Five Deductions to Reduce Estate Tax
by Ted Ricasa on May 5, 2014
The federal estate tax, or “death tax”, is a tax on an estate that beneficiaries must pay when inheriting an estate. Instead of being paid out-of-pocket, the estate tax will be paid with money from the estate before the beneficiaries can receive it. Along with the federal estate tax, your state may also require an inheritance tax. As of 2013, only the value of the estate exceeding $5.25 million can be taxed, and that is at a maximum tax rate of 40%. Many people would like to know what they can do the reduce the amount of estate tax deducted from the their estate. Fortunately, there are a number of deductions available to ensure your beneficiaries inherit more from your estate.
Reducing Estate Tax
Remember, the laws will vary form state to state. You will need to consult with experts in your area before applying any of these deductions. Below, we’ve listed five common ways you can reduce the estate tax. If you have any questions or concerns, please don’t hesitate to consult the tax experts or our friendly and knowledgeable staff at Fast Home Help.
5. Losses During Estate Administration: Should you estate accrue any losses during the administration, they won’t count towards the estate tax.
4. Martial Deduction: This is one of the most popular methods for avoiding the estate tax. When the deceased leaves the entire estate to a surviving spouse, the property and assets are exempt from the federal estate tax.
3. Mortgages and Debt: Any mortgages or debts accumulated from your estate are exempt from the federal estate tax.
2. Administration Expenses of the Estate: Legal fees and other expenses that buildup during the processes of your estate will also be exempt from the federal estate tax.
1. Charitable Deductions: Should you decide to leave your estate to a qualifying charity, then your property and assets are free from the federal estate tax. Along with marital deduction, charitable deduction is one of the most common ways to remain exempt from the estate tax.
Finally, there is one last method of reducing the amount of your estate vulnerable to the federal estate tax. The federal government doesn’t tax gifts if they are $14,000 or less. Any amount above that number is taxable. To reduce the amount of an estate liable for the federal estate tax, many people give cash gifts to family members. Of course, not everyone prefers this method as it divides the assets. Some would rather a beneficiary receive the entire estate instead. Fortunately, with the simple methods we listed above, you can reduce the estate tax burden on your beneficiaries and ensure more of your estate remains intact when passed on to your loved ones.