What the New Year Means for Your Tax Bill (1 Minute)
It’s that time of year again … (no, not the time when we decide what sparkly top or tie we want to wear on new year’s…mine is gold and will look fabulous at my ZOOM party), but it’s the time when we all start looking to see what estate and gift tax looks like in 2021.
For many of us, we aren’t worried about the federal estate tax right now. However, that hasn’t always been the case. Most of us can remember times when our estate faced a hefty tax bill if it was over $1 million dollars (not hard to do as Life Insurance is INCLUDED in your taxable estate—income tax free not estate tax free). Over the years, the estate tax exemption (the amount you can pass free of tax) has increased. In 2020, it was the highest most of us have ever seen: until 2021.
2021 Exemption Limits at the Federal Level
Estate Tax Exemption: $11.7 Million
Gift Tax Exemption: $15,000
Although the Estate Tax Exemption increased by $120,000, the Gift Tax exemption remains the same as it was in 2020. You can gift up to $15,000 to any person ($30,000 per married couple) in 2021. This includes ALL Gifts throughout the year. Don’t make a $15,000 gift, then buy them a birthday gift. That would exceed your annual exclusion gifting amount and require a gift tax return be completed at tax time. We always recommend discussing any gifting plans with your estate planning attorney to ensure you are maximizing your goals, while lowering your potential audit risk.
What if you want to help a child with medical bills or education costs that exceed $15,000 in 2021? No worries! You can make UNLIMITED payments for medical and tuition expenses so long as you make them DIRECTLY to the institution. If you make them to your child (even if they are used for medical bills) then they count towards your $15,000 limit.
No one likes paying taxes, so let’s ensure your Will or Trust is set up to account for changes in estate and gift taxes. The exemptions may change, but having a flexible plan is one way to ensure your loved ones don’t face a 40% federal estate tax. If you want to have your plan reviewed or need to set it up, contact us or give us a call at 605-777-1772. Don’t make Uncle Sam a beneficiary.