000 per year, per person tax-free. You don't need to file a gift tax return as long as you give $12,000 or less to any individual. For 2009, the annual gift tax exclusion rises to $13,000 per year. Making monetary gifts or gifts of property, stocks, or real estate can be a smart way to reduce your taxable estate and shift assets to a lower tax bracket.

Married couples can give $12,000 each (or $24,000 combined) to any individual. The recipients can be grandchildren, great-grandchildren, friends, domestic partners, or anyone really.

Gifts must be made by the end of the year. If you need to deplete your taxable estate more rapidly, you can time your gifts so that $12,000 is made in December, and another $13,000 is given in January. For additional ideas on how gifts can be strategized, see Joel Schoenmeyer's post on 2008 Year-End Gifting Made Easy.

Recipients of gifts generally do not pay any income tax on the gift. However, receipts do receive the donor's cost basis in an asset. So if you are giving away property or stocks, be sure to let the recipient know what your cost basis in the property was. They'll need that for reporting their capital gains when they sell the asset.

This same strategy applies to gifts made through a section 529 college savings plan, with one twist. College savings plans allows a donor to give up to five years' worth of annual gifts in one contribution, according to About.com's Guide to College Savings Ken Clark.