Estate Tax
Estate tax, also known as inheritance tax, is a tax imposed based on the estate of an individual upon his or her death, and is typically paid by their heirs or beneficiaries. Estate tax, when levied, is collected on the total value of an individual’s estate. In the United States, the federal estate tax rate is 40%. Some states impose an estate tax, but typically it is not as large as the federal rate. Estate tax is often an unpopular tax among taxpayers and is subject to much scrutiny.
How Is Estate Tax Calculated?
Estate tax is calculated by adding up the total value of all the assets that are owned by an individual. This includes real estate, personal property such as jewelry and cars, stocks, bonds and other investments. Other items that can be included in the calculation of the estate tax include retirement accounts, trusts, and life insurance policies where the deceased is the beneficiary. The total of all of these assets minus any taxes or debts recorded against them is used as the base amount to calculate the estate tax amount owed.
The amount of estate tax owed depends on the amount of assets within an estate. The General Exclusion Amount (GEA) is an amount that can be exempt from being taxed, as it does not exceed a certain threshold. The state and federal GEA amounts are typically updated on a yearly basis. Any amount over the GEA will be taxed according to the applicable tax rate.
Who Pays Estate Tax?
Estate tax is typically paid by the executor of the estate of the deceased individual unless they have set up a trust prior to their death. The trust can specify how the estate is to be managed and how taxes are to be paid. Generally, it is the executor’s responsibility to collect the estate’s taxes and pay them to the IRS. In some cases, the heirs may also be required to pay any estate taxes due.
Why Is Estate Tax Criticized?
Many people criticize estate tax, as it is seen as a form of double taxation of an individual’s assets. This is because income from the assets has already been subject to income tax prior to the individual’s death, so imposing a further tax on the same assets is seen as unfair. Furthermore, estate tax is often seen as unfairly targeting the wealthy.
The issue of estate tax affects not just the wealthy but also middle class individuals, who may not have the resources to pay the taxes due or to set up a trust that would protect their estate. This has led to campaigns for its repeal or reform, although estate tax is still an obligation for many.
In conclusion, Estate tax is a tax imposed on an individual’s estate upon their death, and is paid by their heirs or executor. It is calculated by adding up all the assets within an estate and subtracting any taxes or debts from the total value of those assets. Estate tax is often criticized for unfairly targeting the wealthy and for being a form of double taxation, although it is still in place for many individuals across the country.
