2022 Federal Tax Update: What You Need to Know

Important Tax Notice for Clients

In September of 2021, Congress introduced a spending bill to fund President Biden’s Build Back Better Act.  The plan, in its original form, proposed several robust changes to federal tax law, including reductions in the gift, estate, and generation-skipping transfer tax exemptions, changes in the tax treatment of grantor trusts and sales to grantor trusts, and the elimination of valuation discounts for transfers to entities owning nonbusiness assets.  The plan has yet to be passed into law, and this year, so far, has brought with it only minor tax developments, a few of which are outlined below:

Increase to Lifetime Estate Tax Exclusion

Tax forms

Beginning January 1, 2022, the federal estate tax exclusion, federal gift tax exclusion, and generation-skipping transfer (GST) tax exemption amount all adjusted upward for inflation from $11,700,00 in 2021 to $12,060,000 in 2022.  These increases result in a combined exclusion amount of $24,120,000 for a married couple.

These exclusion amounts are set to increase inflation until the end of 2025.  On January 1, 2026, the transfer tax exclusion amounts will decrease to $5,000,000 but be adjusted for inflation.

Increase to Annual Gift Tax Exclusion

Beginning January 1, 2022, the annual gift tax exclusion amount increased from $15,000 in 2021 to $16,000 in 2022.  Likewise, the combined annual gift tax exclusion for a married couple is now $32,000.  An individual may now gift assets valued up to $16,000 to another individual annually without incurring a federal gift tax or using up any of the donor’s federal estate tax exclusion amount.

Reduction of Required Minimum Distributions (RMDs)

On January 1, 2022, the IRS adopted updated life expectancy tables for calculating RMDs from tax-deferred retirement plans, such as 401(k) plans and traditional IRAs.  While this change results in only a modest reduction of RMDs in most cases, account owners or beneficiaries of inherited accounts (prior to January 1, 2020), will be able to keep more of their assets in these tax-deferred, interest-bearing vehicles for longer periods of time.

Contact a Sandin Law Estate Planning Attorney Today!

The professionals at Sandin Law work hard to assist clients in navigating the estate planning nuances associated with federal tax laws.  Let us provide you with the counsel necessary to safeguard your testamentary wishes and preserve your wealth for your loved ones.

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