Estate Income Tax Guidelines 2021/2022

Where there is certainty, there is proper tax planning. Perhaps nowhere is this more evident than with estate tax planning. Certified public accountants advise the same tax-exemption rules for estate income will apply during the 2022 tax season. This provides estates reporting incentives like tax-exempt gifts and transfers. U.S. federal Internal Revenue Service (IRS) guidelines for federal estate, gift, and generation-skipping tax exemption enacted in 2017 with the federal Tax Cuts and Jobs Act (“TCJA”), continue this year. Estate entities planning income tax reporting can request information about the Act and recent IRS changes to tax-exemption rules. Planned giving professionals involved in nonprofit charitable giving strategy, will want to read on for more insight into TCJA tax treatment rules for basis adjustment and incentives for trust formation.

Ongoing TJCA Benefits

The 2021/2022 tax year offers TJCA incentives for estate entities reporting income tax to the IRS. Since enactment of the 2017 tax overhaul legislation of the Act by Congress, IRS rules for gifts and transfer exemption have modified preceding estate planning strategy. Effective January 1, 2018 to December 31, 2025, the Act permits $22,360,000 in gifts or estate transfers to family, heirs, or other beneficiaries, tax-exempt. IRS scheduled expiration of TCJA guidelines January 1, 2026 will affect estate and trust beneficiaries when the current $5,490,000 income (adjusted for inflation) tax-exemption ends, and preceding IRC rules resume.

“Basis Adjustment” Calculation

Basis adjustment is calculated according to the fair market value of an estate at the time of the originator’s death. Assets are subject to income tax basis adjustment after distribution from an estate. Therefore, basis adjustment applies to individual beneficiary income tax filers. Taxable capital gains or losses are calculated based on the value of an inherited asset, adjusted by a beneficiary’s estimated enrichment. Estate assets are protected from income taxes connected to gifted assets, 401(k), IRA, or other qualified retirement plan benefits transferred to an estate during the life of an owner or surviving spouse. No basis adjustment of capital gains on appreciated assets accumulated by an estate prior to the owner’s death is required by the IRS.

Continuing TJCA Incentives

The Act offered investors an 8-year window for tax-free investment of estate and trust wealth without tax effect. Surviving spouse portability election continues in 2022, allowing estate and gift tax exemption to carry over from a deceased spouse for use by the joint account holder while living. With the implementation of TCJA in 2018, generation skipping transfer exemptions increased to $11,180,000 from $5,490,000 per person, with inflationary adjustments assigned annually.

Tax-free Solutions for Estate Planning

Estate planners seeking solutions to impending taxation will want to review the option of -Qualified Terminable Interest Property Trust (“QTIP”) products. QTIP trusts are flexible IRS tax-exempt vehicles for protection of retirement and inheritance income. Considered one of the best options for estate transfer of assets to a surviving spouse, QTIP trusts protect funds up to 15 months depending on the state, after the surviving spouse has died. Another popular estate planning option is a disclaimer which allows the surviving spouse to disclaim and pass trust assets to children or other named inheritors at lesser income tax rat

Accountants preparing filing for an estate entity reporting capital gains income in the 2021/2022 IRS tax year should review TCJA guidelines for tax treatment and incentives..

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