In this portion of our 2023 Tax Planning series, we walk through Estate Tax Exemptions (Federal and State), Gift Tax Exemptions, and Charitable Contribution Deduction Limits and Strategy.
A Note from Us: At Akif CPA, we specialize in tax return preparation for individuals, families, and businesses. We are currently accepting new clients. Please contact us today if you require tax help.
2023 Federal Estate Tax Exemption
The 2023 Federal Estate Tax Exemption is $12.92 million, meaning that if a person leaves behind an estate worth less than $12.92 million, the federal estate tax does no apply (any that are valued above $12.92 million are only taxed on the total amount in surplus of that $12.92 million).
Keep in mind that this is at the federal level, and many states have estate taxes with much lower thresholds. For example, Oregon’s estate tax threshold is $1 million, where Connecticut’s is $9.1 million.
For 2024, the Federal Estate Tax Exemption will increase to $13.61 million before sunsetting in 2025 and returning to $7 million per individual (of course, that is dependent on any inflation adjustments and barring any congressional action. As of November 24th, 2023, it remains set to sunset).
Remember, with strategic estate planning, you can prepare yourself, your heirs, and your family to minimize your estate taxes. Speak with a CPA today and ask about updating documents, asset protection strategies, how to repurpose insurance, and what privacy laws come into play.
*Note: the increased exemption is temporary, and set to expire in 2025. Speak with your CPA to plan accordingly.
2023 Gift Tax Annual Exclusion
The Annual Gift Tax Exclusion for 2023 is $17,000 for individuals, or $17,000 each for married couples for a total of $34,000. This means that you can gift an individual up to $17,000 without needing to report it to the IRS. You can gift over $17,000, however, any funds beyond the initial $17,000 will be subject to taxes and count against their lifetime limit.
For 2024, the Annual Gift Tax Exclusion will increase to $18,000.
Charitable Contribution Terms and Reminders for 2023
Remember, your charitable contributions are tax-deductible in 2023, so keep those receipts!
The total deduction limit for charitable cash contributions for 2023 is usually 50 of your Adjusted Gross Income (AGI). However, qualified contributions (cash contributions to qualified organizations) aren’t subject to this limitation. Individuals can deduct up to 100% of their AGI for qualified contributions, while a corporation can deduct 25% of its taxable income.
Qualified organizations typically include:
- A church, synagogue, or religious organization
- Veterans organizations
- Community chests, corporations, trust, funds, or foundations
- Non-profit volunteer fire companies
- Fraternal societies
- Nonprofit cemetaries
- A state or United States possession
A few important things to remember:
- You must have proof of payment from a qualified charity
- Cash charity contributions of $250 or more and non-cash contributions valued at $250 more must have “contemporaneous written acknowledgement” from a qualified charity
- Non-cash contributions valued at $500 or more must also include…
- Qualifying Organization or Charity
- Description of Items Donated
- Cost
- Value
- Other items required by Form 8283
- Non-cash contribution worth over $5,000 must have a qualified appraisal.
*Note: Charitable contributions and deductions have very strict parameters, and your tax and income scenario can have huge impacts. We never recommend claiming charitable deductions without first speaking with a CPA.
Qualified Charitable Distribution from IRAs
Individuals who are 70 1/2 years old and up and would like to make a Qualified Charitable Distribution (QCD) from their IRA in place of the required minimum distributions can donate up to $100,000 directly from their IRA in 2023. This donation can go to one, two, or multiple charities. For married couples who meet the above requirements (meaning, both spouses are over 70 1/2), each couple can make a QDC of up to $100,000, for a combined total of $200,000 in 2023.
Donor-Advised Funds
Donor-Advised Funds (also known as DAFs) allow donors to make charitable contributions and receive an immediate tax deduction. These accounts effectively establish a public charity, meaning you can offer periodic grants. It also has some tax advantages when it comes to capital gains, so speak to a CPA if you are interested in starting a DAF.
You can contribute:
- Cash
- Stocks, Bonds, and Mutual Fund Shares
- IRA and 401(k) funds
- Cryptocurrency
- Life Insurance
*Note: Speak to a CPA if you are interested in changing your approach to charitable giving.
Looking for 2023 Tax Bracket Info?
For information on 2023 Tax Brackets, and to see how 2024 Tax Brackets will compare, read: 2024 Tax Brackets vs. 2023 Tax Brackets.
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