Business Glossary

tax rule allowing a taxpayer to exclude certain kinds of income from taxation on a tax return. For example, interest earned from municipal bonds must be reported, even though it is not taxed by the federal government. Proceeds from life insurance policies paid by reason of the death of the insured are not taxable. Gifts received of $12,000 or less are also not taxable, and are therefore subject to the annual exclusion rule. This $12,000 gift tax exclusion limit is subject to upward revision in $1,000 increments tied to the rate of inflation based on the taxpayer relief act of 1997 .