Know the gift tax rulesByConstance J. Fontaine Bankrate.comScenario:You are financially well-off, maybe even wealthy. You would like to make some significant gifts to people you care about. Plus, you've heard that by transferring assets during your lifetime, you can help your estate-tax bottom line. This translates into the double bingo of exercising your generosity and saving taxes at the same time.Or alternatively, maybe you're not extremely wealthy, but still feel rather generous and wish to make a substantial gift to a loved one.If you're not careful about how you give away your property, the IRS could be among the recipients of your gifts to others. Is this your intention?The IRS is fond of revenue, and applying a gift tax to certain gifts is just one more way to help satisfy the government's voracious appetite for money.Though Congress created the gift tax game, you can learn to play.The annual exclusionFirst, let's establish a few definitions. A gift is a gratuitous transfer of value. Something is given, and nothing -- or something less than the value of what was given -- is received in return. If the gifting party, the "donor" in tax lingo, receives something back from the recipient (the "donee"), that portion of the transfer is not a gift. It's a sale and the income tax system may step in. Before you get too concerned about having to pay gift tax, rest assured that for most folks, this tax is not a worry. Some taxpayers might even consider the IRS to be somewhat benevolent in this particular area because tax isn't imposed until a donor makes one or more gifts to a donee within a calendar year that, in 2007, exceeds $12,000. Gifts within this amount are called "annual exclusion gifts." Better yet, you can make $12,000 gifts to as many different donees as you want each year and then start making gifts all over again Jan. 1 of the next year.

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