Dying is expensive. Funeral costs, the plot of land your body will occupy, and other expenses to cap off a good life. However, that’s not all. Depending on how vast are the assets you leave behind, wealthy individuals may be liable for the Estate Tax.
Estate Tax?
The estate tax, or more derisively referred to in public discussions as the “death tax”, is an inheritance tax that behaves similarly to the gift tax. Except in this case, the transferor is deceased and no longer among the living. So who gets the tax? The estate of the deceased person, of course. After tallying up the entirety of that person’s estate (the Gross Estate), the estate tax is calculated and the government takes its cut before it gets transferred to the inheritor of the deceased’s estate. Just like the gift tax though, it does not apply to most taxpayers due to its very high exemption amount, currently set at $11,400,000.
Exclusions & Deductions
Just like the gift tax, deductions are available to use to limit the bite of the estate tax by deducting the amount of the gross estate to be taxed. Some deductions include charitable contributions, marital transfers, casualty losses, and admin/funeral expenses.
4 credits are also available to use towards the estate tax. The Applicable credit amount (ACA), a tax credit for death-related taxes paid to foreign governments, a credit for gift tax paid that is part of the gross estate, and any prior transfers for taxes paid by the deceased within 10 years before or 2 years after the decedent’s death.
A Last Toll
Form 706 is used to file the estate tax. A fully prepared Estate Tax return is due 9 months after the death of the taxpayer. Of course, a 6 month extension is also available. The estate tax affects a very small number of taxpayers, but learning about the intricacies and unique pieces of our tax code helps readers gains some useful knowledge on taxes as a whole. As a CPA firm, we firmly believe in sharing relevant and interesting knowledge. Many of our clients would agree and feel more confident in their decision-making knowing they’re properly informed and their accounting and tax needs are kept in proper order by us. If you would like to learn more of our services, contact us! Also, please follow our social media pages for future articles like this that cover the unique tidbits of our tax system.