For people in the United States, the holiday season is often a time for making substantial gifts to family members and other loved ones. Larger gifts can be made using the federal Gift Tax Exemption and Generation-Skipping Transfer (“GST”) Tax Exemption. However, annual exclusion gifts must be made before December 31, so now is the time to make your 2014 annual exclusion gifts if you haven’t already done so!

The annual exclusion amount is the maximum amount that you can give to any single recipient during a calendar year without incurring gift tax and without utilizing any portion of your Gift Tax Exemption. For 2014 and 2015, the annual exclusion amount is $14,000 (or $28,000 if you and your spouse choose to “split” gifts). In addition to annual exclusion gifts, you may make tax free gifts to your family members and others by paying their tuition and medical expenses. These payments will not count against your annual exclusion amount or Gift Tax Exemption as long as they are made directly to the school or health care provider.

Annual exclusion gifts can be made to anyone, although children and other descendants are the most common recipients of these gifts. Annual exclusion gifts can also be made to certain trusts and 529 plans instead of being made outright to an individual. Further, if the recipient has earned income, he or she could use a portion of your annual exclusion gift to fund a Roth IRA, which would allow those funds to grow income tax free for the recipient’s lifetime.

The annual exclusion amount applies to each person to whom you make a gift. For example, if you decide to make gifts of the full $14,000 annual exclusion amount to 10 different people this year, you can remove $140,000 from your taxable estate without paying gift tax or using any of your Gift Tax Exemption.

The annual gift tax exclusion amount does not carry over from year to year. Annual exclusion gifts made after December 31 will count against your 2015 annual exclusion amount. Note that a gift by personal check is not considered complete until the bank clears the check. Therefore, any personal checks for 2014 gifts should be given in time so that the checks can be cleared before the end of the year. In the alternative, you can use wire transfers or cashier checks.

If you would like to make larger gifts, the Gift Tax Exemption and GST Tax Exemption are each $5.34 million in 2014, and will increase to $5.43 million in 2015. Unlike annual exclusion gifts that can be made each year, you have one Gift Tax Exemption and one GST Exemption to use during your life or upon your death. The Exemptions are reduced by your cumulative gifts during your lifetime. Once you use a portion of your Gift Tax Exemption or GST Tax Exemption, it is gone forever, so it is best to consult with your estate planning attorney in order to maximize the impact of your gifts.

Remember that when you make a gift of an asset that may increase in value, any future appreciation and income that the asset generates will also be removed from your estate, thus increasing your tax savings.