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What is the Annual Gift Tax Exclusion Amount?

By Gift Tax, Tax, Taxes

What is the Annual Gift Tax Exclusion Amount?


What is the annual gift tax exclusion amount in 2022? The amount is $16,000 per person, and in 2023 it’ll be $17,000 per person. 

What does that mean? It means that you can give up to $16,000 to as many people as you want, and it will not affect your future estate taxes, and you don’t have to file a gift tax return. It’s not taxable to you. 

And gifts to recipients are never taxable to them, so anytime you make a gift to the recipient, they know don’t ever pay income tax on that. Something a lot of people don’t understand. 

If you make a gift above $16,000, it doesn’t mean that’s taxable either. It just means that you should file a gift tax return. And if you do that, what will happen is it will reduce your lifetime amount, your exemption amount, lifetime exemption amount now is over $12 million per person. So most people can afford to make those gifts without having a big taxable estate at the end of their lives.

Should you File a Gift Tax Return?

By Gift Tax, Taxes

Should you File a Gift Tax Return?



Maybe. It depends, did you make gifts? 

In 2022, the annual gift tax exclusion amount is $16,000 per person, and in 2023 that amount is $17,000 dollars per person. The per person is for the recipient of the gift. So you can make a thousand gifts of $16,000 and not have to file a gift tax return, but if you make one gift of twenty thousand dollars, then you would have to file a gift tax return. 

Remember, married spouses can use two of those exclusions, so if you and your spouse decide to give one of your kids $32,000 this year or $34,000 next year, you don’t have to file a gift tax return. 

You likely won’t have to pay any tax. All it will do is reduce the amount that you can exempt at your death from the Federal Estate and Gift Tax, and at the rates that we have now, very, very few people have to actually pay those. Now that could change in the future, taxes change a lot, but right now the federal estate taxes are not a concern for most people.

If you have Charitable Intent in your Estate Plan, don’t overlook your IRA!

By Estate Planning, Wills

If you have Charitable Intent in your Estate Plan, don’t overlook your IRA!



If you have charitable intent in your estate plan, don’t overlook your IRA. 

We often see people come in and want to leave, say, twenty-five or fifty thousand dollars to a charity of their choice, and they think the right way to do that is by leaving it to them in their Will. 

That could be a good way and it could be their only way, but if you have an IRA, it might make more sense to leave that money to the charity from the IRA. 

That is because the charity doesn’t pay taxes. If you leave fifty thousand dollars of your IRA to your favorite charity that whole fifty thousand dollars goes to the charity. If you leave that fifty thousand dollars to your child through your IRA and your child is a high earner they could pay up to twenty thousand dollars in tax on that fifty thousand dollars. 

It would make more sense to funnel cash to your heir and IRA money to the charity. This is all within the confines of what you want to give away. In this case, you can maximize your giving by either giving more to the charity or more to your child and less to the IRS.

How High is the Federal Estate Tax Rate?

By Federal Estate Tax, Taxes, Uncategorized

How High is the Federal Estate Tax Rate?



Bad news – it’s 40 percent. 

The good news is that the first $12,060,000 per person is exempt from federal estate tax in 2022. 

In 2023, that amount goes up to $12,920,000, again, per person. 

If you are a married couple, you could double those amounts. So, if you are a married couple worth more than $27,000,000, then yes, that last million dollars will be taxed at a 40% rate. 

Look on the bright side, $400,000 of tax out of $27 million dollars, while no one likes to pay tax, that’s a one-and-a-half percent effective rate. I’m okay with that. 

The other thing is if you have that much money, there are all sorts of things you can do to reduce your taxable estate. All sorts of things. If you have those issues, give us a call. 267-573-1019. If you don’t have those issues, give us a call anyway because almost nobody has those issues. 

Do you need an Advance Directive?

By Advance Directive, Health Care Power of Attorney, Living Will, Powers of Attorney

Do you need an Advance Directive?



I think the answer to that question is yes. An Advance Directive incorporates two documents: a Living Will and a Health Care Power of Attorney, sometimes called a Health Care Proxy. 

A Living Will is a document in which you specify what procedures you’d want if you can’t speak for yourself. If you become incapacitated or you’re in a vegetative state, you’ll have made decisions in advance to specify what care you would want or not want, and whether you want to continue with feeding, hydration, and/or pain management. 

The Power of Attorney or Proxy part is where you name someone who can enforce your wishes and make decisions for you. Think about that for a second. If you get to your end of life and you have a document in place, where you specify who could speak for you and what they should say, it’s really helpful. To quote Martha Stewart, it’s a good thing. It takes a lot of decision-making and uncertainty out of family members and loved ones’ hands. So I think everybody should have an Advance Directive.

Do you need a Will?

By Estate Planning, Wills

Do you need a Will?



The answer to that question is yes. If you are an adult who is not destitute, you should have a Will.

In your Will, you specify who gets your stuff and if you have minor kids, who raises them. It makes things much easier for your loved ones to take care of all this if you have written it down in a properly signed and executed Will before you die.

The executor is the person who distributes your stuff according to what you want. Your guardians are who raise your minor children if you have them. If you set up any trusts in your Will, you would have a trustee, and the trustee would take care of the money in the way that you specify. If you have Wills, this all becomes much less complicated when you die.

It makes things so much easier for your loved ones and they know what you want. They’re not trying to figure out like what you would want versus what they have to do because of what the rules are.

If you don’t have a Will, the court system will decide who raises your children and the state rules of intestate succession will determine who gets your stuff. I don’t know that anybody would want that. If you want to have a say in who raises your kids and who gets your stuff, you need to do a Will.

Creating a Will is not that hard. It is not that expensive. It is not that time-consuming. People are relieved and happy when they walk out of here after signing their Will.

Do you need a Durable Power of Attorney?

By Estate Planning, Powers of Attorney, Wills

Do you need a Durable Power of Attorney?


I think most people probably do. By having a Durable Power of Attorney, you give a loved one the ability to make financial decisions for you and take care of your finances if you become incapacitated or if you can’t do it. So I think most married couples or long-term partners should have them and name each other as their agent at the least. I think most people should probably have their kids, if they have them, as backups as long as the kids are adults, and you trust them.

What do we mean when we say durable? Durable means that the power of attorney is effective even if you have lost your capacity. Ordinarily, when you give someone a power of attorney, it’s for a specific thing or a specific time. A lot of people do that to close real estate transactions if they can’t be there at the closing date. That kind of Power of Attorney would lapse if you become incapacitated. A Durable one, however, stays in effect even if you do lose your capacity.

The reason we use Durable powers is that we’re planning for advanced age, or some sort of accident. And we need it to be effective, even if, if you don’t have capacity.

The Power of Attorney could either be springing or not. Some people like the idea of springing because that would only happen should you have the need for it, so somebody couldn’t take action right now. The problem with that is that if it is springing, you only give that power if you lack capacity. But you’d have to go in front of a court, and that the agent would have to go and show that you are incapacitated. And no one really wants to deal with that. I mean, I wouldn’t want to stand up in court and have someone prove that I no longer have capacity.

And then the other thing is that there’s some risk associated with it, right? Like you’re giving this person, your agent, the power to make these decisions for you. And, you know, we only give them to people that we love and trust. But even with that, once in a while, somebody does something bad. Now, if your agent acts against you know, you can go after them civilly, you can sue them. You can ask a local district attorney to press charges if they commit a criminal act. But usually, when people go against or use these documents for ill, they don’t buy a CD with them. They do something bad, like cover up gambling addiction or drug addiction. So you really do need to limit it to people that you love and trust.

What is the inheritance tax in Pennsylvania?

By Estate Planning, inheritance tax, Taxes

What is the inheritance tax in Pennsylvania?


Well, that depends.

It actually depends on the relationship between the person receiving the money or property and the person who died, otherwise known as the decedent. 

So if you leave everything to your spouse, there’s no tax on that. If a minor child leaves everything to a parent, there’s no tax on that, and there’s no tax on any money going to charities exempt organizations, or the government, if anybody does that. 

If you leave it to a lineal descendant, it’s 4.5%. Lineal descendants are kids, grandkids, parents or grandparents.

For siblings it’s 12%, and for everybody else its 15%.

So you inherit money. Does that mean you are writing a check? Typically no. When the person who is the decedent dies, the executor completes the inheritance tax return and has to specify how much went to the different classes of beneficiaries, and then the taxes figured out and usually sent in from the estate. So ordinarily, no you don’t. You’re not going to pay inheritance tax when you receive something. There’s no income tax on that money, either.

Don’t Wait Until it’s Too Late for Your Estate Planning

By Estate Planning, Wills

Don’t Wait Until it’s Too Late for Your Estate Planning

Estate planning is a critical component of financial planning that many people leave until it’s too late. While this is perfectly understandable—after all, most of us don’t really enjoy sitting around thinking about our own mortality—it’s also extremely unfortunate. You don’t have to like it, but you do have to do it. And estate planning isn’t just about securing your legacy or carrying your wishes forward. It’s also, frankly, about saving your family a pile of misery. They’re already going to be (hopefully) mourning your loss. Don’t burden them with the expensive, difficult, and sometimes years-long labor of sorting out your estate on top of their grief. 

Even for high-net-worth individuals, estate planning can be fairly straightforward. But no matter how simple your wishes (or your assets), you do need to bring in outside help. Obviously, for people with large families, complex bequests, or multiple significant assets, the process gets more complicated. That’s no excuse to procrastinate.

To draw up the necessary legal documents, you need to see a lawyer. Only a lawyer can draw up legal documents. Don’t trust any non-lawyer who says they can provide them for you. Your financial planner might ask to review these documents for you—this is fairly common. However, if they are not lawyers, they don’t necessarily know what they should be looking for other than to see that you have the documents in place. Of course, you may not be able to tell that either. Most good lawyers who do not practice estate planning law will not even write wills for themselves! 

Some people advocate using computer software to write your estate planning documents. There is cheap legal software out there that seems pretty good and is fairly easy to use. Should you use it? I would advise against it. How do you know that the law hasn’t changed since the software was written? How do you know that your situation fits exactly into those incorporated within the software? The software will guide you down a single path by asking you specific questions as you fill out forms. What if there is something outside that narrow path that would make you really, really happy? You’ll never know, because your needs are outside the program’s scope. 

Every so often you see some statistic about the number of adults walking around without a will. I have seen estimates ranging from 40–70%. Don’t be one of them! The amount it will cost to finalize your will depends a great deal on the complexity of your assets and wishes. For a single individual with simple requests and a fairly small estate, the amount will probably start around $500-$1,000. Wills for larger estates or involving more complicated bequests might cost up to a few thousand dollars. But keep in mind this is ideally a one-time, (relatively) small investment, and it will save your family a tremendous amount of trouble—and money—in the long run.

Life, Liberty, and Tax-Advantaged Opportunities #munis #529s #RothIRA #IRA #HSA

By Taxes

Americans are passionate about taxes. In recent years, Americans have spent more on taxes than on food, clothing, and housing combined.1 The Tax Foundation estimates Americans will pay $3.4 trillion to the federal government and $1.8 trillion to state and local governments in 2019.2

Selecting investment vehicles that emphasize tax-advantaged opportunities could help reduce the amount of taxes you owe. There are tax-free and tax-advantaged options available. Here are a few to consider:

Municipal bonds, also known as munis, help provide funding for schools, hospitals, utilities, and other projects. The interest is free of federal income tax. Some bonds may pay interest that also is exempt from state income tax. Generally, this is true if you reside in the state issuing the bond.3

At first glance, munis may seem less attractive than corporate bonds or Treasuries because municipal bonds generally offer lower yields than taxable bonds of similar maturity and quality. For instance, a muni yielding 3.3 percent may not be as enticing as a taxable bond yielding 4.8 percent, until you take taxes into account.4

Imagine: an investor in the 35 percent tax bracket has a choice between investing in a federally tax-free municipal bond yielding 3.3 percent or a taxable bond yielding 4.8 percent. Which will provide more income after taxes?4

In this example, the tax-free bond provides more income. Because the investor is in a higher tax bracket, he is able to benefit from owing no federal taxes on the muni bond. As a result, the lower yielding bond delivers more income to the investor than the taxable bond.5

In this case, the investor would need to find a taxable bond of the same maturity and quality yielding 5.08 percent to earn as much income as a muni bond would deliver.*5

Roth Individual Retirement Accounts (IRAs) are tax-advantaged accounts. Owners pay taxes on contributions made to Roth IRAs but the account earnings grow tax-free, and every penny earned can be withdrawn tax-free, as long as certain conditions are met.**6

When investors start saving early, Roth IRAs have the potential to offer substantial tax-free income later in life. If a 27-year-old saved $100 a month until full retirement age (67), and earned 6 percent a year on average, the account would be worth more than $198,000 ($48,000 saved and $150,000 in earnings). All of it could be withdrawn tax-free.6

Another Roth IRA advantage is investors don’t have to take required minimum distributions (RMDs) from a Roth IRA at age 70½. As long as an owner has held an account for five or more years, the beneficiary who inherits the Roth can take tax-free distributions, too. (Beneficiaries are subject to RMDs.)6

Roth retirement plan contributions are an option in some workplace retirement plans. Talk with your company’s human resources group to find out whether Roth contributions are allowed. Contributions to Roth plan accounts are made with after-tax dollars, but any earnings grow tax-free and distributions are tax-free, just as they are for Roth IRAs. An important difference is RMDs must be taken from Roth plan accounts at age 70½.7

Health Savings Accounts, or HSAs, offer Americans a way to save for current and future healthcare expenses in tax-advantaged accounts. You can open an HSA as long as you participate in a high-deductible health plan (HDHP). It’s a choice worth considering because HSAs have a triple tax advantage:8

HSA contributions are tax-deductible, interest and earnings in the account grow tax-free, and distributions are tax-free when taken for qualifying medical costs.

HSAs are different than Flexible Spending Accounts (FSAs). You own the HSA and, if you don’t spend the money in the account, you keep it until you need it. The account is yours, even when you change employers. Employers own FSAs and unspent funds are often forfeited at year-end.8

Fidelity estimated the average 65-year-old couple, retiring in 2019, would need about $285,000 for medical expenses during retirement, excluding long-term care. The estimate assumes the couple does not have employer-provided retiree healthcare coverage and does qualify for Medicare.9

529 College Savings Plans are a tax-advantage way to save for education. States and educational institutions sponsor 529 plans. Some offer prepaid tuition plans and others offer education savings plans. Contributions are considered to be gifts for tax purposes, so a couple could contribute up to $30,000 for each child each year.10, 11

Anyone can open and contribute to a 529 College Savings Plan, including parents, grandparents, or friends. Contributions are not federally tax deductible, but earnings grow tax-free and withdrawals used to pay qualified school expenses are tax-free.12

Account holders can withdraw up to $10,000 in tuition expenses for private, public, or religious elementary and secondary schools per year, per beneficiary.12

In addition to the options described here, there are many investment strategies and opportunities that deliver tax advantages to investors. If one of your goals is to pay as little as possible in taxes, there are a variety of ways to do it. Give us a call to see how we can help.

* Tax equivalent yields are found by dividing the tax-free yield by 1 minus tax bracket. In this case 3.3 percent / 1-35 percent = 5.08 percent.5

** As long as you have owned the Roth account for five years and you’re age 59½ or older, you can take distributions anytime you want without owing federal taxes.6