In determining taxable gifts, which factor is not included?

To understand why multiplying the net gift by tax rates is not included in determining taxable gifts, it's important to first clarify how taxable gifts are calculated. The core components of determining taxable gifts involve identifying the gross gifts made, applying any allowable deductions, and considering any exempt transfers.

The process starts with identifying the total amount of gifts given during the year, which is categorized as gross gifts. From this amount, you would then apply various deductions that are permitted under tax law, such as the annual exclusion or specific exclusions for educational or medical expenses, to arrive at the net gift amount. Additionally, any exempt transfers that may not be subject to gift tax are also taken into account.

Once you have the taxable gifts calculated, then a tax rate may be applied to the net taxable gift in order to determine the actual gift tax owed. Thus, the act of multiplying the net gift by tax rates comes into play only after the taxable gifts have already been determined; it is a step in the calculation of tax owed, rather than a component of the base calculation of taxable gifts themselves. This is why this factor is excluded in the determination of the taxable gifts.