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Estate tax changes: After the sunset

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in Small Business Tax,Small Business Tax Deduction Strategies

Calamity was predicted due to the “sunset” of several favorable estate tax provisions on Dec. 31, 2012. But now the dawn of 2013 is more promising.     

The new "American Taxpayer Relief Act" includes the following permanent changes:

  • The estate and gift tax systems remain unified. Significantly, the unified gift and estate tax exemption continues to shelter lifetime gifts as well as inheritances.
  • The estate tax exemption, which was scheduled to plunge from its high-water mark of $5 million (indexed to $5.12 million in 2012) to $1 million, remains at $5 million for 2013 and beyond (subject to indexing for inflation).
  • The top estate tax rate, which was scheduled to increase from 35% to 55%, is bumped up only slightly to 40%.
  • Portability of gift and estate tax exemptions between spouses, which had technically expired after 2012, remains in effect for 2013 and beyond.
  • Similar provisions for the generation-skipping transfer tax (GSTT) are made permanent for 2013 and beyond.  
  • The federal estate tax deduction for state estate taxes is made permanent. Prior to 2005, a credit against estate taxes was allowed, but it was replaced by the deduction.

Tip: Making these provisions permanent should finally ease estate planning woes.

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