You know what they say: it is always better to give than to receive. Coincidentally, there is no better time to give than 2023 because the Internal Revenue Service (IRS) is anticipating that you will be able to give more tax-free gifts than ever before!
Rev. Proc. 2022-38 announced projected inflationary increases in estate and gift tax limits in 2023. These include increases in the annual gift exclusion amount, the unified credit against estate tax amount, tax-free gifts to a spouse who is not a United States citizen, and the maximum reduction for real property under the special valuation method.
The annual gift exclusion is the amount that you can gift to a person each year without having to utilize any of your lifetime exemption amount. In 2023, the IRS announced that you will be able to give gifts of up to $17,000 per person to as many people as you want. If you are married and choose to split gifts with your spouse, you can give up to $34,000 per person. This is an increase from the 2022 annual exclusion amount of $16,000 per person (or $32,000 for a married couple).
If you feel like a $17,000 gift is just not enough, any amount given in excess of the $17,000 will be counted toward your unified credit against estate tax. The unified credit against estate tax is the amount you can give away tax-free during your lifetime over and above any gifts given that qualify for the annual exclusion. This amount will increase to $12,920,000 per individual, or $25,840,000 for married couples, in 2023. Without having a proper estate plan, if you end up giving more than your allotted unified credit amount, then that excess gift, as well as the value of anything passed down at your death, could be subject to estate and gift taxes.
Gifts between spouses are normally considered tax-free, but the tax-free gifts are limited if a spouse is not a United States citizen. The limit on tax-free gifts to non-United States citizen spouses will increase from $164,000 to $175,000 in 2023.
In addition, the maximum reduction for real property under the special valuation method is projected to be increased to $1,310,000. This can help reduce applicable estate taxes on real property that is used in a family business if passed down from a departed loved one in 2023.
Whether your generosity is sparked by the upcoming holiday season, or you are hankering to learn about the benefits of creating an estate plan, please feel free to reach out to our office to see how you can take advantage of these increased exemptions and exclusions.
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