What is the Death Tax?
Death Tax is a special type of tax that is assessed in either full or partial segment of an inherited estate and these are generally levied on a beneficiary who is entitled to receive the property as per the deceased’s will or an estate that has paid the taxes prior to the transfer of the property that is inherited.
Death taxes are the taxes that are levied by the state or federal government upon the deceased’s property. These are entirely based upon the value of assets and properties during the time of the death of the respective owner. These taxes are applicable only in the case of a few people.
How Does Death Tax Work?
The rate of death tax has always been fluctuating ever since it was formed in the year 1916. The tax liability is evaluated by all or portion of inherited estate’s value which is beyond a pre-defined exemption level. Inherited taxes are paid by every single heir of the inherited assets, while they are levied upon the estate itself. In a country like the United States, these taxes are levied on either full or portion of an inherited estate received by the beneficiary of the deceased’s assets. These taxes are not applicable in the cases of assets that are transferred in the name of a surviving spouse. Beneficiaries will only need to pay these taxes when the total amount of the inherited estate crosses the exclusion limits that are established by the IRS (Internal Revenue Service). They are levied only upon a few wealthiest Americans.
Who is Qualified for Death Tax?
The death duties are paid by industrial estates and not by the beneficiary who is entitled to inherit the assets from the estate. This is because of the fact that the IRS does not treat inheritances as taxable income in the majority of the cases. However, the income that the decedent or deceased person was entitled to receive and somehow the same received by his or her beneficiary, can be taxed for income tax. The beneficiary can even claim deductions on his or her tax return with respect to estate taxes that are actually paid on the post-mortem income. This can only be possible if the beneficiary avails the deduction during the year they have received all or portion of the inherited estate.
If a beneficiary inherits the property or an asset that later makes him or her money, then the income received by him or her from that particular property or an asset shall be taxable. Take, for instance, Bill inherits a rental property that yields rental income, then he will be liable to pay the tax bill for that particular income. These taxes are applied relatively to larger estates and only 2 out of thousand estates have paid their federal estate taxes for the year 2017.
Advantages
- High Threshold: The gross assets must necessarily exceed 11 million dollars for the owner to qualify for the death tax as per the tax year 2019. This means only the wealthiest families must worry about these taxes and not all.
- Enormous Earnings: As per the Americans, the federal government can nearly pour $225 billion in the economy with the help of these taxes in the near future.
- Small Target: They are not applicable to all. it is applicable only in the case of a few individuals namely wealthy Americans. The majority off the Americans are not required to pay these taxes. Around 99 percent of the Americans are not needed to pay these taxes. This means the federal or the state government has a very small target and that too only wealthiest Americans with respect to Death taxes.
Disadvantages
These taxes are taxed twice and this is one of the biggest disadvantages of the same. It has massive loopholes which are what makes it less likable in today’s world.
- Double Taxation: The Americans who qualify to pay for death taxes face double taxation problems. They are taxed initially when they earn the money and next when they pass their property. Also, if at all the estate keeps getting passed from generation to generation it will still continue to be taxed.
- Numerous Loopholes: It cannot be denied that the death tax system has a variety of loopholes that are used by fraudsters for tax evasion purposes. The loopholes can easily be used in one’s own favor where the tax liabilities can be minimized or just eliminated by the tax-payers. There are many Americans that qualify to pay for these taxes but they take the loopholes of the system to their advantage and successfully avoid paying taxes. The Americans are seen reducing the size of their taxable estate by giving gifts to their heirs or beneficiaries or as many people as they feel like but not exceeding over $15,000 per individual. The gifts given to the legal spouse or for charity purposes are tax-free irrespective of their amount.
Conclusion
Death taxes are inherited taxes or death dues. These taxes are levied upon by the Federal or State Government. These are applicable only in the cases of the wealthiest Americans and not all. These taxes and inheritance taxes are different from one another. These taxes are levied upon the estate while the inherited taxes are paid by every single beneficiary of the inherited property. These taxes are subjected to double taxes and numerous loopholes, thus, making it receive more and more criticism by the Americans.
Recommended Articles
This has been a guide to what is death tax and its definition. Here we discuss how does it work along with advantages and disadvantages. You can learn more about finance from the following articles –
