Wealth Transfer Taxation Flashcards
What is the purpose of wealth transfer taxation?
Tax is like the force, it’s everywhere. US taxes a little bit of inherited stuff (very big fortunes). It’s a limit on freedom of disposition and applies to gift, estate, and generation-skipping transfer of taxes of the IRS.
What is estate tax?
This is the tax on the estate before distribution. A tax on all the stuff the dead person owns that we enforce before distribution.
What is inheritance tax?
This is tax on the donee. The amount of the tax is often based on the relationship to the dead person. State inheritance tax can vary.
What is progressive tax?
This is a system where the tax rate increases as taxable income increases. Argument against: high taxes punish the rich. Argument For: Not equitable (Declining Marginal Utility of the Dollar) Remember, if you get a raise and move into a higher tax bracket, all of your income isn’t instantly taxed at the new level. In a progressive tax system, marginal tax rates and average tax rates are different.
What is the tax bracket?
Divisions at which the tax rate changes in a progressive tax system (cutoff values)
What is the tax bracket math?
- 10k or less means X times 1 = tax
- Between 10k and 100k means 1,000 + (amount over 100k times .3)
What is a taxable gift?
A transfer of property for less than adequate and full consideration in money or money’s worth is a taxable gift.
What is the annual exclusion act?
An annual exclusion is the amount of money that one person may transfer to another without incurring a gift tax or affecting the unified credit. In 2023 it’s $17k
What is the Federal Estate Tax or Death Tax?
Wildly unpopular with society. It brings money into the gov’t, social leveling, social engineering (designed to break up large fortunes) Ballpark calculations are in notes.
What is a tax deduction versus a tax credit?
A tax deduction lowers your tax liability by reducing your taxable income (like donating to charity). A tax credit is a dollar for dollar reduction of tax OWED.
What is a problem the US has regarding gifts?
The US has a unified gift and estate tax. Gifts made during life are treated same as after death. Not all lifetime gits are taxed.
What are some very basic tax planning strategies?
Use the annual exclusion act, utilize non-taxable things (tuition, etc), Make use of Marital Deduction, Life insurance if done properly would not count as a part of decedent’s estate, Both spouses can make use of the individual 12.92 million exception
