Tax Exclusions

Higher Tax Exclusions In 2023 Can Benefit Your Estate Plan

Higher Tax Exclusions In 2023 Can Benefit Your Estate Plan, the buzzword of 2022 has been inflation. We all felt it – and it’s highly doubtful anyone enjoyed it. But although inflation is generally nothing to be pleased about, it has prompted the IRA to make adjustments to the annual gift tax and estate tax exclusions for 2023.

If you are considering wealth transfer tax planning or doing Estate Planning this 2023, these are welcome increases.


Gift Tax Annual Exclusion

The gift tax annual exclusion is the maximum amount a person can gift any number of people in a year without having to pay gift taxes. Gifting within this limit will also not affect your lifetime gift and estate tax exemption. Effective January 1, 2023, the gift tax annual exclusion will increase from 2022’s $16,000 to this year’s $17,000 per recipient. Married couples who gift-split will now be able to gift a combined total of $34,000 per person in 2023 without making a taxable gift.


Combined Gift and Estate Tax Exemption

The combined gift and estate tax exemption is the total amount of gifts a person may make during their lifetime, including transfers made at death, before being on the hook for gift or estate tax. Another significant change is the combined gift and estate tax exclusion increase effective January 1, 2023. The total tax exclusion in 2022 of $12.06 million has increased to $12.92 million ($25.84 million for a married couple).

Those who have used up their lifetime exclusions as of December 31, 2022, will now be able to gift another $860,000 tax-free starting January 1, 2023. Married couples in this situation may make additional gifts of $1.72 million.


Generation-Skipping Transfer Tax Exemption

The recent inflation also resulted in another significant change to tax exemptions: An increase in the generation-skipping transfer tax exemption. It is now $12.92 million, up by almost $3 million from 2022’s $10 million.

This may be useful for an individual who wishes to place assets in a trust for the benefit of future generations. In doing so, they may allocate their generation-skipping transfer tax exemption to this trust. The result is that these assets can remain in the trust for multiple generations without any gift, estate, or generation-skipping tax due on distributions or upon the trust’s termination.

Looking Ahead

While these figures show a significant increase in the total amounts that can be gifted and passed on without being subject to tax, the recent increases may not be available for long. These exclusions will be reduced by approximately 50 percent to 2017 levels (as adjusted for inflation) upon expiration of the current Tax Cuts and Job Act on December 31, 2025, if Congress does not extend it or make it permanent.

Take advantage of these higher tax exclusions by embarking on your Estate Planning journey today. The Law Office of Antoinette Bone is well-versed in a wide variety of planning strategies available to help you take advantage of these significant changes in annual and gift tax exclusions before they are no longer available.

If you have questions about how you can benefit from the increased tax exclusions, call our office now to schedule your appointment. 

To comply with the U.S. Treasury regulations, we must inform you that (i) any U.S. federal tax advice contained in this newsletter was not intended or written to be used, and cannot be used, by any person for the purpose of avoiding U.S. federal tax penalties that may be imposed on such person and (ii) each taxpayer should seek advice from their tax advisor based on the taxpayer’s particular circumstances.

Nothing in this message is intended to provide legal advice.  This message is for educational purposes only.

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