
Missed the tax deadline? Here’s what you should do
If you haven’t filed your taxes yet, don’t panic — but act fast.
The estate tax is a tax on a deceased person’s assets. Bankrate explains.
An estate tax is levied when the assets of a deceased individual are distributed to that person’s heirs. Since 1916, the estate tax has been one of the major sources of federal tax revenue. Nonetheless, very few people have to pay the estate tax because it only applies to estates worth millions of dollars.
When a person dies, the value of her gross estate is calculated. This typically includes all of her assets, both financial and real. It also includes her share of jointly owned properties and life insurance proceeds from policies they owned. As of 2017, every dollar in gross estate above $5.49 million is subject to an estate tax, meaning that most people are completely exempt. The tax rate is currently 40%.
If the deceased’s assets are to be distributed based on the terms of a will, the executor of the will is responsible for submitting a special tax return to the Internal Revenue Service (IRS) within nine months of the person’s death. She will pay the estate tax using funds left by the estate. If there is no executor of the estate, such as when a person dies without a will, the court will appoint an administrator who serves the same purpose.
While most estate taxes are levied at the federal level, many states have their own inheritance taxes. The deceased doesn’t need to have lived in the state to be subject to its inheritance tax as long as she owns registered property in the state. In those states, the exemption typically ends at a much lower amount.
Some deductions apply to the estate tax, such as funeral expenses, legal claims against the state, and charitable contributions.
Special provisions can reduce the estate tax or spread payments over time on properties such as closely held businesses and family-owned farms. Estates that meet certain conditions may adopt a special-use formula to decrease the taxable value of the property, typically by between 40 percent and 70 percent. Estates in which businesses or farms make up at least 35 percent of the gross estate can pay the estate tax in installments over 14 years at low interest rates, with interest due only on the first five years.
Wondering what your family will inherit? Refinance your home now and help to pay it off before you retire.
Theodore is an extraordinarily wealthy oil tycoon who dies at the ripe old age of 92. His will designates an executor to oversee his estate, who calculates his estate to be worth $300 million. After deducting the funeral expenses and settling a lawsuit accusing Theodore of polluting a major state waterway, the executor determines that the taxable portion of the estate is worth $290 million. He files a return with the IRS, which assesses a 40% tax on the estate, or $116 million.
If you haven’t filed your taxes yet, don’t panic — but act fast.
Typically, taxpayers have two options: Take the itemized deductions or take the standard deduction.
Regardless of what may cause a person to miss the tax-filing deadline, there are potential consequences.
Applying for more time to file your taxes is easy. Just don’t put off paying your tax bill.
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