Because you need to add taxable gifts you made during your life to your taxable base when you die, you need to understand the definition of a taxable gift. It would be unrealistic to expect you to keep records of every single gift you make. Therefore the law defines a taxable gift as a gift above a certain amount per year made to any person. The amount you can give each year without owing gift taxes is called the annual exclusion. Gifts to any individual above that exclusion amount, other than to a spouse, are taxable gifts.

For many years the gift tax exclusion was $10,000 per year per person. As part of the tax reform passed by Congress, the annual gift tax exclusion amount will be increased periodically to adjust for inflation. Beginning in 2009, the gift tax exclusion went to $13,000. Currently, any annual gift to an individual that exceeds that amount is a taxable gift. In addition, any gifts that exceed your annual exclusion and also exceed $1 million over your lifetime are taxable.