tax laws Tag

by Chris Swiecicki

Understanding the Annual Gift Tax Exclusion in 2025

This article is a “plain English” draft of an article for the Bar Association of Metropolitan St. Louis. Please reach out if you would like the full copy.

In our last article, we explored anticipated tax law changes for 2025. This time, we’re focusing on a powerful estate planning tool: the annual gift tax exclusion. Used wisely, it can significantly reduce your taxable estate.

What Is the Gift Tax?

The federal gift tax, governed by Section 2501 of the Internal Revenue Code, applies to transfers of property made without receiving something of equal value in return. It covers direct and indirect gifts—whether the asset is real estate, cash, stocks, or other property.

What Is the Annual Gift Tax Exclusion?

To avoid tracking every small gift, Congress created an annual exclusion. For 2025, that amount is $19,000 per recipient, up from $18,000 in 2024.

That means you can gift $19,000 to as many individuals as you’d like—without filing a gift tax return or dipping into your lifetime exemption. Married couples can double that and give $38,000 per recipient, per year.

Example: A couple with three children can gift a total of $114,000 annually ($38,000 x 3), tax-free. Over five years, that’s $570,000 moved out of their estate.

Making Exclusion Gifts Through a Trust: Future vs. Present Interest

Using a trust can enhance your gift strategy—if done correctly. But not all trust gifts qualify for the annual exclusion.

Gifts must be of a present interest—meaning the recipient can use or enjoy the gift immediately. This was clarified in several court cases.

• In Pelzer, the court ruled that gifts made to a trust without immediate access didn’t qualify.

• But in Estate of Cristofani, things changed. The decedent created a trust giving her children and grandchildren the right to withdraw trust contributions within 15 days. Even though the grandchildren had only contingent future interests in the trust overall, the right to withdraw created a present interest.

The IRS challenged this, claiming the withdrawal right was only included to get around the rules. However, the court ruled that if the legal right exists, the motive behind it doesn’t matter.

This principle was reaffirmed in the Crummey case. As long as a beneficiary has a legal right to withdraw the gift—even if they don’t actually do so—it qualifies for the exclusion.

Why This Matters

These cases confirm that properly structured trusts can allow you to take advantage of the annual gift tax exclusion while still controlling how and when beneficiaries receive assets.

This strategy lets you reduce your estate’s value for tax purposes without giving beneficiaries full control over the assets right away.

Final Thoughts

The gift tax exclusion remains a valuable estate planning tool. Whether giving directly or through a trust, it’s a legal way to transfer wealth while minimizing tax exposure.

If you’re looking to preserve your estate and provide for loved ones, consult a tax professional to explore how the annual exclusion—and trust planning—might fit your goals.

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by Chris Swiecicki

What is the Outlook for Tax Laws in 2025?

I am again both proud and honored to be co-author with Richard Wise on this article, which first appears in the St. Louis Law Journal Blog. Any errors are mine alone. Readers who want the full version, complete with footnotes, should check out the original.

During President Donald Trump’s first administration, Congress passed the Tax Cuts and Job Act of 2017 (TCJA). It is scheduled to sunset on December 31, 2025. If the TCJA sunsets, the relevant tax provisions will expire and the Internal Revenue Code will revert to its pre-2018 status.

If that were to happen, the following changes would occur:

Individual Income Taxes  

• The individual income tax rates would increase. Notably, the top tax rate would increase from 37% to 39.6%.
• Individual Standard Deduction: In the calculation of taxable income,  taxpayers subtract the standard deduction from their Adjusted Gross Income (AGI). In 2024, the standard deduction was $29,200 for married couples; the pre-2018 standard deduction was $13,000 for married couples.
• Personal Exemption: In calculation of taxable income, taxpayers subtract the number of personal exemptions for themselves, their spouse and dependents from their AGI.  The personal exemption under TCJA was reduced to zero; the personal exemption pre-TCJA was $4,150 per person.
• Child Tax Credit: The child tax credit allows taxpayers to reduce their federal income tax liability for each qualifying child. The TCJA set the amount at $2,000. The pre-2018 tax credit was $1,000 per child. Note: this is a dollar-for-dollar tax credit on an individual’s tax return.
• State and Local Tax Deduction (SALT): Currently, taxpayers who itemize their deductions are limited to claiming $10,000 in state and local income and property taxes under the TCJA. Under pre-TCJA provisions, the $10,000 cap did not apply and, hence, taxpayers will be able to deduct all eligible state and local income, sales, and property taxes. Note: the current administration is interested in removing the cap regardless of whether the TCJA is allowed to sunset.
• Mortgage Interest Deduction: Under TCJA, married taxpayers can deduct mortgage interest paid on the first $750,000 of mortgage debt. Returning to pre-TCJA status will increase the $750,000 to $1,000,000.
• Deduction for Pass-Through Business Income: Ordinarily, pass-through business owners are taxed at their ordinary income tax rates on such pass-through income. The TCJA created a deduction equal to 20% of qualified business income. This deduction will expire upon the expiration of the TCJA.
• Capitalization of Costs in a Trade or Business: A business generally must capitalize the cost of property used in a trade or business or held for the production of income and recover such costs through deductions for depreciation. For example, a business acquires a bulldozer for $500,000 with a depreciable life of 10 years. For 10 years, the business can deduct a depreciation expense of $50,000 per year. Under TCJA, a business was eligible to fully expense the purchase in the year the property was placed in service.  Accordingly, in year 1, the business could tax a business expense deduction of $500,000. This provision was phased down from 2022 to 2026.
• Estate and Gift Taxation: Estate and gift taxes are levied at a rate of 40% after excluding the applicable exclusion from taxation. For decedents who died in 2024, the exclusion amount was $13,610,000. This exclusion amount was set at $10,000,000 and adjusted annually for inflation. Pre – TCJA, the exclusion amount was $5,000,000, adjusted for inflation, which again will take effect upon the expiration of the TCJA.

What Proposed Tax Changes Are Under Discussion Now?

The new administration has announced that it is looking at some new proposals for changes to tax law.

• Social Security Tax: There are discussions about exempting Social Security benefits from income tax. In fact, at least one member of the U.S. House of Representatives has proposed such legislation.
• Tips: There is talk that the administration wants to exempt from taxation tips paid to retail service providers, although we have not seen any specific details. The consensus is that it would apply to restaurant waiters and waitresses.  A sidebar on this topic is how or if this would affect the base compensation paid to such workers. Would management pay the service workers less of a base pay (which is fully taxable) on the prospect that service workers would be able to keep more of their compensation derived from tips? It’s anyone’s guess until the administration issues specific proposed revisions to existing law.
• Overtime: There have been discussions that overtime compensation paid to hourly workers would be exempt from tax. Again, we are short on specifics. Might such an overtime exemption apply only to the 50% overtime payment, or if it would apply to the entire overtime compensation? Would such a change distort the labor market? For instance, would the labor market move to more hourly and non-exempt jobs if an adjustment is not made for salaried employees that are exempt from the Fair Labor Standards Act (FLSA) overtime rules? Would such a tax provision distort the labor market by employers relying more on overtime compensation than by hiring new workers?

In addition to the above considerations, Congress has to consider the estimated revenue effects of each provision under analysis and determine whether there should be corresponding provisions enacted to counter any projected revenue loss.

One takeaway from this article is that the reader should note how a change in tax policy may have a significant impact on the behavior of consumers and businesses. In some instances, tax policy is specifically designed to encourage a change in behavior.

This piece originally appeared in the St. Louis Law Journal blog.

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by Chris Swiecicki

How Taxation Laws Affect Stock Market Prices

When you hear news of possible corporate tax rate increases, your first thought may be how this will hurt your company’s bottom line. In addition to concerns about reduced profits, you might wonder how changes in taxation laws affect stock market prices. In many cases, stock prices go up after a federal tax increase. Still, many worry about what will happen if the economy stalls. 

Business owners do not have much influence over tax laws. They do have choices about reducing their tax burden. For example, selling stocks is taxable. Smart stockholders know the ins and outs of capital gains, tax credits, and taxes on dividends. Knowledge of tax laws related to the sale of stocks is especially important for those looking to sell their businesses. 

The History of Taxation Laws Affecting Stock Market Prices 

President Joe Biden’s 2024 budget proposal includes an increase in the corporate income tax from 21% to 28%. Although the proposed tax hike is sizable, if passed the corporate tax rate will still be lower than the top rate of 35% corporations paid before 2018. Congress is unlikely to approve new corporate tax laws, but the president’s proposal has reignited dialogue on corporate tax rates.  

The last corporate tax hike was in 1993, when the government raised the rate from 34% to 35%. The tax rate stayed the same until Congress passed the 2017 Tax Cuts and Jobs Act and lowered the corporate tax rate to the current 21%. Most corporations and their taxation law experts find ways to pay the government less than the statutory tax rate. The effective federal tax rate for large corporations decreased from 16% in 2014 to just 9% a year after the 2017 tax cuts. 

Despite what one would think, markets have had strong returns following tax increases over the past 50 years. Fidelity compared tax increases with stock market trends from 1950-2021. The study included corporate, personal, and capital gains tax increases. Key findings include: 

• The S&P 500 index had higher than average returns after tax increases 13 times.  
• Stocks rose every time the corporate tax rate increased. 

The study’s findings are interesting, but Fidelity does not have enough information to draw a conclusion about how taxation laws affect stock market prices. When corporate taxes have increased and stock prices also went up, the economy might have been stimulated by factors such as job growth, defense spending, or low interest rates. The added sales revenue from a booming economy often give companies what they need to counter higher taxes and come out ahead. 

Selling Stocks Is Taxable Under Capital Gains Laws

While you cannot affect stock market prices or tax increases, you can reduce your tax liability related to selling stocks or your business. The Internal Revenue Service levies capital gains taxes when you sell stocks: 

• Long-term capital gains taxes apply to the sale of assets when you have owned a business for one or more years. Long-term capital gains have lower tax rates than other sources of income. The three tax rates are income-based: 0%, 15%, or 20%.  
• Capital gains for businesses less than one year old are taxed at ordinary income tax levels.  

To figure the taxable gain of the sale of your pass-through entity, subtract the seller’s basis from the purchase price. The proceeds will be taxed as capital gains. 

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Tax Laws Related to Selling a Business 

Before getting serious about the potential sale of your business, find out how the structure of a sale will affect both your federal and state taxes. Failure to structure the sale properly may have a significant impact on your tax bill, and hence on your retirement fund.  

The sale of a business usually is classified as a long-term capital gain for which the seller is responsible. The long-term nature of the gain adds up. If you started your business 15 years ago with $75,000 and are selling it for $5 million, your capital gain is $4.25 million. In this example, a federal capital gains tax at a 20% rate is $850,000. 

Businesses may be sold in one of two ways: As a stock offering or a sale of assets. Most sellers prefer stock sales while buyers want to buy the assets. The seller will pay capital gains taxes.  

Strategies for reducing taxes when selling stock differ by corporate structure. The owners of pass-through entities—Limited Liability Companies (LLC), partnerships, or S Corporations—usually sell their personal stock shares to transfer the company to a new owner. They pay capital gains taxes on their personal income taxes and the company does not owe additional taxes. 

A buyer may be adamant about buying the assets of a pass-through entity, not stock, because of the tax advantages for them.  The seller can go ahead and sell the assets and not worry about paying any taxes beyond capital gains.  

In contrast, selling assets instead of stock has negative consequences for owners of C Corporations. When a company sells its assets, it must pay taxes at both the corporate and shareholder level. If the shareholders sell their stock, they receive a direct payment and pay capital gains tax. Sellers often need help from a taxation attorney to negotiate with buyers for the deal that is in their best interest.  

Taxation Attorneys Help Business Owners Cut Their Tax Burden 

If you are planning to sell your business, ask for advice from taxation attorney Christopher Swiecicki. He helps business owners design an exit strategy with the lowest tax burden possible. Some tactics Christopher recommends include:

• Spread out your tax liability. You can ask the buyer to pay in installments to eliminate your need to pay all the capital gains taxes in one year.  
• Watch the calendar. Do not sell a business before it is at least a year old to benefit from the lower rates of capital gains taxes. 

• Do not rush into a sale. Negotiate with confidence when the buyer wants to make a deal that works for them but not you. Take your time and stand your ground. 
• Reinvest in the Opportunity Zone Fund. You can defer capital gains tax through December 31, 2026, by investing capital gains from the sale of a business into an Opportunity Zone, a federal economic development program. The investment must be made within six months of the capital gains. 

Selling your business may be the largest financial transaction you will ever make. Feel confident you are structuring the sale to minimize capital gains taxes with help from taxation attorney Christopher Swiecicki. Call our office at (636) 778-0209 to arrange a free consultation.  

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