It’s that time of year again, where Bloomberg BNA pulls out the crystal ball and projects the inflation-adjusted amounts for income, estate, and gift tax thresholds and allowances, and exempt organization thresholds and penalties, for 2018. Our crystal ball uses a derivative of the formula found in §1(f)(3) and data from the Consumer Price Index. These projected inflation adjustments are designed to give tax preparers and advisers the opportunity to initiate tax preparation, year-end estimation, and tax planning as soon as possible.
My colleague, Joe Ecuyer, already posted the annual gift tax exclusion amount. The §2503 gift tax exclusion amount is projected to increase to $15,000 for gifts made in 2018 (this amount is also relevant in determining taxes on gifts and bequests received from covered expatriates under §2801(c)).
Here are the rest of our predictions. These figures are adjusted for inflation annually. The full set of predictions can be found here. The IRS typically does not release the annual inflation adjustments until late October.
Income Tax of Trusts and Estates
For 2018, the taxable income thresholds on trusts and estates under §1(e) should be as follows:
|If taxable income is:||The tax is:|
|Not over $2,600||15% of the taxable income|
|Over $2,600||but not over $6,100||$390 plus 25% of the excess over $2,600|
|Over $6,100||But not over $9,300||$1,265 plus 28% of excess over $6,100|
|Over $9,300||But not over $12,700||$2,161 plus 33% of excess over $9,300|
|Over $12,700||$3,283 plus 39.6% of the excess over $12,700|
Alternative minimum tax exemption amount for estates and trusts (§55(d)(1)(D)): $24,600
Phase-out of AMT exemption amounts: estates and trusts (§55(d)(3)(C)):
Completed phaseout: $180,450
Estate and Gift Tax
For decedents dying and gifts and generation-skipping transfers made in 2018, the basic exclusion amount, for purposes of determining the §2010(c) unified credit against estate tax, is $5,600,000.
For gifts of current interest in property made to a non-citizen spouse in 2018, the annual gift tax exclusion under §2523(i)(2) should increase to $152,000.
Additionally, donees of gifts from certain foreign persons may be required to report these gifts under §6039F if the aggregate value of the gifts received in 2018 should exceed $16,111.
For estates of decedents dying in 2018, it is projected that the special use valuation method under §2032A for qualified property should not exceed $1,140,000.
For estates of decedents dying in 2018 extending payment of estate tax under §6166, the portion of the deferred estate tax subject to the two percent interest rate under §6601(j) should be $1,520,000.
For individuals losing U.S. citizenship in 2018, it is projected that an average annual net income tax of more than $165,000 for the five previous tax years is a covered expatriate for purposes of §877A(g)(1). This amount is also relevant in determining covered expatriates under §2801(e).
The amount that would be includible in the gross income of a covered expatriate under §877A(a) should be reduced (but not below zero) by $713,000, for tax years beginning in 2018.
For the §6033(e)(3) reporting exception for certain exempt organizations with nondeductible lobbying expenditures, the annual per person, family, or entity dues threshold should be $115 or less in 2018.
The unrelated business income of certain exempt organizations under §513(h)(2) in 2018 should not include a low cost article of $10.90 or less.
For organizations receiving fully-deductible charitable contributions under §170 where the donor received insubstantial benefits in return, the inflation-adjusted guidelines of Rev. Proc. 90-12, 1990-1 C.B. 471, §3 should be $10.90, $54.50, and $109 in 2018.
Failure to File Certain Information Returns, Registration Statements, Etc.
The penalties under §6652(c) for certain exempt organizations and trusts failing to file returns, disclosures, etc., which are required to be filed in calendar year 2018, should be:
(1) Annual returns under §6033(a)(1) or §6012(a)(6)
|Scenario||Penalty per failure per day||Maximum penalty per return|
|Organization (§6652(c)(1)(A))||$20||Lesser of (i) $10,000 or (ii) 5% of gross receipts for year|
|Organization with Gross Receipts Greater than $1,049,000 (§6652(c)(1)(A))||$100||$52,000|
|Public Inspection of Annual Returns and Reports (§6652(c)(1)(C))||$20||$10,000|
|Public Inspection Of Applications For Exemption And Notice Of Status (§6652(c)(1)(D))||$20||No limit|
(2) Returns under §6034 or §6043(b)
|Scenario||Penalty per failure per day||Maximum penalty per return|
|Organization or Trust (§6652(c)(2)(A))||$10||$5,000|
|Split Interest Trust (§6652(c)(2)(C))||$20||$10,000|
|Any Split Interest Trust with Gross Income Greater than $262,000 (§6652(c)(2)(C)(ii))||$100||$52,000|
(3) Disclosure Under §6033(a)(2)
|Scenario||Penalty per failure per day||Maximum penalty per disclosure|
|Tax-Exempt Entity (§6652(c)(3)(A))||$100||$52,000|
|Failure to Comply with Written Demand (§6652(c)(3)(B))||$100||$10,000|
So now you can either wait until the IRS announces the adjusted amounts or start getting ready for your end of the year planning.
With access to the Estates, Gifts and Trusts Portfolios Library, you’ll benefit from the premier resource that features research, planning, and implementation tools on one platform.
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