Answer: Generally, you may gift cash or other property not exceeding the value of $12,000 (2008 amount) to any individual during the calendar year without being required to file a federal gift tax return (U.S. Form 709). This amount is known as the annual exclusion amount and applies to gifts of "present interests" only. The annual exclusion amount relates to your requirement to file a gift tax return, however, and not to your payment of gift tax.

If your calendar year gift to any individual exceeds the value of $12,000, you will be required to file a federal gift tax return. You will not be subject to gift tax, however, unless your total lifetime "taxable gifts" exceeds $1,000,000. Thus, if your gift to your child during the calendar year 2008 is $14,000 in cash, you will be required to file a gift tax return. You will not pay any federal gift tax as the first $12,000 qualifies for the annual gift tax exclusion and the excess amount of $2,000, while a "taxable gift," will be offset by your lifetime exclusion of $1,000,000. Hence, there will be no gift tax due and you will have a remaining lifetime exclusion of $998,000 to offset against future gifts.