When receiving gift money above a certain value, or part of a family member’s estate, there is generally going to be some type of tax associated with it. Go back to 2009, and you would have seen a $3.5 million tax exemption limit. Just last year, the number was nearly doubled from about $5 million to over $10 million per individual. Recently, the IRS has announced that even this value is now obsolete.
Here’s what you need to know about the new tax limits in 2020:
Potential For Instability
The major changes in tax law in recent years have been a direct result of the current political administration. As part of the Republican party’s stance on estate and gift taxes, we’ve seen the limit increase year after year in hopes of setting a permanent precedent that these limits won’t get reeled back by Democrats at a future date.
These numbers are entirely dependent on which party will be ruling over the executive and legislative branches in the coming years, so take advantage of what you can in case things change during the next election.
New Limits In 2020
For 2020, we see that the trend we mentioned above has continued. In the new year, individuals will be able to gift up to $11.58 million to their heirs before having to pay federal taxes on the value. You heard that right. Anything up to that value will be federal tax exempt – Which will likely lead to some big gifts coming up from wealthier Americans to their loved ones.
When the limit got raised drastically last year, we saw many families hold back on taking advantage of the new tax laws out of fear that the Internal Revenue Service would retroactively go after them if the law was declared changed by a rival political party sometime in the future.
Recently, the sentiment has changed. We’ve heard reports from the IRS promising that these alleged clawbacks will not come to fruition. Instead, you’ll be able to rest easy knowing that as long as you adhere to today’s tax law concerning gifts and estate wealth, there shouldn’t be a worry of having it taken away by the government at a different time.
Look Out For State Laws
It’s important to note that while the federal government has changed its tune regarding this type of tax, the state that you live in may also have an interest in your personal wealth should the time to bequeath it arrives.
Depending on your state of residence, there’s a very real chance that you’ll have to pay state taxes on any number of components related to your estate or gift. The best thing you can do is work with a seasoned professional to get a better understanding of your options, and which ways to move forward with your estate and gift planning.
Hiring a professional with experience in this will not only save you a headache during filing season – It’ll provide your loved ones with the financial protection that they deserve.
If you would like to learn more about how we can help you and your business improve its accounting practices, reach out to our team. For more information on other accounting topics, check out our blog.