Each year brings a number of changes or updates to key factors of estate and tax planning. New statutes go into effect, existing statutes expire, new guidance is issued by regulators, and adjustments (for inflation, etc.) are made to important numbers. Moreover, the constant back-and-forth in Congress last year over the new tax laws may have created uncertainty as to the current state of that legislation.
Even though it’s critical to stay apprised of these ever-changing dynamics, individuals and non-professionals often lack the expertise or time to do it on their own. To help you in this, I’ve compiled a list of key tax topics to be aware of for 2022.
What Tax Topics Have Changed?
- Lifetime Gift and Estate Tax Exemption Increased to $12,060,000: Every year the size of the gift and estate tax exemptions are adjusted for inflation. For calendar year 2022 the federal gift and estate tax exemption increases from $11,700,000 to $12,060,000 (or $24,120,000 for a married couple). We should note, however, that these amounts are scheduled to decrease to $5M (adjusted for inflation) on January 1, 2026.
- Annual Gift Tax Exemption Increased to $16,000: As with the gift and estate tax exemptions, the annual gift tax exemption (i.e. the amount one person can gift to another person annually without eating into their lifetime gift tax exemption) is scheduled to be adjusted for inflation. For 2022, the annual gift tax exemption increased from $15,000 to $16,000 (or $32,000 for a married couple).
- Required Minimum Distribution Tables Updated: The 2019 SECURE Act increased the age for taking Required Minimum Distributions (RMDs) from IRAs and qualified retirement plans from 70.5 to 72. To account for this change, IRS and Treasury updated the tables that are used to calculate the RMD. These new tables went in effect on January 1, 2022. These changes affect owners of traditional IRAs, qualified retirement plan participants, and beneficiaries of an inherited IRA or qualified retirement plan. These changes can be complicated, especially for individuals who have inherited an impacted plan. If you have questions or concerns, let us know and we can help.
- Reporting Requirements for Crypto Assets Added: The Infrastructure Investment and Jobs Act, which was signed into law in November 2021, created new crypto asset reporting requirements and updated various definitions of critical digital asset–related concepts. These new regulations went into effect on January 1, 2022. More broadly, this is an area to keep one’s eye on as it is likely that cryptocurrencies will continue to grow in popularity among investors, which could bring additional changes or regulations in the future.
What Tax Topics Didn’t Change?
- Estate, Trust, and Income Tax Rates Are Unchanged: Many of the draft versions of the Build Back Better Act proposed increases to the estate, gift, and income tax rates as well as changes to Generation-Skipping Trusts. These changes were not enacted, so the highest estate tax rate remains at 40% and the income tax rate for estates and non-grantor trusts remains at 37%. This tax rate applies to taxable income over $13,450 earned by an estate or non-grantor trust.
- Step-Up in Basis Not Eliminated: The step-up in basis at death remains in effect for 2022. Various 2021 tax proposals also considered eliminating the step-up in basis, which is a critical vehicle for maintaining family wealth. Under current tax laws, the tax basis of inherited property is generally adjusted to the property’s fair market value as of the date of the decedent’s death without triggering capital gains taxes.
- Estate Tax Exemption Portability Available: Currently, there is a process by which the unused portion of an individual’s lifetime estate tax exemption can be transferred to the surviving spouse. The lifetime estate tax exemption increased to $12,060,000 per individual for 2022, a historical high.
Prospects for New Tax Laws
The Build Back Better Act, which contains the lion’s share of the major tax reform proposals, passed the House in 2021, but the Senate has yet to schedule a vote on the matter.
The House-passed version contains surtaxes on ultra-high wage earners, but it does not include many of the most drastic changes proposed in the earlier versions of the legislation, including:
- Increases to the capital gains rates,
- Elimination of step up in basis,
- Changes to rules governing grantor trusts,
- Lowering of valuation discounts,
- Increase to the corporate tax rate,
- Changes to the estate and gift tax rates,
- Decreases to the gift and estate tax exemptions.
Schedule a Financial Legacy Review in 2022!
Your financial legacy is important, and we are here to help you plan for it. If you are concerned about the tax topics we covered above—or have questions about how or whether you may be impacted—don’t hesitate to schedule a complimentary Financial Legacy Review. Call me at 561-998-2362 or click the button below to request a consult.