Recent IRS Tax Updates
Recent Announcements From the IRS
Federal Gift Tax Exclusion Increases for 2023
The IRS has announced an increase in the federal gift tax annual exclusion for 2023. The gift tax annual exclusion is the amount a taxpayer may give to anyone tax free without using up the taxpayer’s lifetime gift and estate tax exemption. This annual exclusion will increase from $16,000 per recipient to $17,000 per recipient. Married couples can combine their exclusions to give $34,000 per recipient. For example, if a married couple has two children and three grandchildren, they may transfer $34,000 to each child and grandchild for a total gift of $170,000 gift tax-free without touching their estate and gift tax lifetime exemption. Such gifts remove the gift value and any future appreciation on the gifted asset from the taxpayers’ taxable estates.
Federal Transfer Tax Exemption Increases for 2023
The federal transfer tax exemption for 2023 will increase from $12.06 million per person to $12.92 million per person. This one exemption applies to both (1) gifts above the annual exclusion amount made during lifetime and (2) transfers made from a taxpayer’s taxable estate to individuals at the taxpayer’s death. A married couple can shield a total of $25.84 million from gift and estate tax. If a taxpayer has already used the taxpayer’s transfer tax exemption as of tax year 2022, the taxpayer may make an additional tax-free gift of $860,000 in 2023 in addition to any annual exclusion gifts. For married couples, this additional tax-free gift amounts to a combined $1.72 million.
The exemption from the federal generation-skipping transfer tax during life or at death, albeit a separate exemption from the transfer tax exemption, mirrors the transfer tax exemption and will increase to $12.92 million per person.
Transfer Tax Exemption Scheduled to Decrease Significantly in 2026
Notably, the Tax Cuts and Jobs Act, which caused a significant increase in the federal transfer tax exemption and the federal generation-skipping transfer tax exemption, is scheduled to sunset at the end of tax year 2025. If no legislative action is taken to modify the sunset provision, these exemption amounts are scheduled to be reduced to $5 million per taxpayer ($10 million for married couples), indexed to inflation, which is estimated to be approximately $6.8 million per taxpayer ($13.6 million for married couples). So, at this time, there is a limited window to implement gift-planning strategies to leverage these increased exemption amounts.
Income Tax Rate Schedule and Increased Deductions for 2023
In October, the IRS announced adjustments to income-tax deductions and rates for 2023. The standard deduction for married couples filing jointly will increase from $25,900 to $27,700. For single taxpayers and married individuals filing separately, the standard deduction will increase from $12,950 to $13,850. Since 2018 and the passage of the Tax Cuts and Jobs Act, there is no federal limitation on itemized deductions and the personal exemption remains zero; this will remain the same in 2023. The top income tax rate remains 37% for individual single taxpayers with incomes greater than $578,125, or for married couples filing jointly with income greater than $693,750. The other marginal rates are as follows:
Firm News
It is with mixed emotions we announce that Jim Kanner will be retiring at the end of the year after practicing law for 40 years. Jim has been a sought-after attorney in the Atlanta area for his expertise in many areas of business law and estate planning. Before founding Kanner Baker along with Paige Baker in 2018, Jim practiced at several leading Atlanta law firms including MendenFreiman, Nelson Mullins Riley & Scarborough and Kilpatrick Stockton. Jim says, “It has been a true privilege to do what I have loved for my entire working life, and I have treasured the relationships I have made over the years. I will truly miss the regular contact with the people who have been such an important part of my professional life, but I am equally excited to begin this new chapter. I am looking forward to the next phase of life outside of the legal world.”
The good news is that while Jim is leaving, our name is staying the same and partners Paige Baker, Lauren Carey and Kim Davis remain along with our terrific paralegals, Amanda McDaniel and Jennifer Hays. We look forward to providing Jim’s clients with the expertise and level of service to which they are accustomed. While we will miss seeing Jim around the office, we wish him all the best in his next adventures!