Tax Updates

Good Tax News!

Positive news from the Internal Revenue Service is like the 1972 song by Climax, “precious and few.” Yet, we had such news recently.

The Federal government taxes transfers of wealth but for intra-spousal transfers. These taxes are separate from and in addition to income taxes, unemployment taxes or Medicare taxes. The transfer tax system includes a gift tax, estate tax and a generation skipping tax. Don’t worry just yet as the amounts exempt from these taxes are increasing, protecting more of your wealth from transfer tax.

The 2023 transfer tax numbers have changed. For each individual dying in 2023 up to $12,920,000 can pass free of transfer tax – an increase of $860,000 from 2022. That figure includes the value of lifetime gifts and amounts passing at death. However, there is an annual exclusion from gift taxes of $17,000.

For spouses, these figures can double. Gifts of up to $34,000 per year can pass free of tax, and a combined exemption of $25,840,000 applies to the spouses who plan carefully and fill out tax forms completely.

Which of your assets are included in a transfer tax calculation? For estate purposes, all assets over which you have significant powers are includable in your taxable estate. The taxable estate could include assets that have beneficiary designations such as annuities, life insurance and retirement plans.

Even if your estate is less than $12,920,000, you might still owe state level estate taxes. The exemption amount in Maryland is $5,000,000. States like Florida and Virginia have no state level transfer tax. As Florida also has no state income tax, it is a tax haven for the wealthy.

Most importantly, don’t let your concerns about taxes be the sole motivation for where you choose to live or how you live your life. As Justice Oliver Wendell Holmes, Jr said: “Taxes are the price we pay for civilization.”

Evan J. Krame