One of the most anticipated (and dreaded) time of the year is when the IRS releases the tax rates for the upcoming year. It almost always happens in the last couple of months of the year. While everyone hopes their rates will go down, for most, they either aren’t going to change significantly or could possibly go up. However, for the upcoming year, I think there is some positive news for most people when it comes to their “Estate and Gift Tax” rates. Since the 2020 Tax Rates and Tables have just been released by the Internal Revenue Service, allow me to share some of the details with you.
Estates of Decedents Who Pass Away in 2020
Estates of decedents who pass away during 2020 have a basic exclusion amount of $11.58 million, up from a total of $11.4 million for estates of decedents who died in 2019. They will get an additional exclusion of $180K! An individual taxpayer may leave $11.58 million to heirs with NO FEDERAL OR GIFT TAXES due.
A married couple will be able to leave $23.16 million, with the proper estate planning in place. However, special rules apply to Green Card Holders, US Residents and Non-Resident Aliens with US Assets so these situations should be discussed with an Estate Planning Lawyer to ensure you get the maximum benefit.
Gift Tax Exclusion
The gift tax exclusion remains at $15,000, the same as it was for 2019.
Standard Deduction
The standard deduction for a married couple filing jointly rises to $24,800 for tax year 2020, up $400 from the prior year. This is a significant increase and one that should hopefully work in the favor of most married couples.
For single taxpayers and married individuals filing separately, the standard deduction rises to $12,400 in for 2020, up $200, and for heads of households, the standard deduction will be $18,650 for tax year 2020, up $300.
Alternative Minimum Tax
The Alternative Minimum Tax exemption amount for tax year 2020 is $72,900 and begins to phase out at $518,400 ($113,400 for married couples filing jointly for whom the exemption begins to phase out at $1,036,800). The 2019 exemption amount was $71,700 and began to phase out at $510,300 ($111,700, for married couples filing jointly for whom the exemption began to phase out at $1,020,600).
Lifetime Learning Credit
For tax year 2020, the adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit is $118,000, up from $116,000 for tax year 2019.
Tax Rates
For tax year 2020, the top tax rate remains 37% for individual single taxpayers with incomes greater than $518,400 ($622,050 for married couples filing jointly). The other tax rates are as follows:
- 35%, for incomes over $207,350 ($414,700 for married couples filing jointly);
- 32% for incomes over $163,300 ($326,600 for married couples filing jointly);
- 24% for incomes over $85,525 ($171,050 for married couples filing jointly);
- 22% for incomes over $40,125 ($80,250 for married couples filing jointly);
- 12% for incomes over $9,875 ($19,750 for married couples filing jointly).
There you have it…a quick summary of some of the major tax areas most people will be facing in 2020. As I mentioned at the start, there is some good news in this for many of you. It is important to understand these changes so you can hopefully plan for them better throughout the upcoming year.
What To Do Next...
Everyone’s situation is unique and different with many nuances. It is my recommendation to get your attorney (and your accountant) to sit down and go through these areas in detail for your specific situation…especially when it comes to your personal taxes and your estate. If you have someone in your family (or know of someone else) who may be facing a potential end of life situation, it is imperative you talk to a qualified estate planning attorney and do the proper planning ahead of time…it will save you hundreds of hours and potentially significant money if you have things in order before they pass. If you don’t have an attorney you feel would understand your situation, feel free to CONTACT ME and I can give you some insight and assistance to get this done right away.
Even if you have gone through this and understand your tax situation, ask yourself one key question, “Is your life and situation exactly the same as it was last year?” If it is, you are probably still in good shape with regard to your estate plan. If there have been any changes in your life (even minor ones), I would strongly recommend you get your personal estate plan reviewed to ensure it will do what you expect it to. Unfortunately, the majority of plans we see are not in sync with the current situation and won’t do what people expect they will do. Lower your Risk and get your plan reviewed to ensure it is going to do what you want (and hope) it will do.
I hope this has been helpful. If you do the proper work on this, I can guarantee you will have NO. MORE. TEARS. A little bit of effort here can help you sleep much better at night knowing you can take advantage of the tax opportunities that will be present and that your Estate Plan is in order with the changes that have happened in your life.