Annual Exclusion

A rich uncle you never knew suddenly appears at your door wanting to give you a big chunk of money. You quickly move to take it before he regains his senses or realizes that he's not really your uncle after all. However, your spouse vaguely remembers something: you might have to pay taxes on the money if the amount is big enough.

Now you're frantically Googling "annual exclusion."

The annual exclusion is the amount of money that one person can give to another as a gift without taxes during a given year. As of 2018, the annual exclusion was $15,000.

Aside from the surprise-uncle scenario described above, the annual exclusion often comes up as part of an estate planning discussion. By distributing some of a person's inheritance early through gifts under the annual exclusion amount, more of the estate can be distributed tax free.