Estate planning isn’t just for the rich. If you don’t have an estate plan, your family may suffer long-term and expensive consequences after your death. Tax changes have recently made deducting estate-planning fees challenging. A good estate plan is essential if you are planning to pass assets and wealth on to loved ones.
Legal, accounting, and financial advisors can be costly regarding estate planning. It used to be possible to deduct some estate planning fees as itemized expenses before the Tax Cuts and Jobs Act. Let us learn more about whether estate planning is tax-deductible in detail. Also, check out Beem to file your federal and state taxes online and get the maximum refund.
Which Taxes Can Be Deducted for Services Related to Estate Planning?
No, there are no tax deductions available for most estate planning services. The fees associated with estate planning used to be tax deductible but are no longer. In the general context of estate planning, it refers to arranging one’s assets and property for distribution at death to beneficiaries. The plan includes legal documents such as trusts and wills and directives like living wills and durable power of attorney.
Estate Planning Fees are No Longer Deductible
The IRS used to allow itemized deductions on estate planning fees until it changed the law under the Tax Cuts and Jobs Act of 2017. We will be reviewing and renewing these changes in 2025. Estate planning and legal fees will be deductible in the future. As of now, such costs are not deductible.
A Minimal Effect on Most Taxpayers
Estate planning fees were previously deductible as itemized deductions are no longer deductible. But it may only affect some taxpayers. The prior tax reform allowed taxpayers to deduct only expenses related to taxable income production. To qualify, the taxpayer had to have total miscellaneous costs exceeding 2% of their adjusted gross income.
To determine taxable income, taxpayers use their AGI. Their income is calculated by subtracting adjustments such as:
- Pre-tax retirement contributions
- Some medical expenses
- Alimony
- Other deductible expenses
Will Estate Planning Fees Ever Be Tax Deductible Again?
Possibly. You might need a different answer if you plan to deduct estate planning fees this year. A new tax law went into effect in 2018 called the Tax Cuts and Jobs Act. Its provisions will stay in effect until 2025. During that point, Congress will have to decide whether to renew them.
There is no guarantee that estate planning deductions will be allowed again after 2025. However, taxpayers must find new ways to save on their estate planning. An attorney experienced in financial advising can assist.
What are the estate planning fees that are considered miscellaneous deductions?
According to the Internal Revenue Service, estate planning costs are considered personal fees and are not tax deductible. Exceptions do exist, however. Depending on the nature of the estate planning fees, they may be tax deductible if they are directly related to business operations, taxable income production, property management, conservation, or maintenance.
An estate may also be eligible for deductible fees for producing or collecting taxable income. These could include fees paid to attorneys or advisors to advise on income-generating investments.
Estate Tax & Estate Income Tax
Taxes on inheritance and estates are assessed only when the amount exceeds a threshold. The value of the estate or inheritance generally does not affect survivor exemptions.
State and district estate taxes have lower exemptions than federal ones, so you will likely feel the pinch if you live in one. The exemptions for state and district estate taxes are all less than half as high as those for federal estate taxes. As you move from one state to another, your inheritance tax rate varies, but the maximum amount of tax that any state can charge is 18%.
How to claim tax deductible fees on your income
You can itemize fees considered miscellaneous deductions on your taxes on Schedule A (Form 1040). All such expenses should be listed as “Other Miscellaneous Deductions”; their total amount should exceed 2% of your adjusted gross income. In other words, You can only deduct up to $1,000 in miscellaneous expenses if your adjusted gross income exceeds $50,000.
Conclusion
The IRS considers estate planning fees personal expenses, so the fees are not deductible. You can deduct these fees if they directly relate to the business’s operations, the production of income, or the management of income-producing properties.
To navigate tax law, accurate recordkeeping and informed judgment are required. An experienced tax advisor can be invaluable in helping you navigate the nuanced aspects of tax law in claiming expenses as deductions. Consequently, a thorough selection of an adviser is essential for an estate planner; this advisor should be educated about estate planning, tax law, and legislative updates. Check out Beem Tax Calculator to get a quick and accurate estimate of your federal and state tax refund online.
FAQs
Is estate planning now exempt from taxes?
No, most estate planning costs are not tax deductible under the Tax Cuts and Jobs Act.
Concerning the deductibility of estate planning costs, are there any anticipated changes?
A study will be conducted in 2025, which might offer fresh perspectives on the deductibility of legal and estate planning expenses.
What caused the estate planning services’ deductibility to change?
Changes were made by the Tax Cuts and Jobs Act of 2017, which eliminated the itemized deduction of estate planning costs.
