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San Jose tax law attorney for estate taxes and TCJAWhen a large amount of money is transferred as a gift, there are certain gift taxes that apply. Similarly, funds left to heirs after an individual passes away are subject to estate taxes. Typically, a unified rate schedule is applied to an individual’s cumulative taxable gifts and/or estate in order to reach a net expected tax. The tax owed is determined after a credit contingent on an exclusion amount is applied. The basic exclusion amount (BEA) is first applied to the gift tax. Any remaining credit is then applied to the estate tax. The Tax Cuts and Jobs Act (TCJA) has instituted several major changes to the way gift tax and estate tax are calculated. If you are considering making a large gift in the next several years, read on to learn more about how these changes may affect you.

How the TCJA Changed Gift Taxes and Estate Taxes

The Tax Cuts and Jobs Act made far-reaching changes to United States tax law. One of these changes involves the basic exclusion amount that is applied to gift taxes and estate taxes. The TCJA temporarily doubled the BEA for the years 2018-2025. The BEA rose from $5 million to $10 million, or $11.18 million when adjusted for inflation. In 2026, the BEA is expected to return to the amount (after being adjusted for inflation) that it was before 2018. This means that you may currently leave just over $11 million to heirs without paying federal estate or gift tax. The annual gift exclusion remains $15,000.

IRS Clarifies How the Increased BEA Will Affect Taxpayers

Many taxpayers have expressed concerns about what will happen once the BEA returns to the pre-2018 amount. They worry that taking advantage of the increased BEA might negatively impact them in the future. In response, the IRS has issued a clarifying explanation. There is a special rule that allows estate tax credits to be calculated using either gifts made during a person’s life or the BEA applicable on their date of death – whichever is higher. If you want to make a large gift before 2026, you do not have to worry about losing the benefit of the increased BEA. Even if the basic exclusion amount has reverted to a lower dollar amount when a person dies than it was when s/he made a large gift, the gift tax portion of the estate tax calculation is still based on the higher BEA that previously applied.

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San Jose tax lawyer,  individual income tax, filing tax returns, estate taxes, deceased person taxesIt is often said that death and taxes are the only two things that people are certain to experience. However, one’s tax obligations do not end with one’s death. When someone dies, income taxes may still be owed on his or her estate. Moreover, estate taxes or inheritance taxes may also apply. In order to ensure that taxes are filed correctly, it is important to have a strong knowledge of tax law.

Filing Taxes for a Deceased Person

After a person dies, the administrator of his or her estate must file a tax return and report all income he or she earned prior to the date of his or her death. Typically, the administrator will file Form 1040, and he or she may also be required to file tax returns for any previous years in which the deceased person failed to file a return. If necessary, the estate administrator can obtain documents related to the deceased person’s income and taxes by filing IRS Form 4506-T (Request for Transcript of Tax Return).

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