Do donations and money spent supporting my grandchildren subject me towards gift tax?

In general, the gift tax is a tax levied on the value of property you transfer during your lifetime. You make a gift if you give property (including money), or the use of or income from property, without expecting to receive something of at least equal value in return. If you sell something at less than its full value or if you make an interest-free or reduced-interest loan, you may be making a gift.

The general rule is that any gift is a taxable gift. However, there are many exceptions to this rule, such as 1) gifts, that are not more than the annual exclusion for the calendar year, 2) Tuition or medical expenses you pay directly to a medical or educational institution for someone, 3)Gifts to your spouse, 4) Gifts to a political organization for its use, and 5)Gifts to charities.

As of 2009, you can give up to $13,000 per person, to as many people as you want, tax free. However, gifts larger than that to individuals can trigger tax liability.

Each year, when gifts are made in excess of the limitation, an individual must file a gift tax return, stating the amount given. These amounts are tallied up, and will only become important if they exceed the $1 million lifetime gifts threshold. This tax liability won’t occur until after you die.