While there are no Texas estate taxes, residents of the Lone Star state may possibly still be subject to federal estate taxes. For Texas residents beginning to plan their estate, there are important factors to consider to ensure that unexpected tax laws do not blindside you.
Beginning an estate plan? Check out our estate planning in San Antonio, TX, guide to answer any questions
INHERITANCE TAXES IN TEXAS
Like the estate tax (or death tax), Texas residents have no inheritance tax. However, that does not mean you're not subject to other states' inheritance taxes. If a relative or loved one gives you money and they live in another state with inheritance taxes, you will need to check that state's laws to see your tax rate. For example, Kentucky has a tax that applies to all inheritors, even those from out of state. So if you have a relative from Kentucky who dies and leaves you money, you may owe taxes in Kentucky.
Texas also does not have a gift tax. However, although there is no gift tax at the state level, you do still have to pay the federal gift tax rate. The 2023 gift tax exemption has increased to $17,000 per resident.
YOUR FEDERAL ESTATE TAX
While Texas is one of 38 states that does not levy an estate tax, you still must pay all estate taxes to the federal government, however. The federal estate tax for 2023 begins at $12.92 million per individual, which is an increase from the $12.06 million rate in 2022.
Any estate that exceeds that number for 2023 will be subject to the federal estate tax rate. If your estate does not exceed that limit, then you do not owe any federal estate taxes to the government.
For married couples, the limit is $25.84 million, which means that with the right estate and financial planning, a married couple's estate will not have to pay any estate taxes up to $25.84 million after they both die. However, if your estate surpasses this amount, the top federal tax rate is 40%.
Figuring out what you will pay in taxes can be complex, especially if you are a higher-earning individual who naturally has more tax complexities. Working with an estate planning attorney or advisory firm to help determine what your estate is worth and how to avoid expensive legal issues might be worth it. Estate planning can be complex, and is just a small part of your overall financial picture. Your financial advisor in San Antonio, TX, can help with all of your estate and retirement planning needs, as well as provide clarity to any tax-related questions you have regarding your estate plan.
Texas is renowned for being a tax-friendly state, especially towards its retirees. Texas does not levy an income tax on its residents, meaning there is no tax on Social Security payments as well as other income from retirement accounts. Though it is a great benefit and relief not to owe any state taxes, don't forget about paying your federal income taxes.
However, if you are looking at taxes in an all-encompassing scope, you cannot forget to factor the Texas property taxes into your tax equation. Texas has some of the highest property taxes in the United States. Furthermore, the base sales tax for Texas is 6.25%, while in most metropolitan areas, it can reach as high as 8.25%.
While Texas undeniably has some fantastic tax benefits, that does not mean that you should slack on your tax strategy. Good tax planning strategies should be ubiquitous across all aspects of your finances, from estate planning to retirement planning and your investments.
PLANNING YOUR ESTATE
Estate planning can be a daunting task. However, it does not need to be. The sooner that you begin to plan your estate, the easier it will be to manage and change when the time comes. Although being proactive is great for your plan, it still may not answer all of your estate planning questions or concerns.
To avoid common estate planning errors, consider working with a financial professional who understands the intricacies of estate planning. From helping you correctly evaluate the worth of your estate, to helping you establish wills and trusts, the professionals on the PAX team are here to answer all of your estate planning questions to ensure that you feel confident in your plan. Contact us today to see how we can help.
This material is provided by PAX Financial Group, LLC. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. The information herein has been derived from sources believed to be accurate. Please note: Investing involves risk, and past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All market indices discussed are unmanaged and are not illustrative of any particular investment. Indices do not incur management fees, costs and expenses, and cannot be invested into directly. All economic and performance data is historical and not indicative of future results.