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Are You Prepared for 2013 Tax Law Changes?

December 26, 2012
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Are You Prepared for 2013 Tax Law Changes?

If you have been putting off creating an estate plan or haven't updated it in years, upcoming changes in tax laws might spur you into action. 

The current estate tax laws will expire at the end of 2012. Unless Congress intervenes before that time, you will see significant changes. Here is a preview of what you can expect:

Income and capital gains taxes will both increase and the estate, gift and generation-skipping tax—the shift of property by gift or at death to a person who is two or more generations below that of the person granting the gift—exemptions will change dramatically in 2013. The basic exclusion amount—the amount you can own before your estate is subject to estate taxes—lowers from $5.12 million in 2012 to $1 million in 2013. 

The top estate tax rate also increases from 35 percent to 55 percent. That means, for every dollar you own more than the $1 million exemption, up to 55 percent will be subject to federal estate taxes upon your death. 

And it is expected to affect many more estates. The Internal Revenue Service, for example, estimates that 114,600 estates of people dying in 2013 will have to pay taxes on their estates. By comparison, in 2011, an estimated 8,600 estates of people who died paid estate taxes.

Thus, if you haven't drawn up an estate plan yet, there may be no better time to do so. Here are some other federal tax laws affecting estate planning in 2013. 

Capital gains and income taxes raised: Capital gains taxes will increase from 15 to 20 percent and the top income tax rate has been raised from 35 percent in 2012 to 39.6 percent in 2013.
         
Gift tax exemption lowers: The gift tax exemption lowers from a $5.12 million exclusion amount unified with the estate tax exemption to $1 million in 2013. The top gift tax rate will rise from 35 percent to 55 percent. The annual gift tax exclusion—the amount you can give to anyone gift tax–free each year—is projected to be at $14,000 ($28,000 for married couples).  

Portability ends: For 2011 and 2012, if one spouse died without using up his or her federal estate tax exemption, the unused portion could be transferred to the surviving spouse. This is called a portability provision. In 2013, however, portability between spouses ends.

All that said, if a new tax bill is approved before Dec. 31, you will need to be ready for the last-minute changes. And you may want to talk to your tax advisor.

The information above was taken from the Maricopa Community Colleges Foundation website 2012.

Copyright © The Stelter Company, All rights reserved.

The information on this website is not intended as legal or tax advice. For legal or tax advice, please consult an attorney. Figures cited in examples are for hypothetical purposes only and are subject to change. References to estate and income taxes apply to federal taxes only. State income/estate taxes or state law may impact your results.