January 7, 2019 | lmsXpect3 Recently, the Internal Revenue Service (IRS) announced that taxpayers who make significant gifts now will not be hit with surprise tax penalties after 2025. For those affected by this proposed regulation, this is a major announcement. Before the IRS clarified this point, there was considerable confusion over how the 2017 tax reform law. Known as the Tax Cuts and Jobs Act (TCJA) actually affects gift taxes and estate taxes over the long-term. Signed into law by President Trump in December of 2017, the TCJA dramatically increased the amount of the gift tax exclusion and the estate tax exclusion. Indeed, it doubled the amounts of each exemption: up to $11.2 million for an individual and $22.4 million for a married couple. However, contained within the TCJA are sunsets on these specific provisions. In other words, beginning in 2026, the gift/estate tax exemptions will revert back to their previous levels. That means they will be $5.6 million and $11.2 million when measured in 2018 dollars. This reversion in itself is an important consideration for taxpayers. However, the TCJA created some other concerns as well: Specifically, there has been confusion over whether or not the IRS will have the authority to ‘clawback’ the taxes that were deemed exempt on gifts/estates between 2018 and 2025. The recent announcement from the agency brings considerable clarity to this issue. According to the IRS and United States Treasury, taxpayers who take advantage of the increased gift/estate tax exclusions will not be hit with any surprises fees, taxes, or other financial penalties once the current tax law expires in 2026. As noted by Renton, Washington estate planning lawyer Dan Kellogg “Smart tax planning is a critical part of effective estate planning. The larger the estate, the more likely it is state or federal taxes are to have a significant impact. When planning for your future, you should always consider the tax implications of any estate planning strategy. This includes taking into account the ways in which federal tax law will change in the coming years.” As is required by federal rules, the public will have an opportunity to comment on this proposed rule making. Currently, an official hearing on the issue is set to be held in March of 2019. Contact Us, or call today at 425-227-8700.