The IRS has increased many contribution limits for 2023, including retirement savings, but also recently just adjusted the tax exclusions and exemptions for inflation. We want to mention a few that often times impact or apply to our clients, which involves estate planning.
For 2023, the IRS increase the annual gift tax exclusion $1,000 from $16,000 in 2022 to $17,000 for this year. So, that means that the $17,000 is the amount that a taxpayer may gift to another individual without setting off the gift tax or tapping into the taxpayer’s lifetime gift and estate tax exemption. Additionally, if the gift remains under the limit, the taxpayer does not have to report it on their tax return. This annual exclusion is applied to each donee or receiver per year and a married couple can both utilize this exemption, donating up to $34,000 per calendar year.
Other exemptions and exclusions that may apply to your situation are the unified credit along with the generation-skipping transfer tax credit (GSTT). The unified credit which provides the limit that an individual can gift in their lifetime before setting off taxes. For 2023, the unified credit will be increased to $12.92 million and can be shared with your spouse. The GSTT exemption is an amount that can be transferred down to two or more generations younger without setting off a tax, which is also $12.92 million for this year.
Whether you or someone in your family intends on gifting money to others, it’s important to know the limits so that you can avoid setting off unnecessary taxes or penalties. Of course, consult with a tax professional with any specific tax questions you may have, or let us know your questions at firstname.lastname@example.org and we are happy to point you in the right direction.