Federal Estate Tax
The Estate Tax is pertaining to the tax on the individual right to transfer owned assets at the time of death. It involves recording of everything with economic value that an individual owns. The Internal Revenue Service or IRS imposed an automatic rule on the transfer of assets on the death of a taxpayer. The total value of the assets or properties of a taxpayer that passed away is required for a tax computation by the Internal Revenue Service through the estate tax. The value of the asset is not based on how much it was previously purchased but according to the current fair market value at the time of death of the taxpayer which becomes the basis of the estate tax. A fair market value refers to the sale price of the property in the market based on its location. The total value of all assets is called Gross Estate which may include the value of cash and securities, business trust and investments, real estate properties, and other values which are convertible to cash. The total value of the Gross Estate will be deducted with certain exceptions to arrive into Taxable Tax or Estate Tax. The allowed deduction are mortgages and other debts, expenses on properties, estate administration expenses, donations given to charitable institutions, and value of properties that automatically passed to a surviving spouse. At some point, the value business interests may be lessened on estate qualification. The law related to the Estate Tax is considered the most complicated policy to follow in the Internal Revenue Code. The computation of the required Estate Tax needs the assistance of an estate tax practitioner such as Attorney, CPA, Appraiser, Assessor and Financial Consultant.
Before awarding the assets and properties received from an inheritance, the heir must settle all liabilities including estate taxes. Filing of federal income tax is required on some assets as well as the final income tax return of the deceased covering the previous year. The heir is also responsible for paying the debts of the deceased besides the transfer liabilities, estate tax return, and final income tax return. The personal and estate tax returns must be filed to be granted clearance of federal income tax responsibilities of the Internal Revenue Service. If the inheritance is in a form of monetary value, it automatically lowers the amount of inheritance due to an estate tax deduction. When the inherited assets or properties are sold, the total value is covered by capital gains taxes. Some states in America oblige estate taxes on real estate property owned by a deceased person located within their jurisdiction. An estate tax rate sometimes applies to all assets of the deceased person; other rates differ according to the relation of the deceased to the benefactor or the heir of the asset or property. The state may provide a lower estate tax rate for the asset or property of the deceased left to a child or close blood relative, than the rate applied to a distant relative. Some states are contemplating on revising or abolishing their estate tax system.
Individuals who passed away this year 2012 need not rise from their graves. The exemption for the federal income tax was raised to $5.12 million valid for the next few years. This is uncertain because the tax laws are revised every year and the guidelines on estate tax may not be relevant anymore. For spouses who died in the current year of 2012 received $10.24 million estate tax exemption. To the living, it is time to assess the value of your assets or properties to avoid the complicated process of estate tax and family burden after your death. Be smart and prepared by studying the estate tax guidelines for singles and married individuals. A professional financial consultant may create an effective estate tax saving plan based on your current assets or properties. This tip does not only apply to the rich people as all federal income tax capable individuals have tax liabilities. Even those with millions of worth of life insurance policies are obliged estate tax liability after their death. One option to lessen the amount of estate tax is through joint tenancy with the right of survivorship. Joint tenancy refers to share ownership of more than one person of an asset or property. At the death of the owner of the asset or property, it instantly transfers estate tax obligations to the co-owners. To the poor, you might receive a valuable inheritance but ignorance of the estate tax is not a valid reason to evade paying the tax duties to your state. Know your rights and tax liabilities for it might hunt the dead and haunt the living.
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