Tips to Minimize or Eliminate Federal Estate Taxes
Preserve a Pre-Deceased Spouse's Exemption
If a spouse has already passed away, any unused portion of his or her estate can get added to this exemption, so it is possible for a married couple to exempt up to $10.5 million. In this case, the estate's executor needs to preserve the extra exemption by completing a federal estate tax return, and this should always get done even if no tax is due to document everything properly.
Current tax laws allow each person to give away $14,000 a year to other individuals without impacting their estate tax exclusions. For a married couples, that sum would be $28,000. Furthermore, both individuals and couples can give gifts to multiple people, so gifts might get made to children, grandchildren, spouses and other possible beneficiaries.
Gifts could reduce the amount that the beneficiaries expect to receive as an inheritance, but they might not. For example, since they should reduce or prevent a federal estate tax bill, the gifts might even increase the total value that each individual receives over time.
There are even some ways to avoid gift taxes for amounts over the current maximums. These involve paying bills for those individuals instead of just writing them a check. Some examples might be directly paying another person's school tuition or medical expenses.
State Inheritance or Estate Taxes
In addition to federal estate taxes, some states also have their own inheritance or estate taxes. Right now, six states have inheritance taxes, and these are Pennsylvania, Kentucky, Iowa, Nebraska, Maryland, and New Jersey. Residents of those states could be liable for state tax bills even if they do not owe any to the federal government because exemptions range from $0 to $10,000.
D.C. and fifteen U.S. states have their own form of estate taxes. The current exemptions for these states starts at $1,000,000, so wealthy individuals may have concerns over state estate taxes even if they do not own anything to the IRS.
Legally Reducing Tax Bills is Very American
Nobody enjoys paying more taxes than necessary, and there is nothing unpatriotic about keeping these bills as low as legally possible. Besides, distributing some wealth to a worthy cause or the next generation may benefit them now. Typically, financial professionals must help clients plan ahead to minimize their tax liability while they are still alive.
Author Bio: Jeff Shjarback, MBA is a Digital Marketing Strategy Consultant, Writer and Blogger that enjoys blogging about digital marketing, small business, lead generation, economics, innovation & emerging technology, future trend analysis, business philosophy and the journey of life. To learn more about Jeff, you can visit his Google Author Profile.