What are the top Death Tax Myths

Do you know what is meant by ‘death tax? The term denotes a step taken by the lawmakers to scare taxpayers and change the legal rules of payment of taxes. Taxes levied by the state as well as federal government refer to the wealth that is transferred to the heirs of an individual who passes away.

After an individual’s death, the estate tax is paid by the beneficiary who receives the wealth; his or her name is mentioned in the will of the deceased person. The amount of tax is calculated on the basis of the value of the real estate property during the death of the owner. Hence, the estate tax is called inheritance tax or death tax.  Qualified tax preparers like those of the A . L. SIMON & ASSOCIATES in Libertyville ILwill help resolve the common myths associated with this type of tax.

Myth 1: The government raises great amount of revenue in the form of inheritance tax

Inheritance tax can be avoided easily; £3.7bn was raised in the financial year 2014-15 i.e. above 0.7% of the amount raised by HM Revenue & Customs Department. Revenue raised from VAT was 30 times the IHT revenue, equal to £111 billion.  

Myth 2: Only the rich people can afford to pay the death tax

Actually, the policy of levying inheritance tax is unfair. The super-rich individuals find out measures to evade this type of tax. They either purchase assets or establish trusts under the financial head of business property relief. Therefore, there is an immense burden on the individuals belonging to the middle class.

Myth 3: The best form of death tax is the estate tax.

Every person dies but not everyone pays the death tax. 0.14% of the people belonging to the rich class, who own huge real estate properties, are entitled to pay the death tax. You can also gain valuable information about death tax from the tax preparers at A . L. SIMON & ASSOCIATES.

The estate tax is levied on huge inheritances where the amount is received by few wealthy heirs. Presently, only 0.14% of the richest American estates are being taxed, i.e. less than 2 of every 1000 deaths.

The tax preparers in Libertyville ILmay support this tax to be repealed. However, repealing this type of tax will infuse more money in the accounts of the rich people.

Myth 4:  Cost of compliance of estate tax is roughly equal to the revenue raised by the death tax

The tax preparers in Libertyville ILwill clarify this myth saying that you incur modest charges for the payment of estate tax; it is similar to the fees charged while paying other type of taxes as well. The public as well as the private costs related to estate tax compliance include the administration costs of the IRS and the cost borne by a taxpayer for planning and administration of the estate upon the owner’s death, which is roughly equal to 7% of the revenue raised from estate tax. 

Administrative & compliance costs = 14.5% (individual tax + corporate income tax) = 2-5% (Sales Tax Revenue)

Myth 5: Estate tax leads to double taxation since the tax is applicable on assets already covered under the income tax.

In fact, large real estate properties contribute to a huge portion of unrealized profit, which is non-taxable. Moreover, the unrealized profit can be taxed only by the method of levying estate tax.

The huge amount inherited by the wealthy heirs would never have been accounted for by the IRS had the US government not introduced the estate tax. A major reason to introduce this tax in the early 20^th century was to reduce the burden on income taxes because then the rich taxpayers would have been free of any form of taxation.

Revenue raised from capital gains tax equals to the appreciated value of assets, i.e. an artifact or real estate property; this type of tax is levied on the owner when he earns real profit from the sale of the asset. Hence, the appreciation of the asset value is non-taxable if it is owned by the individual until his death.

This unrealized profit contributes to a major portion of the asset value of an estate; it is roughly equal to 55% of the total value of the estate amounting up to $100 million.

Get a clear picture about the concept of death tax from qualified tax preparers from the A . L. SIMON & ASSOCIATES  to manage your finances from the real estate property well.  These tax preparers in Libertyville IL will help you plan your finances efficiently.