In 2013 the gift tax exclusion will rise from $13,000 to $14,000. A person who makes a gift valued up to $14,000 will not have to report the gift in any way, nor does the person receiving the gift need to report it or pay any tax on it. This exclusion applies to each person to whom one makes a gift. For example, if a person has 10 grandchildren and wishes to give the maximum exempt gift to each, he or she can give each one $14,000 for a total of $140,000. (The person who receives the gift does not have to be related to the giver.)
A gift of more than $14,000 will require the filing of a gift tax return, but in many cases it will not require any tax to be paid with the return. A lifetime tab is kept on taxable gifts. If at any point the total exceeds the lifetime gift tax exemption (which, unfortunately, changes from time to time) then a tax will be paid. If the total never reaches the gift tax exemption amount, it will be subtracted from the person's estate tax exemption when he or she dies. (Complicated? Yes!)
Gifts of $14,000 or less ($13,000 in 2012) are as if they do not exist for the lifetime tab on taxable gifts.
Such gifts are valuable tools in estate planning for people who expect to have taxable estates upon their deaths.
Some gifts are unlimited, such as paying for someone's college tuition. If paid directly to the school, they are not subject to the $14,000 limit.
Wednesday, October 31, 2012
Mass estate tax reminder
In Massachusetts the estate tax is based on the Federal law that was in effect as of December 31, 2000. It was updated in 2006 to increase the exemption amount from $700,000 to $1,000,000. Thus many people whose estates do not require the filing of a Federal estate tax return will nevertheless require the filing of a Massachusetts estate tax return.
Thursday, October 25, 2012
Estate Tax Now
The estate tax law currently in effect could expire at the end of the year if Congress does not extend it. We have not talked about it much here since it went into effect at the beginning of 2011.
The main thing that was new about it was that, for a married couple, if the first spouse to die does not use up the entire basic exemption of $5 million, he or she can pass the balance of the exemption on to the spouse.
A person who dies with an estate of less than $5,120,000 is not required to file an estate tax return. However, if the executor wishes to pass any remainder of the estate tax exemption on to the other spouse, he or she must file an estate tax return even if none would otherwise be required. And it must be filed by the due date, which is generally nine months after the date of death.
Some professionals who deal with estates and estate taxes are saying that even for a couple who apparently would never need to file an estate tax return, one should be filed when the first spouse dies just in case the remaining spouse unexpectedly wins the lottery or some such event. Then the extra exemption would come in handy.
As noted above, this estate tax law may not survive past the end of this year. If Congress does not act to extend it, it is scheduled to revert back to an exemption of $1 million and a top tax rate of 55%. (The top tax rate in is currently 35%.)
The main thing that was new about it was that, for a married couple, if the first spouse to die does not use up the entire basic exemption of $5 million, he or she can pass the balance of the exemption on to the spouse.
A person who dies with an estate of less than $5,120,000 is not required to file an estate tax return. However, if the executor wishes to pass any remainder of the estate tax exemption on to the other spouse, he or she must file an estate tax return even if none would otherwise be required. And it must be filed by the due date, which is generally nine months after the date of death.
Some professionals who deal with estates and estate taxes are saying that even for a couple who apparently would never need to file an estate tax return, one should be filed when the first spouse dies just in case the remaining spouse unexpectedly wins the lottery or some such event. Then the extra exemption would come in handy.
As noted above, this estate tax law may not survive past the end of this year. If Congress does not act to extend it, it is scheduled to revert back to an exemption of $1 million and a top tax rate of 55%. (The top tax rate in is currently 35%.)
Monday, October 8, 2012
2013 IRA Contributions
The maximum contribution to an IRA for people under 50 will increase to $5,500 in 2013. For people 50 to 70 and one-half the limit will be $6,500. These are the basic limits, but caution: There are many more rules about what you can actually deduct.
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