Starting next year, people who have done some estate planning and made the maximum tax-free transfers to their families (and those thinking about doing it) can take another crack at it. Beginning January 1st 2014, the amount folks can pass on during life (and at their death) completely free from federal estate tax will increase by an additional $90,000.
Using the Consumer Price Index data for the most recent month and the preceding 11 months, the tax experts at Research Institute of America calculated and reported increases for 2014 to a number of tax limits including the income where the various marginal tax brackets apply, the standard deduction amounts, the personal exemption amount, and a number of other items. They also calculated adjusted amounts for the various estate tax and gift tax limits that will apply in 2014.
Here are a few of the new limits that affect tax free gifts made in 2014:
Unified estate and gift tax exclusion amount. The “estate tax” will impose a tax on the value of a deceased person’s estate above a certain level called the “exclusion amount.” Therefore, a person whose estate value is below this level will not pay any estate tax. Likewise, “gift tax” may be imposed on gifts that are made in excess of a lifetime “gift tax exclusion amount.” A person may give away assets during his or her lifetime below this limit with no gift tax due. The last tax law made these two allowances equal in amount. For gifts made and estates of decedents dying in 2014, the estate and gift tax exclusion amount will be $5,340,000 (up from $5,250,000 for gifts made and estates of decedents dying in 2013).
This means that in 2014, each person has a credit that can be used to offset the estate tax on a taxable estate of up to $5.34 million of assets. The practical application of this is that individuals can make gifts during life or transfers at death of up to this new higher limit and pay no federal estate tax. Also, new last year is that a surviving spouse may combine her lifetime exclusion with the unused individual exclusion amount of her deceased spouse and pass on assets free of estate tax on a total taxable estate of up to $10.68 million at the death of the second spouse, assuming none of these credits were used during their lifetimes.
Other estate limits that change in 2014 include:
Generation-skipping transfer (GST) tax exemption. The “generation-skipping transfer tax” ia imposed on total lifetime gifts made above a certain amount to persons two or more generations below the giver. The exemption from GST tax will be $5,340,000 for transfers in 2014 (up from $5,250,000 for transfers in 2013).
Increased annual exclusion for gifts to non-citizen spouses. For gifts made in 2014, the annual exclusion for gifts to non-citizen spouses will be $145,000 (up from $143,000 for 2013).
Foreign earned income exclusion. The foreign earned income exclusion amount increases to $99,200 in 2014 (up from $97,600 in 2013).
Gift tax annual exclusion. For gifts made in 2014, the gift tax annual exclusion will be $14,000 (same as for gifts made in 2013). Generally the amount that can be given to any individual each year that is excluded from calculation in the gift tax is $14,000 per person per year. In 2014, this amount is projected to remain at $14,000 per person as the amount that may be gifted annually free from the gift tax. Parents may also use the technique of “gift splitting” or combining gifts to a child, whereby they can each make a gift of $14,000, for a total amount of tax free gifts made of $28,000 per person or child each year.
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