I don’t think there is any legal principle that outlaws double (or triple or fourple) taxation. While arguing double taxation is politically a strong argument before Congress, I would guess that Congress can legally impose double taxation all they want to.
If you take money from under your mattress and pay Ramon the gardener to mow your lawn, that money is taxed again. Curse you government!
And of course, the estate tax exemption is 5 million dollars. So unless you’ve got stacks and stacks of benjamins in your mattress there’s not much point in worrying about it.
And is per person with portability, so if you’re married it’s actually around $11 million.
The laws are actually pretty good at making sure that income is taxed one time, and one time only. The only big exception I can think of is the step-up basis, where capital gains end up never being taxed at all. A stretch Roth IRA is also a bit of a loophole, I think. Both of those benefits the taxpayer, of course.
Orwell’s argument is interesting, and does speak to a bit of a flaw where inflation is not used in calculating “real” capital gains. I think the added paperwork and tracking required probably outweighs the benefits of trying to compute real gains instead of nominal gains. The takeaway from that example, for me at least, is that in a taxable account you need to consider the tax drag on your gains to determine if returns are high enough to justify the risk.
I’m certainly not arguing to make the tax code more complicated. But my little exercise shows why the capital gains tax should be lower than earned income tax to offset inflation on investments. There are those who argue that capital gains should be taxed fully as income, and I think that is patently unfair and uninformed for the reason I cited earlier.
I would argue that earned interest should not be fully taxed as income, either, and it would be relatively easy to apply a single-year adjustment for inflation. Given current interest rates, that would actually mean a loss of money in real terms for most savings vehicles. Nobody, including Uncle Sam, wants to admit that little problem.
In general, most of the Assets have not been taxed. For example, the real estate, most stocks, etc all have unrealized gain.
So, very few people even have to file a Estate tax return, fewer have to pay a nickle. And most of the tax is from unrealized gain.
Here’s what you wrote:
(bold is mine)
Not *just *gains implies, to me, that it’s a tax on gains and something else. Estate tax is a terrible example anyway – for the vast (vast!) majority of estates, the increase in basis means that the heirs won’t ever pay any tax on the assets or the gains. Dying is a way to avoid paying capital gains taxes on your stocks.
The correct procedure will not have you taxed on the original contribution. You want to make sure the bank knows you’re making a recharacterization or correction, not a distribution. If they know that, their 1099-R to you should be correct. It’s possible to use tax forms to “explain” why the 1099-R was wrong if you have to, but it’s always best if you can get the bank to do it right the first time.
Yes. The rest of the asset like I mentioned the first time.
I buy stock for $10000 and sell it for $15000 - I’m taxed on just the gain of $5000.
I buy stock at $10000 and when I die it is worth $15000. My estate could potentially be taxed on the whole $15000 i.e. the whole asset not just the gain.
One more kink in the works…
Any overseas income of US citizens may be taxed and then taxed again, by different sovereigns and subject to any relevant double taxation treaties.
Additionally, it may be possible for two states to each make a claim on the same income. There may be offsets, but not always.
A tax on dividends comes to mind. If I own 1/100th of a corporation, when that corporation makes a profit, it pays corporate taxes. I bear 1/100th of that burden. When it passes on a portion of those profits to me, I again pay tax on the dividend, which is 1/100 of the total dividends paid by the corporation.
As has been explained over and over, that’s not double taxation.
Not really, no. You buy stock at $10,000. It appreciates to $15,000. You sell it or do not, paying taxes on the capital gain if you do sell it. You die, with either $15,000 in stock or $15,000 in cash less taxes paid. If your estate is not worth more than the estate tax threshold, no tax is owed on the cash or the stock. If your estate is worth more than the minimum (above stated to be $5.43m), your estate owes tax on the stock or the cash in excess of $5.43m. In either case, the total received by your heir would be less if you sell the stock, contrary to your statement.
Yeah. And if you lose the cost basis information somehow–well, you’re shit outta luck. I had some shares that required some serious detective work to figure out the cost basis on. They were transferred multiple times and the cost basis was lost somewhere along the way. I was able to figure it out eventually with some deduction, but I can easily imagine a brokerage throwing up their hands if the original sale was too old.
It is true that heirs take over an asset using the cost basis at the time of death, but you were responding to a post about the estate tax. You answer is accurate regarding the heirs but is a completely separate issue from estate tax.
All this is, of course, not relevant to the OP. However, unless the estate is one of the two out of every thousand estates that pay the estate tax, it’s probably not an issue. Those two estates likely have a tax attorney to answer questions like these.
To the OP, if you don’t sell your mutual fund while you’re alive, you have nothing to worry about it (literally, since you’d be dead). Your estate may have to pay taxes on some portion of it, regardless of the gains, if your total estate is in excess of $5 million ($10 million if you’re married). If you do sell it while you’re alive, then if it’s worth the same amount that you put in, you probably won’t have to pay any taxes, but it would depend on what went on in the mutual fund during the time you held it.
Corporate taxes are a form of double taxation. First the owners, or their agents, pay a tax akin to income tax on earnings. Then when the company pays dividends to those owners those dividends are tax again as income.
As has been explained over and over, that’s not double taxation.
There is double taxation.
I earned wages paid taxes on those wages. Then had part of my wages removed and put into Social Security to be returned when I retired. I have since retired and guess what I am again having to pay both state and federal taxes on my social security checks.
Why is that double taxation? Social Security is not a savings program where your own money is locked away for your future use.