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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.

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. 

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.

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