Tax planning is an important aspect of wealth transfer. An exemption reduces the amount of money that is subject to taxation. In the case of estate and gift taxes, an exemption is an opportunity to shelter money from estate tax on transfers at the time of your death and from gift tax during your lifetime. Due to a significant increase in the lifetime exemption amount set for 2023, estate planning opportunities may be available.
Among other things, the American Taxpayer Relief Act of 2012 set a permanent estate tax and gift tax exemption. At the time it was passed, the American Taxpayer Relief Act of 2012 set the exemption at $5,000,000 per person, to be indexed for inflation. This amount increased significantly five years later under the Tax Cuts and Jobs Act of 2017. That amount, $11,180,000 per person, has been adjusted for inflation every year since.
In 2023, the new exemption amount is set to be $12,920,000 per person. This is a big increase from the 2022 amount of $12,060,000 per person. For some people, this $860,000 difference may hold additional planning opportunities to transfer wealth and shelter assets from estate taxes.
The Gift Tax Exclusion
The annual gift tax exclusion is set to rise from $16,000 per recipient in 2022 to $17,000 per recipient in 2023. In other words, you can give up to $17,000 to someone without incurring gift tax consequences or reducing the recipient’s remaining lifetime exemption. (A married couple can gift $34,000.)
Annual gifting is a longstanding and tax-efficient way to pass wealth to others in a tax is in addition to any taxable gifts using the exemption. For example, if an individual has already used all their $12,060,000 exemption, as of January 1, 2023, they could gift an additional $860,000 (using the increased exemption amount) and make as many $17,000 gifts to individuals as they would like without any gift tax concerns. Additionally, these gift amounts would be removed from their estate for estate tax purposes.
Potentially Limited Time Opportunity
If Congress does not extend the current exemption amounts, the Tax Cuts and Jobs Act of 2017 will sunset at the end of 2025. In this case, the exemption will revert to $5,000,000 as set forth in the American Taxpayer Relief Act of 2012—as indexed for inflation—on January 1, 2026.
Considering the potential time limit on this opportunity, now is the time to wrap up any 2022 gifting under the current exemption amounts and to consider additional gifting in 2023.
Work with an Experienced Estate Planning Team
If you’d like to explore your current gifting or estate planning needs and these potential opportunities, Roth Elder Law, PLLC would be happy to help. Don’t delay! Call us today to schedule an initial meeting at 607-962-6162or complete this intake form and we’ll be in touch.