After you've rung in the New Year, it's time to start getting down to business and thinking about tax season. While it's not the merriest time of the year, tax season is a great time to review your finances and the changes that may impact how you file.

Every year, the Internal Revenue Service provides its updated tax inflation adjustments. These yearly amendments lay out the amounts exempt from federal estate and gift taxes. Due to inflation, the IRS has increased estate tax exclusions for 2023. What does that mean for you?

What Is the Gift and Estate Tax Exemption?

The federal gift and estate tax exemption is the amount of money you can give during your lifetime or at death to a beneficiary that's exempt from federal estate and gift taxes. This amount fluctuates from year to year. For 2023, the Internal Revenue Service has announced that the annual gift tax exclusion is increasing, meaning you can give more money to a beneficiary without facing tax penalties.

Annual Gift Tax Exclusion Increase 

For 2023, the annual gift tax exclusion is increasing to $17,000 per recipient, tax-free. That is the highest exclusion amount ever recorded thus far. This amount does not use up a taxpayer's lifetime gift and estate tax exemption which, in 2023, will hit $12.92 million. Married couples can now gift up to $34,000 per recipient without impacting their combined $25.84 million gift tax exemption.

What does this mean for your estate planning? It means you can transfer a more significant portion of your assets to a family member or beneficiary tax-free. It also means an individual can offer a more sizable financial gift to an individual without using a portion of their lifetime gift tax exemption since gift and estate tax exemptions are linked. Typically, using your gift tax exemption reduces the amount you can leave to beneficiaries tax-free after death.

Gifts to Non-U.S. Citizen Spouses 

In most cases, spouses can transfer an unlimited amount of money to each other without triggering a gift tax. That is not the case for every couple. If your spouse is not a U.S. citizen, you may already know your financial gifts to your spouse are limited by the IRS. However, for 2023, the first $175,000 of gifts given to a spouse who is a non-U.S. citizen will not be included in the total amount of taxable gifts.

Leverage Your Assets 

What does the increase in estate tax exclusion mean for you in 2023? Unfortunately, many investment assets have suffered a decline in value. If you make a gift of these discounted investments, you may be able to leverage the increased tax exemption by gifting the discounted assets.

Speak with an Experienced Newport Beach Estate Planning Attorney Today 

If there is one government agency you don't want to run afoul with, it is the IRS. Let an experienced Newport Beach estate planning attorney help you make sense of the increased tax exclusion for 2023 and how you can use the new rules to your benefit. Contact us at 720-770-3880 to schedule an appointment at our Orange County law firm.