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Understanding Estate and Gift Tax Exemptions for Your Denver Taxes

July 13, 2016

When it comes to tax planning, relatively few people know about, or need to know about, the federal estate tax and the federal gift tax. If you are fortunate enough to be able to give large monetary and property gifts over the course of your life, then these taxes can have an impact on your overall tax liability. Due to the American Taxpayer Relief Act (ATRA) of 2012, the estate tax is part of the Internal Revenue Code, which is the domestic federal tax law in the US. ATRA increased the amount of an estate’s estate and gift exemption to $5.45 million, meaning that an individual can give away that much in gifts throughout their lifetime without having to pay a federal tax. However, there are more nuances to the law than just the overall dollar amount donated, so you may need a local Denver accountant or tax professional to help you understand these taxes.

Estate Tax

The estate tax is a tax on the transfer of your property at death. Your gross estate is evaluated, in an accounting of everything you own or have interests in. This includes all of your assets, such as cash, securities, real estate, insurance, trusts, business interests, and so on. There are certain deductions made in the process of calculating your taxable estate, such as mortgages, other debts, and property that is given to heirs or charities. The net total is then federally taxed. There has recently been a fair amount of public debate over the estate tax and we highly recommend speaking with an estate planning or tax professional if the estate tax is something that may affect you or your loved ones in the future.

Gift Tax
The gift tax is a tax on the transfer of money or property from one individual to another, without receiving anything in return or accepting significantly less than what the property is worth. The donor usually has to file and pay for the tax, although exceptions can be made. There is often also a dollar amount limit on what can be gifted tax-free, so it is important to speak with a tax professional to plan ahead if you intend to keep your gift donations under the tax-free threshold.

Annual Exclusion
Currently, you can give $14,000, the annual exclusion amount, to as many individuals as you want without having to pay the estate or gift tax. Spouses can combine their annual exclusions and give $28,000 without having to pay taxesYou can donate to charities, to a spouse, or to a political organization; you can also pay for tuition at an educational institution or medical expenses at a medical facility in unlimited amounts, as long as you make payment directly to the institution or organization. Gifting stocks and real estate, either physical or percentages of ownership, are other gift options. Spouses can combine their annual exclusions and give $28,000 without having to pay taxes. This annual exclusion occurs on a yearly basis, so it’s important to time your donations accordingly. Your accountant can help you with important filing dates and deadlines.

While crafting your estate plan, bear in mind the unified credit, which occurs when the federal gift tax and estate tax are integrated into one. This is the credit for the portion of estate tax due on taxable estates. If you exceed the annual gift tax exclusion amount, you can either pay the tax on the excess, or avoid paying the tax by using the unified credit.

Donating your assets during your lifetime is beneficial for you and your loved ones, although filing these types of returns can be a complicated process. Schedule a free estate and gift tax return consultation with Bloch, Rothman, & Associates at 303-321-7160 to help determine your needs and for professional assistance with estate and gift tax filings and exemptions.