taxing the rich...estate tax - Page 3 - TigerDroppings.com

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nobodytooimportant
Member since Oct 2012
657 posts

re: taxing the rich...estate tax


quote:

Let's say you have a farm or business that is valued at $3 million, and the estate tax rate is 35 percent, which I believe it is currently.

For simplicity's sake, let's assume that it's straight-up 35 percent of $3 million, which is about $1 million, and you owe ten equal installments of $100,000 to the federal government.



Someone can correct me if I am wrong, but is the estate tax different then any other income taxes? IE is the tax only paid on the amount over the exempted amount? So if you have a 30% tax rate on estates over 5 million and your estate is 5.5 million, you would only be paying the 30% on half a million or 150,000.






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WildTchoupitoulas
LSU Fan
Member since Jan 2010
14584 posts

re: taxing the rich...estate tax


Why so sad?





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Dreamweaver
Member since Aug 2011
49 posts

re: taxing the rich...estate tax


quote:

Someone can correct me if I am wrong, but is the estate tax different then any other income taxes? IE is the tax only paid on the amount over the exempted amount? So if you have a 30% tax rate on estates over 5 million and your estate is 5.5 million, you would only be paying the 30% on half a million or 150,000.


You are not wrong. Actually the $5 million exemption is a misnomer. The way the tax actually works is that every dollar of net worth is taxed on a graduated scale from like 5 to 35 percent. You calculate the total tax owed, then every estate is allowed a very substantial tax credit (which unifies both the gift and estate tax) which has the effect of exempting the first $5 million of net worth from tax. So yes, every dollar above the "exemption" is taxed at the highest marginal rate.






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Newbomb Turk
Navy Fan
perfectanschlagen
Member since May 2008
9961 posts

re: taxing the rich...estate tax


quote:

For someone who died during 2012 the maximum estate tax would have been 45% of an assets value while the maximum long-term capital gain tax would have been 15% of the sales price less the adjusted basis in the asset.


Actually, it was 35% and 15% in 2012.

For 2013, it is 40% and 20%.

Also, for 2013, the $5 million is indexed to inflation for a total of $5.25 million ... with the portability still in place, so a couple can transfer $10.5 million. OF course, in community property states this typically isn't a big deal with the unlimited marital deduction.

One of the biggest flaws of the estate tax before 2011 was that it wasn't indexed for inflation. For a LONG time it was $600,000, then it went to $1 million (as I recall). Then it went to something like $3 million.

Now, it's indexed to inflation -- which really makes sense. So, unless Congress changes the law, it will be $5 million -- indexed to inflation. In 2012, that $5 million was $5,120,000 and in 2013, like I stated earlier, it's $5,250,000. You can look for similar $100,000 plus every year in the future.



This post was edited on 1/20 at 1:28 pm


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Newbomb Turk
Navy Fan
perfectanschlagen
Member since May 2008
9961 posts

re: taxing the rich...estate tax


quote:

IE is the tax only paid on the amount over the exempted amount? So if you have a 30% tax rate on estates over 5 million and your estate is 5.5 million, you would only be paying the 30% on half a million or 150,000.


It is a progressive structure, but the max rate -- now 40% -- hits at $1,000,000. When you are talking about a $10.5 million exclusion in the first place, most people subject to the estate tax will get hit with the 40% and basically make it a flat tax anyway.


quote:

You are not wrong. Actually the $5 million exemption is a misnomer. The way the tax actually works is that every dollar of net worth is taxed on a graduated scale from like 5 to 35 percent. You calculate the total tax owed, then every estate is allowed a very substantial tax credit (which unifies both the gift and estate tax) which has the effect of exempting the first $5 million of net worth from tax. So yes, every dollar above the "exemption" is taxed at the highest marginal rate.


Actually, I believe the way it works is that once you're over the credit (which is based upon the $5 million (adj. for inflation), then the progressive rates hit. It starts at 18% and goes up to 40% for estate with a "taxable amount" over $1 million. So, you don't hit the 40% rate until your estate is over $6 million -- again, indexed for inflation so for 2013 that amount would be $6.25 million.



This post was edited on 1/20 at 1:35 pm


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Newbomb Turk
Navy Fan
perfectanschlagen
Member since May 2008
9961 posts

re: taxing the rich...estate tax


quote:

What ways to pay over time are you talking about? I am not familiar with that at all.


Check out IRC secs. 6161 and 6166. As I recall, you can actually extend payment over 15 years.






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BBONDS25
LSU Fan
Member since Mar 2008
15898 posts
 Online 

re: taxing the rich...estate tax


Will do. Thanks.





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BBONDS25
LSU Fan
Member since Mar 2008
15898 posts
 Online 

re: taxing the rich...estate tax


You are correct NT. 10year extension if over 35percent of the estate is a closely held business.





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texashorn
Member since May 2008
1500 posts

re: taxing the rich...estate tax


I understand the flaw in my scenario now; one only pays the tax on the amount above the cutoff, not on the entire value if over the cutoff. Got it.





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