Inflation Helps Save Taxes?

By way of a brief primer on Estate and Gift Taxes, the U.S. tax system requires a decedent’s representatives to calculate the value of all of his or her assets owned at death and pay a tax (current rate is 40%) on the value of this property.  The good news is that there are some deductions allowed (the two most common big ones are the marital deduction for property left to your spouse and the charitable deduction).  The other good news is that the tax only applies to asset values exceeding a certain threshold amount known as the applicable exclusion (or exemption) amount.

This exemption amount can have a very substantial impact on the amount of taxes you’ll actually pay.  For this reason and others, it’s tinkered with fairly often by Congress.  For example, when this author started practicing law in 1990, the Estate Tax Exemption amount was $600,000 where it stayed until it was increased by $25,000 in 1998.

Fast forward to 2022 where the exemption amount stands at $12.06 Million.  Because this amount is inflation adjusted, the new exemption amount for 2023 will increase to $12.92 Million.  Not only is this the biggest inflation jump ever, but it is also an increase that itself is larger than the full exemption amount was until the early 2000s.

The catch?  The exemption amount is basically “use it or lose.”  If you are one of the many who don’t give away any significant amount this year or next, then those limits are irrelevant for you.  It’s only the estate tax exemption limit in the year of your death that matters for your family.  Under current law, the exemption will decrease to $5 Million, inflation adjusted (probably to about $6.5 to $7 Million), in just over 3 years because the current laws sunset at the end of 2025.

So if you are someone with a valuable estate who really doesn’t like paying taxes, we will gladly talk you through some innovative ways to use this inflation adjustment to minimize taxes and keep more of your family’s wealth intact.

About the Author

 

 

 

 

 

 

Todd A. Stewart, CPA, JD
Founding Partner