The Internal Revenue Service wants to keep track of the gifts that you give throughout your life so they can levy the gift tax if and when it becomes necessary.

There is a unified gift/estate tax exclusion. This exclusion sits at $5.25 million this year. A base of $5 million was put in place in 2011, and there are ongoing adjustments for inflation.

So to clarify, if you gave $5.25 million in taxable gifts throughout your life and you passed away this year the entirety of your estate would potentially be subject to the estate tax.

You must file Internal Revenue Service Form 709 to report gifts that you give during the year that are taxable or potentially taxable. It should be noted that you can ask for a six-month extension if you need one by filing Form 8892.

Last year there was a scramble among many high net worth individuals to give out large gifts. This was because of the fact that the unified transfer tax exclusion was scheduled to go from $5.12 million to just $1 million in 2013.

Because of this the IRS is getting a high volume of gift tax returns this year as compared to previous years.

As it turns out the exclusion did not go down to $1 million after all; the new budget agreement included a retention of the base $5 million exclusion with annual inflation adjustments.

It should be noted that not all of the gifts that you give each year are counted toward your unified exclusion. You can give a certain amount to an unlimited number of different recipients before the tax kicks in.

This amount has been raised to $14,000 in 2013. This is a per person annual exclusion, so a married couple would have a total of $28,000 that they could give to any number of people tax-free this year.