In the coming weeks our nation is set to see many changes in tax law. One of the biggest contributors to this new landscape of taxation will be the expiration of the Bush era tax cuts created in the early 2000s and later extended by President Obama. These expirations, set to take effect January 1st 2013, will affect individuals and corporations alike and are a major part of what has become known as the "fiscal cliff." One tax expiring that has many Americans concerned is the Bush era cut on estate taxes. If left unlegislated, this expiration could mean a huge spike in transfer taxes on individuals around the country and the exemption will drop by 4 million dollars.
Implications of Expirations
Currently, the rate of taxation on an estate is capped at a 35% marginal rate with a 5 million dollar exclusion. This means that an estate isn't liable for a onetime transfer tax (death tax) until it is valued higher than 5 million dollars. For many Americans, this is a relatively comfortable tax as it only affects the wealthiest individuals with the greatest means to carry this tax burden. However, with the coming of the new year, the scope of this burden will broaden drastically. If left unlegislated the rate of taxation will be at 55% with a mere 1 million dollar exclusion. This translates to higher taxes on less-wealthy individuals and could make it nearly impossible for some to transfer or inherit an estate without a tax burden. Currently, President Obama is struggling to pass legislation geared to set the tax rate somewhere in the middle; he proposes a 45% taxation rate with a 3.5 million dollar exclusion. If passed, this compromise could keep many, less-wealthy Americans above water in the ensuing years.
What You Need to Do
With the conclusion of election season, it seems as though new legislation should be flying from the halls of congress to help mitigate the effects of the coming "fiscal cliff." However, our bipartisan government is at a potential stalemate when it comes to the issue of estate taxes, and unless a compromise can be made quickly, we may be looking at a severe tax hike. At Rosenhouse Group PC, we encourage you to take individual action if you have any concerns regarding the welfare of your estate. An experienced accountant can put measures in place to help alleviate the tax burden you may potentially face at the beginning of the new year. We can use complimentary gift tax laws to limit your total transfer taxes. Since December 31st is the deadline, time is of the essence to save money. In the coming weeks, it is important that you assess your assets and determine how the tax cut expirations will affect you and your family. If you need any assistance in this process or have any questions, give us a call at 972-991-4272. As always, we're committed to standing by our clients and seeing them through this tentative transition.