What this means for 2013 Gift and Estate Tax Exemptions
Now that the dust has settled and the 2012 American Taxpayer Relief Act has passed, we are in a holding pattern. The act permanently extended the Bush-era tax cuts for most taxpayers, revised tax rates on ordinary and capital gain income for high-income taxpayers and modified the estate and gift tax exemptions. There is still a lot of conflict in Washington D.C., so there may be more changes on the horizon.
With all the uncertainty of the estate exemption amount, many legal and accounting professionals were burning the midnight oil at the end of December, assisting clients in gifting-related issues in case the exemption was reduced in 2013. Fortunately, the estate and gift tax exemptions were maintained and will continue to increase with an inflation adjustment.
The 2013 annual gift tax exclusion is $14,000 per recipient. The 2013 lifetime gift tax exemption is $5,250,000 per person. For many years, the gift tax exemption was less than the estate tax exemption. The new law permanently unified the exemptions to be the same amount. As a result, the 2013 estate tax exemption is $5,250,000— allowing taxpayers to pass on that amount of assets (through gifting or inheritance) without incurring estate or gift tax.
For 2013 only, taxpayers age 70••• or older can make tax-free distributions to a charity directly from an Individual Retirement Account (IRA) of up to $100,000. These distributions aren’t subject to the charitable contribution percentage limits, since they are neither included in gross income nor claimed as a deduction on the taxpayer’s return. Taxpayers with significant medical expenses may get up to $7,500 of additional medical deductions if $100,000 is distributed from an IRA due to the reduction of the adjusted gross income.
Since the 2013 federal and California tax rates have increased significantly for high-income taxpayers, charitable planning should be seriously considered. A $100,000 contribution in 2013 could generate additional tax savings of approximately $4,600 more than a 2012 charitable contribution for taxpayers in the highest tax brackets.
Various changes have been made to itemized deductions and exemption phase-outs. In addition, some tax credits are permanently extended, and the limitations have been adjusted so more taxpayers will be eligible for them.
These tax savings are based on general examples. Consult your tax professional for advice on the tax consequences of your personal situation and on the other tax changes.