As the end of 2022 approaches, it is a great time to think about tax, estate and gift planning. In the following paragraphs, we have highlighted some year-end planning options that clients (you?) may want to consider.
Make Gifts
Every individual has a unified gift and estate tax exclusion, sometimes referred to as the “Lifetime Exclusion Amount.” In addition, Federal tax law allows American citizens and domiciliaries to make annual gifts of up to $16,000 per recipient without using any of the Lifetime Exclusion Amount (this annual exclusion amount is increasing to $17,000 in 2023). If you wish to make gifts, we recommend doing so by the end of the year to take advantage of the 2022 annual exclusion. If you give more than $16,000 to a single individual, you may be required to file a gift tax return to report the transfer to the IRS.
Make 529 Plan Contributions
On the subject of gifts, you may want to contribute to 529 Plan accounts to help your loved ones pay for education from kindergarten through graduate school. The assets in 529 accounts grow income tax-free as long as the distributions are used to pay qualified education expenses, including room and board, tuition, books and supplies. Contributions to 529 accounts are gifts subject to the same annual exclusion rules described above. However, unlike other gifts, you are able to bundle up to five years of annual 529 gifts in one year, allowing you to fund a 529 with up to $80,000 without impacting your Lifetime Exclusion Amount. As a bonus, certain states (including Pennsylvania, New Jersey and New York) allow a state income tax deduction for a portion of your 529 account contributions.
Consider Estate and Inheritance Tax Planning
The Lifetime Exclusion Amount changes every year based on inflation adjustments and, occasionally, legislative changes. For individuals who have passed away in 2022, the exclusion is $12,060,000 per person. Based on current law, the exclusion is slated to be cut in half in 2026. President Biden and various legislators have advocated reducing the exclusion to an even lower amount before that date. As a result, many taxpayers are making gifts now in order to use the full Lifetime Exclusion Amount of $12,060,000 before it is cut in half in 2026 (or earlier). Furthermore, by using certain planning techniques, which leverage the use of the Lifetime Exclusion Amount, you may be able to remove additional property or future growth from your taxable estate. Since the estate tax rate is 40%, minimizing the size of your estate is beneficial from a tax perspective. READ MORE...
Information contained in this publication should not be construed as legal advice or opinion or as a substitute for the advice of counsel. The articles by these authors may have first appeared in other publications. The content provided is for educational and informational purposes for the use of clients and others who may be interested in the subject matter. We recommend that readers seek specific advice from counsel about particular matters of interest.
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