Announced recently, the Internal Revenue Service raised the limit on tax-free transfers during life or at death. Starting in 2015, the limit, known also as the basic exclusion, will increase from $5.34 million this year to $5.43 million next year. However, the IRS also stated in the same announcement that the annual giving exclusion of $14,000 will remain the same. The annual exclusion is the amount in cash or assets that you are allowed to give each year without deducting from your overall basic exclusion amount.
The basic exclusion, or lifetime gift tax exclusion, and the estate tax exclusion are expressed as a total amount for the purposes of your estate. It is possible to use the basic exclusion to transfer gifts during your lifetime, to transfer assets at your death, or to do a combination of both up to the limit without incurring estate and gift taxes. Taxes on the amount exceeding the exclusion can be as high as 40 percent.
The IRS expects you to report your annual gifts and keep a running tally throughout your life so that the organization knows how much of your exclusion was already used up before you die. For example, if you have been gifting above the $14,000 annual exclusion and have given $2 million more, your overall exclusion at your death would be $3.34 million this year.
How to Use the Increased Limit
For people that have already used up their basic exclusion on lifetime gifts, the question now begs what should be done with the additional $90,000 available for tax-free gifting next year. One of the biggest things to consider is how the gift will be used, and if the gift makes good tax sense for all parties involved.
Another option for using this increased gift limit is to include a new beneficiary that either was not born or included in the previous gifts. Married couples can share the annual exclusion during life and give more to their children, tax free. If your spouse is not a U.S. citizen, the increased gift amounts can also have a positive effect. Starting next year, the annual limit of tax-free gifts to a non-U.S. spouse will be $147,000, which is $2,000 more than this year. However, any additional gifts to a non-citizen spouse over that limit will count against your basic exclusion.
Effect on Ohio Estates
Ohio repealed its state laws collecting estate taxes last year. As a result, if you have an estate in Ohio you do not have to worry about going over the threshold for state taxes; however, the federal estate and gift limits still apply. You should consult with an experienced estate planning attorney to see how the new federal limit could affect your estate.
Call an Ohio Estate Planning Attorney Today
If you or a loved one has questions regarding the federal gift limits or other questions about estate planning in Cortland, Akron, Youngstown, Aurora, or Warren, let The Law Office of John C. Grundy help. Call or contact the office today for a consultation of your case.