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Q: With the annual gift-tax exclusion, which party gets to exclude the gift from taxable income? Is it the recipient?

A: The recipient typically doesn't owe Uncle Sam any income tax on that gift—as long as it is truly a gift.

As the giver, don't try handing someone a check for $13,000 and calling it a gift when it's really compensation for work that person did for you.

Here's how the annual gift-tax exclusion works:

You can give away as much as $13,000 during the year to anyone you want—and to each of as many people as you choose—without any tax considerations. These gifts can be to family members, friends or even complete strangers.

There is no dollar limit on how much you can give away with this technique as long as you do it in $13,000 slices.

A friend of mine from Connecticut asked me whether he and his wife are allowed to combine their annual gift-tax exclusion. The answer is yes, according to the Internal Revenue Service website (www.irs.gov).

"You and your spouse are each entitled to the annual exclusion amount on the gift," the IRS says. Together, you can give as much as $26,000 to each donee this year.

Suppose you want to give away even more than that. You can pay for someone else's tuition or medical expenses without having those payments count toward the limit. But you must make those payments directly to the educational or medical institution.

The annual gift-tax exclusion amount is indexed for inflation. We won't know the 2013 threshold until later this year.

You can't deduct any such gifts as charitable donations—unless, of course, they go to a qualified charity and you itemize your deductions.

Gift taxes can be a very complex area. For more details, go to the IRS website, and type "gift tax" in the search box. Look for "Frequently Asked Questions on Gift Taxes." Also see Publication 950.

-From Tom Herman, The Wall Street Journal/Ask Dow Jones, August 4, 2012

Basics of the Gift-Tax Exclusion