The lifetime gift tax exemption will increase in 2023.
As 2022 draws to a close, people are more interested in tax guidelines in 2023.
Tax laws and exemptions are often impacted by the economy.
Knowing these numbers is helpful for estate and tax planning in the coming years.
According to recent Forbes article entitled “Lifetime Estate and Gift Tax Exemption Will Hit $12.92 Million in 2023,” many of the exclusions amounts will increase in 2023.
If you are planning to make gifts to loved ones, the annual gift tax exclusion will be of particular interest.
Although the limit you could give to each person without triggering a gift tax was $16,000 in 2022, the amount has been increased to $17,000 in 2023.
Amount given in excess of this will require the filing of a timely Form 709 Gift Tax Return and the excess amount will be deducted from your estate and gift tax exemption.
This estate and gift tax exemption is also called a unified credit.
The amount for this unified credit will jump from $12.06 million in 2022 to $12.92 million in 2023 for single individuals.
Couples will be able to utilize a combined estate and gift tax exemption of $25.84 million.
What does this means for your estate planning?
Those who have exhausted their exemption in 2022 can make more gifts in 2023.
Couples can give $34,000 to each family member in 2023 if they have the funds.
If you choose to make additional payments towards the medial bills or tuition of a loved one, you can do so without having to utilize your lifetime exemption.
These are exempt independent of the annual gift tax exclusion.
What happens if your assets exceed the $12.92 million in 2023, if you are single?
Any amount above the threshold will be taxed at 40 percent!
Consequently, whether you are single or married, the time to make some major wealth transfer plans is right now.
Although the federal estate and gift tax exemption amount is currently $12.06 million, the exemption is set to fall back to lower levels in 2026.
The official amount the exemption will drop depends on decisions made by our elected officials leading up to 2026.
Taking advantage of the high estate and gift tax exemption may be especially helpful for those who live in states with their own death taxes (think inheritance and estate taxes).
Reference: Forbes (Oct. 18, 2022) “Lifetime Estate and Gift Tax Exemption Will Hit $12.92 Million in 2023”