Gift & Estate Tax: Amounts Updated for Inflation
Now that the 2021 tax filing season is over and fall is in full effect, the season of giving is among us. It’s not always easy to decide on the perfect gift, but WilkinGuttenplan may have a suggestion that will not only benefit your loved ones, but you as well – year-end gifting…or in some cases, New Year’s gifting!
In 2022, the maximum annual gift amount that a donor can give to any one individual without reducing the basic exclusion (also known as the lifetime exemption, discussed below) is $16,000 ($32,000 for a married couple). This amount is known as the annual exclusion amount. Now, due to inflation, this amount is set to increase to $17,000 ($34,000 for married couples) in 2023. As the gift of the annual exclusion amount alone may not be substantial, the fact that a donor can gift the annual exclusion amount to an unlimited number of recipients can significantly reduce the donor’s estate.
Once a donor’s gift exceeds an amount in excess of the annual exclusion threshold above, the excess amount begins to reduce the donor’s lifetime exemption, known as the basic exclusion. The basic exclusion is a set amount of property or cash that a donor can give over the course of their entire life (or at death) without having to pay a gift (or estate) tax. With the limits recently updated for inflation, the basic exclusion for one donor increased from $12.06 million in 2022 to $12.92 million in 2023 (which equates to $25.84 million for couples in 2023). Married couples who have maxed out gifting under the 2022 limits, now have an extra $1.72 million that they can give to their heirs in 2023 to start the new year out right!
Besides using annual exclusion gifting, another favorable way to gift would be to give money for a loved one’s tuition or medical expenses. As long as the payments are made directly to the school or medical provider, a donor can give an unlimited amount without affecting their annual exclusion or basic exclusion (i.e. lifetime exemption) mentioned above.
It is important to plan your gifting throughout your lifetime. If a donor uses up the basic exclusion or the value of their estate exceeds the basic exclusion amount when they die, their estate will be subject to a 40% tax (currently).
Please contact your WG tax advisor if you have any questions or would like more clarity on this subject.