As the financial landscape continues to evolve, so do the intricacies of estate and gift taxes. In 2023, a pivotal year for fiscal policies, staying abreast of these changes has become paramount for individuals and families navigating the realms of wealth management.
William Timlen CPA, a seasoned expert in taxation, provides insights into the shifting tides of fiscal regulation. In the following article, William Timlen CPA delves into the essential updates and nuances that have defined the estate and gift tax landscape this year, while unraveling the crucial elements that individuals and families must know in order to navigate this ever-evolving terrain with confidence and foresight.
As the calendar inches towards this year’s end, families have begun to count their dollars and assets to gift to their loved ones for the holidays.
As kind as these family members are, some have grown hesitant to share with their kids and grandkids, worrying that the IRS might consider their generous gifts taxable.
However, there have been new estate and gift tax updates that can ease taxpayers’ worries.
Below, William Timlen CPA discusses more about 2023’s estate and gift tax changes.
William Timlen CPA Discusses Estate Tax Updates
In January 2023, the IRS increased the federal gifts and estate tax limit from $12.06 million (2022) to $12.92 million.
William Timlen CPA explains that this means if a deceased person had a fair market value asset of $12.92 million (or more) at the time of their death in 2023, their beneficiaries must pay for the base tax – plus a certain percentage.
Here are the current estate tax rates for 2023:
Tax Rates 2023
When it comes to what counts as an estate asset, the most commonly known one is real estate: a home. However, the IRS also considers other forms to be estate assets.
- Retirement Savings
- Stocks and Bonds
However, William Timlen CPA reports that even when the value of the estate assets is below $12.92 million, a few jurisdictions also collect estate taxes – each with different thresholds.
Here’s a list of those jurisdictions:
Jurisdictions with Estate Taxes
*Individuals who inherit their spouse’s assets are exempt from estate tax.
The estate tax fees can become quite overwhelming for many. Hence, the importance of turning to financial advisers and tax attorneys to help minimize an individual’s tax dues and find loopholes.
One of those is to declare estate assets as gifts.
Gift Tax Changes
William Timlen CPA explains that the IRS also increased the annual limit of gift taxes – from 2022’s $16,000 to this year’s $17,000. In addition, married couples have individual gift tax limits. This means each can gift $17,000 (a total of $34,000).
However, if a person’s gift exceeds the $17,000 annual limit, they must pay a gift tax. However, they can also file a gift tax return for the IRS to consider it part of the individual’s lifetime gift tax exemption – which is the $12.92 million.
There’s a reason why both estate tax and gift tax limits to that amount.
Lifetime Gift and Estate Tax Exemption
Lifetime gift and estate tax exemptions are connected.
$12.92 million is the lifetime gift and estate tax exemption combined.
Every time a person gifts more than $17,000 to someone, the excess of it will be deducted from their $12.92 million estate tax limit, reducing the amount they can use for their estate tax.
However, William Timlen CPA notes that this shouldn’t deter generous parents from gifting their children a considerable portion of their hard-earned money, as $17,000 is the limit per recipient and not the total annual limit.
2023 is one of the best years to spread generosity through gift-giving – as the IRS increased the gift and estate tax limits. Moreover, the Tax Cuts and Jobs Act (TCJA) will expire in 2025, so tax limits will revert to their 2017 state (when $5.49 million was the estate tax limit).
Therefore, William Timlen CPA says that anyone that is currently exempt from estate taxes will likely have to pay such taxes in a few years.