Q:In an article on federal estate- and gift-tax laws, you wrote that "you can pay for someone's tuition or medical expenses—as long as you make those payments directly to the educational institution…" Does that include relatives who aren't immediate family—my niece's kids, for instance?

D.K., Delafield, Wis.

A:Yes. It doesn't matter whether you are related to your lucky beneficiaries. You can do this for your niece's children or even for total strangers.

Here is some background on what is known as the "annual gift-tax exclusion." You can give away as much as $14,000 this year to anyone you want—or to each of as many people as you wish—without any tax considerations or burdensome paperwork. The recipient can be anyone you choose. (Transfers from one spouse to the other typically are tax-free.)

The recipient doesn't owe income tax on your generosity as long as your gift is really a gift and not an attempt to mask a payment for some goods or services.

Readers often ask how to deduct such gifts as charitable donations on their federal income-tax return. The answer: Don't even think about it. You can't deduct any gifts at all unless they go to qualified charities or educational institutions and unless you itemize your deductions.



For more details, go to the Internal Revenue Service website (www.irs.gov) and type "annual gift-tax exclusion" in the search box.

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