As I blogged last Friday and then posted on our Facebook page, the coronavirus affected IRS deadlines by extending payment due dates for individual and C-Corp taxes, but not filing deadlines. The tax preparing community immediately responded, indicating that taking extensions for so many clients wasn’t feasible. In light of that concern, Secretary of the Treasury Steven Mnuchin tweeted on Friday that the deadline for filing would be extended as well.
There has been some confusion about the tax filing / tax payment deadline extensions, but ultimately it has been confirmed that both the filing and the payment deadlines have been extended from April 15 to July 15 giving all taxpayers and businesses additional time to file and make payments without interest or penalties. In short, the coronavirus affected IRS deadlines for both payment and filing of individual and C-Corp taxes.
The IRS has established a special section focused on steps to help taxpayers, businesses and others affected by the coronavirus. This page will be updated as new information is available. https://www.irs.gov/coronavirus
As of this writing, the IRS has extended several IRS deadlines due to the coronavirus. The April 15th, 2020 filing deadline for 2019 tax returns is still in effect. However, payment deadlines are extended to July 15, 2020 for up to $1,000,000 due. The deadline is also extended for first quarter 2020 estimated payments. Type C Corporations also may pay their tax liabilities by July 15, 2020, up to $10,000,000 worth of tax due. The IRS also included a reminder that you may request a filing extension, and that the best solution is to file as soon as possible so you can receive your refund if you are entitled to one.
Keep in mind this does not extend non-income tax deadlines nor affect state income taxes.
In addition to the IRS’ coronavirus response, there are several other government links worth keeping in mind.
For health information about the COVID-19 virus, visit the Centers for Disease Control and Prevention (CDC) https://www.coronavirus.gov
In the U.S., we treat the estate tax and gift tax as a single tax system with unified limits and tax rates—but it is not very well understood by many people. Plus, the estate tax exemption is currently as high as it’s ever been, so many people ignore it assuming it doesn’t and never will apply to them.
However, the estate and gift tax has always been a political football, so it is a good idea to familiarize yourself with it in an election year. The Motley Fool’s recent article entitled “What Is the Estate Tax in the United States?” gives us an overview of the U.S. estate and gift tax, including what assets are included, tax rates and exemptions in 2020. As an overriding point, this blog covers federal estate and gift tax. Some states have their own estate, gift and/or inheritance tax (tax on all transfers to beneficiaries at a lower rate) which may work differently then the federal tax.
The U.S. estate tax only impacts the wealthiest households. Let’s look at why that’s the case. Americans can exempt a certain amount of assets from their taxable estate—the lifetime exemption. This amount is modified every year to keep pace with inflation and according to policy modifications. This year, the lifetime exemption is $11.58 million per person. Therefore, if you’re married, you and your spouse can collectively exclude twice this amount from taxation ($23.16 million). To say it another way, if you’re single and die in 2020 with assets worth a total of $13 million, just $1.42 million of your estate would be taxable.
However, most Americans don’t have more than $11.58 million worth of assets when they pass away. This is why the tax only impacts the wealthiest households in the country. It is estimated that less than 0.1% of all estates are taxable. Therefore, 99.9% of us don’t owe any federal estate taxes whatsoever at death. You should also be aware that the lifetime exemption includes taxable gifts as well. If you give $1 million to your children, for example, that counts toward your lifetime exemption. As a result, the amount of assets that could be excluded from estate taxes would be then decreased by this amount at your death.
You don’t have to pay any estate or gift tax until after your death, or until you’ve used up your entire lifetime exemption. However, if you give any major gifts throughout the year, you might have to file a gift tax return with the IRS to monitor your giving. There’s also an annual gift exclusion that lets you give up to $15,000 in gifts each year without touching your lifetime exemption. There are two key points to remember:
The exclusion amount is per recipient. Therefore, you can give $15,000 to as many people as you want every year, and they don’t even need to be a relative; and
The exclusion is per donor. This means that you and your spouse (if applicable) can give $15,000 apiece to as many people as you want. If you give $30,000 to your child to help her buy their first home and you’re married, you can consider half of the gift from each spouse.
The annual gift exclusion might be an effective way for you to reduce or even eliminate estate tax liability. The tax rate is effectively 40% on all taxable estate assets.
Finally, the following kinds of assets aren’t considered part of your taxable estate:
Anything left to a surviving spouse, called “the unlimited marital deduction”;
Any amount of money or property you leave to a charity;
Gifts you’ve given that are less than the annual exclusion for the year in which they were given; and
Some types of trust assets.
Some candidates seeks to greatly lower the estate and gift tax exemption, which may lead to many more taxable estates. If you are concerned about this tax, or are after the election, please contact our office to discuss how the estate and gift tax impacts you.