BTW, welcome to the Teeming Millions JAG. I hope to see you here often.
<sigh> Since you are new, and seem fairly bright, I won’t savage you here. I hold an “enrolled agents” lic, ie, I am a certified tax expert. The estate tax is NOT “double taxation”, unless you mean in the sense every is taxed not only twice, but dozens of times. See, what is being taxed is the TRANFER of the money to other persons. Just like in income tax, where your employer transfers to you, and you pay taxes on it. The dead guy does not have to pay any taxes on his estate. Just the transfer of it to others. So, for example if the entire amount was transfered to a non-profit org, there would be NO estate tax, as they are tax-exempt.
The Repulicans like to throw in the old lie about certain income being “double taxation” so you will think it is somehow unfair. Well, maybe the estate tax is unfair, but not because it is “double taxation”. OK? The term “double taxation” is a “Big Lie”.
I disagree. There is a difference between earned income and giving away the items and money that you have already paid income taxes on to purchase.
The decedent paid income and capital gains taxes and has a basis in all of these assets at the time of death. That same basis can be transferred to the beneficiaries of the estate. Instead, the entire value of the assets, including the already taxed basis of the decedent is taxed once again.
The IRS codes specifically differentiates earned income from other sources of revenue throughout the code. There is no definition that I have seen that depicts the transfer of a decedent’s estate as income to the beneficiary. It is simply an additional tax created not out of the fairness to tax all income, but to serve it’s own selfish purpose.
The death tax is to the decedent, not to the recipients. If no recipients are named or created the estate is still taxed and the remaining funds are taken by the friendly State to be held in escrow indefinately. The death tax is paid regardless of the creation of an estate or the existence of beneficiaries and are paid under the decedent’s social security number and name, signed by a Trustee.
Without the Death Tax:
The recipient will still pay taxes on the income from the assets and on the increased value of the assets at sale based upon the original value as opposed to the increased value at the time of death. If they choose to never sell the million dollar home, they never pay taxes on it.
To further expand upon income vs gifts, there are no $10,000 per family member exemptions for income. A dollar earned is always a dollar earned, so even the IRS accepts that gifting is not a taxable event, only rich-gifting is a taxable event.
No, one of the major justifications for getting rid of the so-called “death tax” is instances like the family farm or family business, cited above. Your business is a business, and you can’t run it while at the same time funneling off bits and pieces of it to set up tax havens. When you die, boom, it’s suddenly valued in toto as an estate. And given to your heirs who make not have the big cashola to pay for the taxes due. The answer then becomes to sell the family business or farm instead of keeping it in the family as the decendent wished.
These situations don’t match the “Dumb rich who shoulda known better” problem you’ve outlined.
Didn’t we just say that if you prepare for the event you can avoid the estate tax? Does the fact that the estate is mostly property make this impossible? And if this is such a big problem isn’t land a bit over valued? Why is land that can not be used to produce enough income over a lifetime to save up enough to pay the estate tax on it valued so highly? (confusing sentence there but I think you get the gist)
Is it just a desire to continue the family business that makes this a tragedy? I don’t see a whole lot of value in that. Some, but not a lot.
Can’t the prospective inheritor save up some money too? Plenty of people get little or no inheritance and do fine. I think that by the time my Dad dies I will have pretty close to enough money to pay any estate tax on his estate (though his estate will probably be liquid enough anyway and possibly not large enough to be subject to the tax). Is it just when the parent dies young that this is a problem? Is it because family farming has become only marginally profitable lately? How much do we value the tradition of family farming anyway? Is this the only problem with the estate tax? How hard would it be to insert a loophole for farmers? It seems like farmers are subject to a completely different set of tax laws anyway (rightly so since we put tight controls on food prices).
This whole issue seems strange to me. The way the argument is going seems like the Democrats and Republicans have switched their normal bias for this one issue. I keep thinking that rich republicans who don’t give a hoot about the family farmer must have some other reason to hate the estate tax and are using the farmer do gain sympathy from the bleeding heart democrats. (I’m not saying that all rich republicans don’t give a hoot, just fictionalizing a theoretical group that don’t.) I have no evidence to support this thought. I am admitting a bias and saying that it’s hard for me to think objectively. I am trying.
I just don’t see why the democrats would want the tax if the only people being hit by it are poor farmers. I can’t believe that the estate tax on poor farmers is enough money to make much difference. I gotta believe that the estate tax on those $4 million, and above, estates is the money the Democrats are after.
On this issue of gifts=income, no one said gifts were income. Gifts are money transfer. It’s not just income that is taxed atfer all. Property is even taxed without transfer. The tax laws are designed (or should be I think) to get money from the people who receive services and those who can afford to suppliment the rest (a sort of enforced charity). I think that this is OK.
Property taxes are of state and local level, there are no federal property taxes, so if the death tax were a transfer tax on the state level, i.e. the transfer tax on an automobile, it would be in keeping with the ‘norm’ of activity for taxation. It would also be at a much lower and acceptable taxation rate.
That said, I do not suggest for a moment that taxes are fair or intended to be that way.
The whole tax structure and code as it was written and intended, is a social program tool.
We don’t need income taxation on a federal level at all. With the departure from the gold standard, the U.S. Treasury could print up an extra few trillion dollars and pay off the National Debt, then write blank checks for the military and operating needs of the federal government. This would result in high inflation, much like what we experienced in the eighties when gold prices went through the sky and the gold standard was entirely eliminated.
In that time period, we had the double hit of income taxes, high interest rates and high inflation. This resulted due to a lack of experience with this departure from the gold standard and failed forsight into the marketplace reactions to that action. It was because of that manuever and the quick learning experience gained by that manuever that we can enjoy relatively low and consistent inflation today.
A repeal of income taxes today would result in a huge immediate inflation, a ‘tax’ on purchases. [Please note that I am not addressing Social Security or Medicare taxes which are separate social program taxes] This would be followed by moderate inflation, which would then result in inflationary payroll increases. As was identified in the Reagan era, the inflation would likely outpace pay increases. Thus a repeal is not feasable at this time unless the government were to repeal its social programs and return solely to the function of government.
However, there is now a budget surplus. For a government this is much different than a company budget surplus. This means the government is going to take in more taxes than it needs for all its social programs. Put plainly, the government is overcharging taxes.
The money does not belong to the government. If the government wanted or needed all these wonderful programs that they are now devising to spend up the excess funds collected, they could have done them earlier and planned or increased taxes respectfully. IF we needed these programs, they would have been created before, not because of a budget surplus.
It is analogy time…
You are salaried to receive $1,000.00 per pay and one week, because of an error in the payroll system, you receive $2,000.00. Rather than returning the extra $1,000.00 to your employer, you send him a letter explaining how you spent it.
Another analogy…
You hire a contractor to replace your kitchen at a cost of $10,000.00. The contractor replaces your kitchen, but sends you four invoices in the amount of three thousand dollars each. You pay the invoices, then realize, that you were overcharged. The contractor comes back and installs a new $2,000.00 refrigerator in your house. You object, you did not want the $2,000.00 refrigerator and liked the old paid for version that seemed to be running quite well. Even the contractor had not seen a problem with that refrigerator at the time that they made the proposal.
I believe that accurately describes my view on budget surplus and who it belongs to. The next question is Who gets the surplus?
Well, here is another analogy:
Sally owns 97% of a company
Bill owns 2%
Joe and Jimmy each own 1/2%
They agree to purchase an office building at a cost of $1,000,000.00. Sally puts up her $970,000.00, Bill $20,000, Joe and Jimmy $5,000 each. They all pay cash.
The first year of operations, the building makes a $100,000.00 profit. Sally wants $97,000.00 of the money because she put a similar percentage of the money to purchase the building. Joe and Jimmy don’t have as much money as Sally, as evidenced by their lower contribution to the purchase. They cry that they should get their $5,000 back before Sally gets any money. Of course, they still want to benefit as owners of the building, and continue to participate in its profits. Bill sees this and offers that if Joe and Jimmy get $5,000 back, he should at least get the same, possibly even $10,000 before Sally gets any money.
Why death taxes as opposed to reducing the income tax rate?
The death tax, as well as the gift tax, are simply the least fair of taxes in a system full of unfair taxes. If you work hard all your life, build a company or just acquire alot of ‘stuff’ you want your legacy, your children and grandchildren to be able to benefit, to have a better life from your accomplishments. Income taxes have already been paid on the money used to acquire this ‘stuff’ and if the ‘stuff’ is sold, it will be taxed via capital gains on the original basis.
Another analogy because I love them so much…
Joe is born in a destitute neighborhood. John lives across the street. They grow up together and both get a college scholarship for football at the same college. John decides instead to become a heroine addict and impregnate as many women as he can get his hands on. Joe goes on to professional football, then a series of commercials and business ventures. He pays out millions of dollars in federal income taxes over his lifetime. John collects welfare and food stamps and public housing and pays, through the few jobs he takes, a few thousand dollars in taxes over the course of his life. Joe dies, leaving behind three children and ten grandchildren and an estate worth $20 million. John dies leaving behind ten children and thirty grandchildren and twenty thousand dollars worth of credit card bills that are written off. John’s decendents sue based on alleged rights to $10 million of Joe’s estate because they grew up in the same neighborhood.
You mentioned transfer taxes…
A transfer tax is a flat rate tax and is at the state level, not federal. Property taxes are at the local level and are paid annually. The death tax is a completely separate animal, it is on a federal level. Let the state’s continue with their transfer taxes then if you wish to draw such an analogy… 5% in the State of Maryland. That is reasonable. Let the Federal government match it for another 5% if they need to punish the dying rich to sleep easy at night. But consider that social programs are at least supposed to be created to better the lives of others, a moral cause. People build estates and save for a reason, an unselfish and moral reason, to provide for their heirs.
IRC Section 61: …Income is income from whatever source derived…". Ie, gifts ARE income, just that the GIVER rather than the reciever pays taxes. Earned income is not the only source of taxable income, as earned income excludes: interest, dividends, capital gains, etc, etc. Now, some sources of INCOME are specifically excluded, true, and gifts are not taxable to the recieptient, but to the estate. Incidentally, the decedent, being DEAD, pays no taxes, but the estate does. Now, if the entire amount of the estate is transferred to a charity, then the estate pays no taxes. However, if you gave all your income to charity, you would be able to deduct no more than 50%.
You like examples? OK, the decedant leaves a million bucks to his partners. Ie, he transfers 1M to other business owners. Now, if he spent that money, and in that way transfered it, they would be taxed. Nearly every time you transfer , someone has tax consequences. It is no differnt than spending it. Now, if the decedant has not been too greedy, he can shelter a big chunk, and using the 10K/yr exclusion, freely transfer a lot to his family. Every is taxed over & over, nearly every time is goes from 1 owner to another. There is no such thing as “double taxation”- that’s a LIE. Now, I will happily argue about the morality of estate taxes, or whether they are needed, but that is different. That’s opinion. The FACT is there is no such thing as “double taxation”.
Now, on to “small businesses” & “family farms”: there are additional exclusions for these. With proper planning, a SB or FF estate could be around 5 million $ before it incurs estate taxes. I am sorry, but in my mind, before you get close to 5 million dolloars net worth, you have gotten out of the SMALL business, or FAMILY farm category. It ain’t Ma & Pa Kettle with their 40 acres who are being hit with the estate tax. In fact, the Gallo wineries had so many exclusions & deductions, they paid a mere trifle. I would not call Gallo a “family” farm, as it is worth over 100 million, last I heard. OK, so “small businesses” & “family farms” are not being sold off to pay estate tax.
Now on to one of JAGs analogies_ getting an extra $1000 in your paycheck. Thats NOT what happened. A better analogy is, as you are the manager of a store, that usu make 100K in sales a month, the owners offer you 1% of groos sales as your Xmas bonus. BUT, it was a great month- some of it was your work, but a lot was jst due to the economy. So, the store made 200K, and your bonus is $2000, instead of $1000. Were you overpaid? No, they offered you 1%, and even tho they thought that was only going to be 1000, it was a lot more. Thus, the is yours.
If you actually sent the IRS an extra $1K, they would have to return it. But since their % was a % of a lot larger amount than Congress thought- it belongs to Congress.
Do Cranky and Daniel want to pull out some cites for their assertions about the family farms and small businesses? I admit to wanting to believe Daniel because he supports my general feeling that the republicans want to eliminate this tax for reasons unrelated to family farms. However, no one has brought a definitive cite to bear on this issue and we haven’t come to a consensus.
Have we all agreed that there does not exist some large number of rich people who manage to escape paying much income tax? What about the real estate devaluation thing? Is this a legitimate way to avoid taxes? Does it happen much?
“IRC Section 61: …Income is income from whatever source derived…”. Ie, gifts ARE income, just that the GIVER rather than the reciever pays taxes."
There are however definate distinctions made by the IRS between earned income, unearned income and gifts. Try making deductions from income based entirely on interest income. It is only deductable from earned income. Just like there are earned income credits and so on.
Gifts are not income by anyone’s definition.
Here is a quote from the form 709 instructions:
“The gift tax is in addition to any other tax, such as Federal income tax, paid or due on the transfer.”
And the United States Estate tax is based on the Gross Estate valued at the time of death plus 3 years prior gifts.
To specify that the gift tax is in addition to Federal income tax is an acknowledgement that gifts are not the same as income. So saying ‘Income is income from whatever source derived’ makes no point that gifts = income. I did not mean to imply that earned income was the only source of taxable income if that understanding was taken. My intent was only to differentiate between income and gifts. Whether the source of income is interest, dividends, capital gains, or even gambling revenues, there is always some sacrifice, either money is invested, funds are wagered, all very different from gifting.
“true, and gifts are not taxable to the recieptient, but to the estate.”
Actually, since gifts during a person’s life in excess of $10,000 per person per year are taxable, and even some of the non-taxable portion is later computed into the estate and the estate tax if filed on the decedent’s SSN, I disagree, it is the decedent who pays the tax. Just because he/she is dead doesn’t make it any less their money that is being spent to pay the taxes. He/she still pays files an income tax return for the year they died. Death does not alleviate one of taxation.
Thus, they are paying taxes on the same money, money that they paid income taxes on when they earned it and estate taxes when they died, twice. Double taxation definately and truly exists. If I hire an attorney to pay my taxes it doesn’t make them any less my responsibility, the same is true in life or in death. Being dead they can’t really do anything but take my assets BEFORE they are transferred.
“You like examples? OK, the decedant leaves a million bucks to his partners. Ie, he transfers 1M to other business owners. Now, if he spent that money, and in that way transfered it, they would be taxed.”
If who spent the money? Who would be taxed? I don’t quite understand what you are trying to say.
If he spent the million dollars during his lifetime, how would he be taxed? Sales tax is a state issue. Maybe he would pay a luxury tax, but that is substantially less than the estate tax. There would be no other federal tax if he spent the money.
“Nearly every time you transfer $, someone has tax consequences. It is no differnt than spending it.”
You aren’t taxed on the federal level for spending your money.
“Now, if the decedant has not been too greedy”
i.e. would dare to keep everything they worked hard all their life for and give it to… God forbid… their family.
“he” or she “can shelter a big chunk, and using the 10K/yr exclusion, freely transfer a lot to his family.”
Depending on the size of the estate, definitions of ‘alot’ are very debatable. Is $10,000 a year…even doubled to $20,000 a year for a married couple, alot of money? I couldn’t live off $20,000 a year. Why shouldn’t I be able to support my children after they finish college? Why does the IRS need to tax me a second time for daring to look after my offspring? Gift taxes and Death taxes are double taxation. There is simply no other way to see it.
“Every $ is taxed over & over, nearly every time is goes from 1 owner to another. There is no such thing as “double taxation”- that’s a LIE.”
I absolutely, 100% and with the specific evidence above disagree with that statement. Double taxation is very real or we have different definitions of double taxation. To me double taxation is the same taxing entity taxing the same income to the same person twice. If my definition is identical to yours, I don’t see how you can argue that gift taxes and death taxes are not double taxation.
“Now, on to “small businesses” & “family farms”: there are additional exclusions for these. With proper planning, a SB or FF estate could be around 5 million $ before it incurs estate taxes. I am sorry, but in my mind, before you get close to 5 million dolloars net worth, you have gotten out of the SMALL business, or FAMILY farm category. It ain’t Ma & Pa Kettle with their 40 acres who are being hit with the estate tax. In fact, the Gallo wineries had so many exclusions & deductions, they paid a mere trifle. I would not call Gallo a “family” farm, as it is worth over 100 million, last I heard. OK, so “small businesses” & “family farms” are not being sold off to pay estate tax.”
I am unsure of your personal experience, but just because you haven’t run across a specific situation (and I don’t know where you drew the $5 million figure from) don’t automatically assume it doesn’t happen. All it takes is $650,000 in value to owe taxes on death ($675,000 in 2000). It takes surprising little to get there, i.e. farmland is rezoned to residential or commercial zoning… just because that is the highest and best use does not make it the intended use, but it will make it the value at death. So until you can provide evidence that they ‘are not being sold off to pay estate tax’, you should keep an open mind that it can happen.
"Now on to one of JAGs analogies_ getting an extra $1000 in your paycheck. Thats NOT what happened. A better analogy is, as you are the manager of a store, that usu make 100K in sales a month, the owners offer you 1% of groos sales as your Xmas bonus. BUT, it was a great month- some of it was
your work, but a lot was jst due to the economy. So, the store made 200K, and your bonus is $2000, instead of $1000. Were you overpaid? No, they offered you 1%, and even tho they thought that was only going to be 1000, it was a lot more. Thus, the is yours.
If you actually sent the IRS an extra $1K, they would have to return it. But since their % was a % of a lot larger amount than Congress thought- it belongs to Congress."
God help us if the majority agrees with your definition of taxation. Here is how taxes work:
Congress makes a budget for all it’s spending programs and try their hardest to balance it. A ‘guess’ is made at how much revenue will come in over the next XX years. If the ‘guess’ states that the federal government is going to receive more than it needs to operate all of it’s many existing and planned projects over the next XX years, then the tax rate is too high and should be lowered. If the ‘guess’ states that the federal government is going to need more money to operate you will definately see an increase in taxes through one source or another.
When the government sees that it’s ‘guess’ exceeds it’s needs and then scrambles to spend that money before the taxpayers can keep it, that is working the taxpayer from both ends. That is the scenario of my analogy and the scenario that we are dealing with now in the debates. It is not their money to spend. If the government has projects to pass, they should budget them and THEN address tax rates. Remember that this is FUTURE planning, not present.
I am sure last year’s surplus is long gone and spent. The government exists to provide services for the taxpayers. Government is not a business and does not exist to try to make a surplus or profit. And that the government thinks that it should budget to take as much taxpayer’s money as possible, even to the point of inventing new ways to spend it to justify collecting more, is a very scary thing folks, something everyone should really look hard at.
JAG, by your last analogy and by my belief, we haven’t paid enough taxes for the last umpteen years resulting in a huge debt. If when the government goes underbudget that money is ours, then you must also say that when the goverment goes over then we owe extra. Now it’s really the tax payers of yesteryear that owe, but we’re not going to be able to get anything out of them. We’re going to have to pay it ourselves. One of the largest items on the budget is paying interest on the debt. I think we should start paying off some of the principle ASAP. Not that I mind having SOME debt, it’s just that it’s way too big right now.
I don’t think either political party is proposing the kind of payment toward the debt that I would like to see, but I think the current tax levels are comfortable enough and that assuming that the economy will continue to boom sufficiently to merit a tax decrease is premature. I foresee that, if we reduce taxes now, in the future, when we need to increase them again, no one will be willing to accept the political onus of raising them and we will be forced to go further into debt.
I also oppose significantly increasing the current budget with significant additional government programs. I believe that some unwise cuts have been made in education, environment, and the arts. These programs that I am speaking of, like NPR, Program for Gifted Youth, and Fisheries and Wildlife research, could be fully rebudgeted with an extremely small percentage of the total budget. I’d like to see most of the surplus go towards paying off the debt. I can see that there are places where cuts in government could be made. Radical changes would be unwise at this point when everything seems to be going fairly well.
I would not be totally unsupporting of some tax reform. Reforms that would not significantly alter the total tax that the government collects would be fine. In other words, I would be in favor of reform that would redistribute the tax burden away from those who need and deserve the help. I am unconvinced that the estate tax is a tax that needs reform, but it could certainly be examined closely.
I also see some merit in leaving things as they are in that people wouldn’t need to learn the new system. This would save a lot of people a lot of time. It would certainly make things easier on you CPA’s. Imagine not having a long list of new tax codes every year. Are you afraid that you’d be in less demand?
Just for the record, without the legal details, because it’s a good idea if you are feeling angelic and have the kind of money this thread is talking about, there is a rather wonderful sort of trust that invests the principal, pays the income to a charity for a term specified in the trust agreement, and then turns the principal over to ultimate beneficiaries (children, grandchildren, etc.). If properly structured, it has the advantage of allowing you to support a charitable cause you believe in while giving the money ultimately to your family and with a likelihood of no taxes ever imposed, since the charitable gift of the interest/income eliminates that from taxability, and the principal can be paid in such a way as to keep it under the taxable-gift/inheritance floor. If you’re in such a position, consult your tax attorney, CPA, or investment counselor, or the administrator of a charitable group you trust implicitly, on how to set it up. (Just read about this in an estate-planning publication that summarized a variety of how-tos, and was surprised but pleased that one could do this.)
Ok, let us start with Estate tax planning. The head of RIA, one of the “big 2” in tax publications, has said: “with a reasonable amount of tax & estate planning, an estate of some 4 million can easliy be sheltered”. So, if you have the brains to see an expert before you die, some 4 million is tax free.
Now, on to “Small businesses & family farms”. Yes, ther is a basic excluson of $650K, which can be easily reached by a farm/business. But remember, the mortgage reduces the real property, so that is a big consideration.
But on to add’l exclusions/deductions for those “poor small businesses & family farms”. 1st, we have the “Special use Valuation” exclusion (Internal Revenue Code= IRC #2032), which excludes some $750,000 of the value of real property. Next, we have the “Family owned business deduction” (IRC#2057), which deducts another $675,000 of the value from a “QFOBI”. Added to the 650000 basic exclusion, and there is over 2 MILLION of estate with no taxes. Assuming the wife only is getting 1/2 (but see below), the estate would be some 4 million before any taxes are paid- and this is without the “reasonable amount of tax & estate planning” talked about above. Hmm, pretty BIG “small” business- has some 4 Million dollars of NET assets.
Next, the wife can take advantage of the “Unlimited Estate & Gift tax Marital deduction” (IRC2056), so the stories of the “poor widow selling her house to pay her husbands estate” are bogus, unless the husband was a total idiot. He can transfer all if his $, tax free to his wife.
Next, it is not the decedant, but the Estate that pays the estate tax. The Estate is a completely different enity, like a Corp, or trust. The dead guys taxes are handled on the “Final return of a decedant”, where he pays regular yaxes on regular income.
Note I am giving acual IRC sections, here, JAG. I am a Certified tax expert, with an Enrolled Agents cert., and some 15 years experience. These are the facts. You seem to be getting yours from second hand propaganda sources. Now, if you want to argue the MORALITY of estate taxes- fine, your OPINION is as good as mine. But your facts are not.
>1 You may take all the deductions you want from “Unearned income”, aka Investment Income. All the standard dedutions, ie Contribtions, Mort Interest, bad debts, Capital losses, Medical, casualty, business expenses, etc, are all deductable from you income, despite the source. True, “earned income credit”, as its name indicates, is only available if you have earned income, but that is one of the few exceptions. Want me to quote all the Codes & Regs on these?
>2. Well, they are by the IRS’s definition, as IRC #61 makes clear. I guess the IRS would have to be considered “anyone”. But, IRC# 102 EXCLUDES gifts from the taxable income of the reciepient. Still income, just excludable.
>1 You may take all the deductions you want from “Unearned income”, aka Investment Income. All the standard dedutions, ie Contribtions, Mort Interest, bad debts, Capital losses, Medical, casualty, business expenses, etc, are all deductable from you income
How about IRA deductability?
Capital losses only applying to similar (short term/long term) gains or you can lose the losses?
I may have been a bit ambiguous, but the IRC definately differentiates on the treatment of revenue sources.
>2. Well, they are by the IRS’s definition, as IRC #61 makes clear. I guess the IRS would have to be considered “anyone”. But, IRC# 102 EXCLUDES gifts from the taxable income of the reciepient. Still income, just excludable.
We will have to agree to disagree on that point as neither of us is going to waiver. Gifts don’t even show up on the recipients INCOME tax return. The IRS if very clear that this is NOT income. It is an additional tax to the gifter, double taxation, taxing the same money twice. IRC 61 states that income is income and I submit to you that nowhere does the IRC state that gifts are income. You elect to interpret those words differently than I, and there can be no agreement between us on that point.
I am a Certified Public Accountant, licensed in the state of Maryland since 1992. I’m not sure what a Certified Tax Expert or an Enrolled Agent are and am not sure if such designations exist in the state of Maryland, but I am sure everyone has heard of a Certified Public Accountant. I am only telling you this because you accused me of making this up or reading propaganda, I know at least some of the tax code, I practice it and I passed the CPA exam on my first attempt.
I also quoted to you from the IRS instructions for gift taxes. I have filed gift taxes and estate taxes and know a little of what I am talking about… they are taxable to the individual, the estate is the individual post mortum (sp). A TRUST is a separate entity with a separate identification number, but an estate uses the individual’s social security number. This is another point which you elect to see differently than I elect to see it.
I don’t recall anyone talking about little old widows selling anything, it is the children, because when the little old widow dies, that marital exclusion is gone. I believe the posts here agree that the spouse died preceeding the decedent.
Your numbers add up to just over $2,000,000 not the $5,000,000 you threw out there. But that is very useful information to small businesses and special use groups. Actually, throw in the $1,050,000 generation skipping deduction and you are over three million dollars.
Vile Orb…
You will probably find this amazing, but I couldn’t agree with you more. Both candidates are using the most aggressive numbers available and even their numbers do not agree. Even though I threw some rhetoric at you about across-the-board tax cuts, that is too easy. We have all heard the stories of government waste and it should be addressed on a per case basis.
The government should exist to take care of the things that the public isn’t doing for themselves. As you said, environmental protection, education… although federal involvement in education is a double edged sword because you could easily end up with a battle in Washington for control of the children’s minds, a scary proposition. I could get behind federal funding if it is basically no strings attached to the money, otherwise I’d encourage my State to increase taxes and handle education at that level.
Concerning the alledged budget surplus, I agree, they should use that to pay down the debt created by previous deficits. Then, when there are no more payments to make on the National Debt, we will have a huge budget surplus which can be used to cut taxes. I think most people are used to taxes as they are. I would prefer to see a redistribution of tax revenues as an offset for the gift and death tax, and not by redistributing that burden to the poor. But that isn’t very likely until we can pay off the debt and really see some surplus room for cutting taxes.
Regarding the poorest and their tax rates, they have the lowest rates and more tax breaks and credits available than the wealthy or the middle class. With the child credit, earned income credit and other incentives, many poor don’t pay any income taxes at all. They do pay social security and medicare, which are separate programs designed for a specific social purpose and should be equally charged to all future beneficiaries.
Concerning the complicated tax code, it is the result of Congress looking out for their friends over the years. Decades of pork thrown into the tax code to help their constituents in one way or another. Would CPAs and tax practitioners worry about modifications to simplify the tax code? Heck no. We would be in as much demand as ever to find loopholes. It’s what we do. Otherwise Turbotax could easily replace the individual tax preparer.
However, it is the opinion of the Maryland Association of Certified Public Accountants, a lobbying group, that a flat tax will never happen, if that is what you are aiming for. Mainly for the above reason, the tax code allows the government to influence how the people spend their money.
Polycarp… I’m not 100% certain, but you may be referring to a Charitable Remainder Trust, where the revenue goes to the children and grandchildren, etc. for a number of years (taxed to them as ordinary income) and the asset is gifted to the charity in XX years time. I am unaware of any tool to get the actual value of the estate out tax free. A good CRT can certainly take care of a couple of generations before transferring to the charity.
JAG: I assume, that as a CPA, you are not a tax specialist, or you would certainly know what an “Enrolled Agent” is. It is a certification by the IRS that you are “enrolled” to practice before them, after an all day test, kinda like the CPA exam, but only taxes. CPA’s/attorneys do not need this ‘enrollment". Generally, an E.A. is more of a tax expert than a CPA, as an EA specializes. However, an CPA also has additional, non-tax skills. If you want someone to set up your bookeeping system, and do the taxes- hire a CPA. If you just want someone to "do your taxes’, hire an EA. EA’s certainly exist in Maryland- unless of course, you have somehow got rid of the IRS. 
And, true, there are some few other deductions & credits that depend on the income being “earned”, but there are a few that depend on the income being investment, also. Yes, capital losses can only be netted against certain other losses, in toto, but, there is the 3000 loss that you can apply against ANY source of taxable income.
CCH, in their Master tax guide, certainly includes “gifts” as income, but you are right- as gifts are “excluded” from income, they never show up on the reciepiants income tax return, except in very special cases (generally this would mean they are not really “gifts”).
I mentioned that my figures added up to 2M, but then added in “proper estate & tax planning”, which would increase the amount of the estate that would not pay taxes.
How does anyone know if I will my estate to someone. Say I dies and had all of my assets in cash buried in teh basement (which I don’ tso don’t try digging up my basement). How is anyone going to know aobout it if my son digs it up and puts it in an account?
I didn’t mean to imply that an Enrolled Agent would know less than a CPA on tax law. I am quite certain that there are people who have no licenses and run a tax preparation business and know alot more than I do about tax law. For certain Big 5 firms have people who do nothing but study the everchanging tax code and those bored individuals know more than you or I will ever want to know.
I had honestly never heard of the term, Enrolled Agent. Does that designation allow you to represent someone in Tax court? Is it a federal designation with the IRS?
(tongue in cheek) I wouldn’t hire a CPA to set up my bookkeeping, they are way too expensive. Audits and taxes, yes.
Mr. Z. - As a non expert I can’t swear to this, but I think that any significant amount showing up in your son’s account would be questioned by the IRS (and maybe the police). He would have to say where it came from, and I can’t think of any claim he could make that would not result in paying taxes on it. Perhaps, “I’ve been saving my pennies for my whole life,” if the amount was small enough.
Danielinthewolvesden wrote:
And just when you thought the picture couldn’t get more complicated:
Corporations, Estates, Trusts, and Partnerships are all treated as “entities” (i.e. artificial legal persons) under Federal Income Tax law. However, only corporations are treated as entities under the common law; estates, trusts, and partnerships are not considered “legal persons” or “entities” at common law.
Thus, a trust can “have income” for purposes of income taxes, since it’s a person under income tax law – but a trust cannot own property, or be a grantor, trustee, or beneficiary of another trust, or be an executor of an estate, or be a partner in a partnership, since it’s not a person under common law. (The trustee of a trust can do these things in his capacity as trustee, but that’s not the same thing.)
Mr. Z …
The best, unethical advice I could ever give someone as a tax preparer is …
I don’t want to hear about it.
The best place for unreported cash is in a hole in the basement or under a mattress. Granted it isn’t earning any income, but it isn’t paying any taxes either. As long as the son makes sufficient reported income to support the paper trail expenditures, the IRS can’t track it. Now, if the son runs his mouth, or someone finds out, and the IRS starts watching the son, he will probably get caught and nailed with taxes, penalties and interest, even tax evasion, a federal, imprisonable offense.
If this assumes that the decedent never claimed the cash as revenue, the above is the best alternative. If it was reported as revenue by the decedent, he/she probably could have invested the cash over his/her lifetime to more than cover the taxes and still pass the cash through to the son.