The beloved Internal Revenue Service (IRS) announced the 2015 estate and gift tax limits. The federal estate tax exemption has been raised to 5.43 million dollars per person and the gift exemption has stayed at $14,000. These numbers are increasingly important to those that wish to whittle down their estates by making annual gifts to family members.
Here are the basics of the federal estate tax:
- · This is the amount an individual can leave to heirs without having to pay federal estate tax.
- · It will be $5.43 million in 2015.
- · It is up from $5.34 million for 2014.
- · That’s another $90,000 that can be passed on tax-free.
- · The top federal estate tax rate is 40%.
- A little known fact about the federal estate tax exemption is that it is offset by the lifetime gift exemptions given throughout one’s lifetime.
- Husbands and wives have separate exemptions such that each can give away 10.86 million tax free assuming no prior gifts!
Wholly separate is the annual gift tax exclusions:
- This allows one to give up to $14,000 tax free to as many people as they like annually.
- The amount was not raised in 2015 but was last raised from $13,000 in 2013.
- Avoid accounting for gifts by paying for medical, dental and tuition expenses directly to the provider!
Another tactic is to fund a 529 college savings plan for your children or grandchildren. There’s a special rule, a 5-year election, that lets you put five years of annual exclusion gifts in a plan at once–so a widowed grandma could put $70,000 in an account for her grandson. Grandma would have to file a gift tax return, but there would be no gift tax, assuming no other gifts to that child over those years.
It is important to be cautious when giving money to younger members of the family because of thefederal kiddie tax. The kiddie tax, which covers students through the age of 23, puts investment income, above small amounts, into the parents’ tax bracket. For 2015, the kid pays no tax on the first $1,050 of unearned income.
With the federal estate tax exemption rate on the rise most people will not need to utilize all or most of these tools to whittle down their estate. Luckily Florida is NOT one of the nineteen states and the District of Columbia which charge separate state taxes on estates. It is important to remember though that parts of your estate may lie outside of Florida and be subject to foreign taxation, consult an experienced probate and estate attorney today.
Want to learn more about estate planning and other ways to keep your money yours? Watch our FAQ video library at: http://www.pankauskilawfirm.com/