January 2014< Back to View All Publications
Happy New Year! A new year ushers in new tax levels for federal estate and gift taxes. Here is an overview of the 2014 rates.
The federal estate tax has been indexed for inflation and increased to $5,340,000 for decedent’s who pass away in 2014. This is an increase from the 2013 rate of $5,250,000. Note that for a married couple, each spouse has an exemption amount of $5,340,000.
In regards to gift taxes, there are two factors to be aware: a lifetime exemption amount and an annual exclusion amount.
The lifetime gift tax exemption amount is the maximum amount a person can give away during their entire lifetime without paying gift tax. The lifetime gift tax exemption is the same amount as the federal estate tax exemption – $5,340,000 for 2014. Any amounts gifted by a person during life must be reported to the IRS and will then reduce the amount that can be exempted from estate taxes during death. In other words, you can’t give away $5,340,000 during life and then again upon death.
The annual gift tax exclusion amount is the maximum amount a person can give to another person in any given year without incurring federal gift tax. This amount is periodically indexed in increments of $1,000 for inflation. In 2014, a person can give up to $14,000 to an unlimited number of other individuals free of gift tax (same exemption amount as last year). For example, I could give $14,000 to each and every person reading this email and avoid gift tax. Married couples can combine this and give gifts up to $28,000 to an unlimited number of people free of tax. Any gifts above these amounts are subject to gift tax and need to be reported. Making annual exclusion gifts can be a great way to shift wealth free of tax.
The annual exclusion amount and the lifetime exemption amount can both come into play for certain gifts. For example, if I give my child $100,000 during 2014 I can give the first $14,000 free of tax. I am only subject to tax on the remaining $86,000. If I have not used all of my lifetime exemption, I will then file a gift tax return to report the $86,000 gift and deduct it from my remaining lifetime exemption amount.
Keep in mind that some gifts can be made free of tax no matter the amount that is given. Gifts from one spouse to the other spouse are generally tax free unless the receiving spouse is not a U.S. citizen. Gift taxes are not applied on gifts to charities.
It is important to be mindful of the gift tax rates. These tax rules can have an impact on your remaining estate tax exemption upon death and also your eligibility for public programs, like Medicaid, during life. Please feel free to contact me – or talk to your CPA – should you have any questions about the estate and gift tax rates for 2014.
Cordially, Kristin Tyler