10 important aspects that determine your estate tax
Estate tax planning can be an overwhelming task in the beginning, especially if you don’t do well with tax jargons. But once you understand the trick of the trade, you are good for life.
Read this article to know more about the 10 things that determine your taxable estate amount.
- Debts and the expenses
Debts include everything right from your mortgages, personal loans to the credit card debt that you owe the bank at the time of your death.
All these debts are deduced from the gross estate to calculate the net estate tax.
Other than the debts, expenses like funeral expense, medical fees, and attorney fees too are to be deducted from the gross estate. Charity and donation
Though not many people choose to do this, donating some of your wealth to a charitable organization is a great way to save up on your estate tax. It is observed, that for every dollar that you donate to any charitable organization, a dollar from your taxable estate is reduced. For those wondering what exactly comes under charitable transfer, any kinds of gifts donated, or property set aside for a charitable trust comes under this. Transfer made to your spouse
One of the best features of the estate tax calculator is that it allows you to make an unlimited marital deduction. It means that at the time of your death, you can transfer any amount of money to your surviving spouse, provided your spouse is a U.S. citizen. Make sure that you choose the ‘Married ‘option in the checkbox of the estate tax calculator because if you select the ‘Single’ option, you will not be able to transfer the funds to your surviving partner.
Note that though this is a great way to reduce your current tax liability, in future, it may lead to a larger estate bill. Used gift exemption
Take a minute and think of all the large gifts that you have given to people during your lifetime. You will be surprised to know how these gifts can help you save on your estate tax. If you have never given any gift worth $10,000 or above to anyone other than your spouse or any charitable trust, then you are not eligible to get an exemption. In 2018, the lifetime gift exemption amount for individuals is $15,000 while that for a married couple is $30,000. Note that every year the inflation rate is said to have an increment of $1,000. Home and real estate value
According to the estate tax calculator, you need to mention all your asset details to calculate your estate tax liability. To begin with, you need to enter the current value of the home. Often, this value will be considerably higher than the amount for which you bought the house in the first place.
You also need to mention the market value of all the other real estate that you own. This could include your second home, commercial buildings, undeveloped land and property that you have given out for rent. Automobiles
You must calculate the total value of all the automobiles you own and include it in the estate tax calculator data. The estate tax calculator also needs you to include all types of vehicles, including RVs and campers, if you own any. Jewelry
The estate tax calculator asks you to gather all your jewelry, gold and gems and state its value. Note that you need to mention its current value, which means that if you have owned them for years, the current value is most likely to be much higher. Savings and retirement account
To calculate the accurate estate taxable amount, you need to provide the balance of all your savings accounts. Not just that, if you have a separate saving for your retirement, make sure that you mention it too. Bonds and stocks
If you own a savings, treasury, municipal or commercial bond, mention it. You have to further include the total of all the individual stocks that you own in the estate tax calculator sheet. Federal Estate Tax Exemption
The Federal Estate Tax Exemption is the amount of money that is not taxable and exempt from your estate, that you can pass on to your heir, without paying any tax on it. The Federal Estate Tax Exemption is calculated keeping in mind the terms of ‘Tax Cuts and Jobs Act’. In 2018, the exemption is $11.18 million, much higher than the previous year’s exemption of $5.49 million. It is believed that the exemption might shoot up even higher next year as it is expected to be affected by inflation.
Other than the debts, expenses like funeral expense, medical fees, and attorney fees too are to be deducted from the gross estate.
Though not many people choose to do this, donating some of your wealth to a charitable organization is a great way to save up on your estate tax. It is observed, that for every dollar that you donate to any charitable organization, a dollar from your taxable estate is reduced. For those wondering what exactly comes under charitable transfer, any kinds of gifts donated, or property set aside for a charitable trust comes under this.
One of the best features of the estate tax calculator is that it allows you to make an unlimited marital deduction. It means that at the time of your death, you can transfer any amount of money to your surviving spouse, provided your spouse is a U.S. citizen. Make sure that you choose the ‘Married ‘option in the checkbox of the estate tax calculator because if you select the ‘Single’ option, you will not be able to transfer the funds to your surviving partner.
Note that though this is a great way to reduce your current tax liability, in future, it may lead to a larger estate bill.
Take a minute and think of all the large gifts that you have given to people during your lifetime. You will be surprised to know how these gifts can help you save on your estate tax. If you have never given any gift worth $10,000 or above to anyone other than your spouse or any charitable trust, then you are not eligible to get an exemption. In 2018, the lifetime gift exemption amount for individuals is $15,000 while that for a married couple is $30,000. Note that every year the inflation rate is said to have an increment of $1,000.
According to the estate tax calculator, you need to mention all your asset details to calculate your estate tax liability. To begin with, you need to enter the current value of the home. Often, this value will be considerably higher than the amount for which you bought the house in the first place.
You also need to mention the market value of all the other real estate that you own. This could include your second home, commercial buildings, undeveloped land and property that you have given out for rent.
You must calculate the total value of all the automobiles you own and include it in the estate tax calculator data. The estate tax calculator also needs you to include all types of vehicles, including RVs and campers, if you own any.
The estate tax calculator asks you to gather all your jewelry, gold and gems and state its value. Note that you need to mention its current value, which means that if you have owned them for years, the current value is most likely to be much higher.
To calculate the accurate estate taxable amount, you need to provide the balance of all your savings accounts. Not just that, if you have a separate saving for your retirement, make sure that you mention it too.
If you own a savings, treasury, municipal or commercial bond, mention it. You have to further include the total of all the individual stocks that you own in the estate tax calculator sheet.
The Federal Estate Tax Exemption is the amount of money that is not taxable and exempt from your estate, that you can pass on to your heir, without paying any tax on it. The Federal Estate Tax Exemption is calculated keeping in mind the terms of ‘Tax Cuts and Jobs Act’. In 2018, the exemption is $11.18 million, much higher than the previous year’s exemption of $5.49 million. It is believed that the exemption might shoot up even higher next year as it is expected to be affected by inflation.
How to calculate the net estate value and the estate tax?
To calculate the total estate tax that you are liable for, you need to first determine the gross value of your estate. Once you get the gross value, you can then deduct the above mentioned and some other transactions and derive the net value of the estate.
Once you subtract all the values mentioned above, you get the net estate value. On this value, a 40% federal estate tax is applied.
Make sure that you are ready with all the data that is required by the estate tax calculator to calculate your net estate tax. It is best to not wait until the last minute and to start planning your estate planning today itself.
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