How Will the New Tax Laws Impact You?
On December 22, 2017, the president signed into law H.R.1, the “Tax Cuts and Jobs Act,” a sweeping tax reform law that promises to change the tax landscape and impact most Americans. The new tax law changes rates for individuals and many small business owners, whether they are sole proprietorships, partnerships or corporations will clearly impact a majority of Americans. Following is a summary of some of those tax law changes for 2018.
2018 ESTATE TAX LAW UPDATE
Summary of “Tax Cuts and Jobs Act,” effective 1-1-2018
signed into law by the President on December 22, 2017
By Roger L. Rutherford, Feldman Wasser
Federal Estate Tax
2018 Exemption Equivalent $11.2 million (an increase from $5.49 million in 2017)
Note: These provisions Sunset in 2026 and under current law the exemption amount reverts back to $6.2 million in 2026. (See below for details).
Annual inflation Indexing: Yes
Portability of unused exemption to surviving spouse: Yes, by timely election on Form 706 Estate Tax Return
Rate: 40% flat rate on taxable estate above exemption
Federal Gift Tax
Lifetime Gift Tax Exemption $11,200,000 (total lifetime taxable gifts)
Annual Inflation Indexing: Yes
Annual Gift Tax Exclusion: $15,000 per person per year (increased from $14,000 in 2017)
Rate: 40% flat rate on gifts above exemption
Federal Generation-Skipping Transfer Tax (GST) Tax
GST Exemption: $11.2 million (minus lifetime GST exemption used)
Annual Inflation Indexing: Yes
Portability of unused exemption transferrable to spouse: None
Rate: 40% flat rate on GST transfers above exemption
Federal Trust and Estate Fiduciary Income Tax
Tax Brackets: 10% up to $2,550; 24% between $2,550 and $9,150; 35% between $9,150 and $12,500; 37% over $12,500
Marginal Rate: 37% top rate applies to trust-retained income over $12,500
Medicare Surcharge: Top rate is subject to 3.8% Medicare surcharge tax on net investment income
Pass Through: Income generally passed through to beneficiaries via K-1 to the extent of distributions
As with previous tax law changes, these changes in the “Tax Cuts and Jobs Act”, are due to sunset on January 1, 2026. Estate, Gift and GST exemption will revert back to $5 million plus inflation-indexing back to 2011. Absent future changes, this will result in an exemption of approximately $6.2 million in 2026.
Illinois Estate Tax
The current Illinois estate tax, enacted in 2011, is also a formidable obstacle and requires special planning.
Illinois estate tax applies to estates of Illinois residents as well as the estates on non-residents who own real estate and/or tangible personal property located in Illinois. Every Illinois resident and non-resident with qualifying assets will pay Illinois estate tax before incurring any federal estate tax. The Illinois Estate tax exemption remains at $4 million for 2018, which has been fixed at $4 million since 2013 and is not scheduled to increase. The maximum effective Illinois Estate Tax rate is 28.5%.
This information is not intended to be given as legal advice but information that you can use to determine if you need to consult an attorney about your specific situation. We are available at FeldmanWasser to help you navigate the ever-changing tax landscape.