A question has come up recently given the Obama administration saying he'd let the Bush tax cuts expire. One such tax cut, I believe, is the elimination of the estate tax since 2010. My fiancee's family isn't rich by any means. They own a pair of gas stations and some lease some land in a rural area on the Big Island of Hawaii, but don't really make much profit from it. However, they've built their business over 50 years since the original gas station through hard work and smart investment into land in the area. Their estate might be worth several million dollars (let's say $5 million). When they pass away and bequeath it to her (and by expension, me since I'll be married to her) and her brother, this estate will be taxed. Currently, the rate is 55% with a $1 million exception, so the taxes will be about $2,200,000 or so I guess. We don't have $2.2 million. We don't even have $100,000. It would seem the only way to pay this tax is to sell parts of the business/land. If her parents die, what they spent so long/hard building will have to be broken up because the kids cannot pay the estate tax. How does this seem fair? What is the logic behind it? I've heard the Warren Buffet phrase that without the estate tax, it'd be like handing the 2012 gold medals to the children of the 2000 gold medalists, but that seems like it'd only apply to the super rich such as Buffet himself, or Mitt Romney and that ilk. Small business owners who don't make much profit but have a decent estate (again, several million) seem to get screwed by the estate tax. Are there ways around it, other than the exception (which varies wildly year to year, I might add)? Note: I'm not trying to get terribly political here about Obama, tax cuts, or Romney... I just want to know what the point is behind the estate tax, whether y'all agree with its fairness or unfairness, and whether there are any options that could be theorized to make it better.
A better question is how is it fair that you get to inherit 5 million just because of somebody's birth? Or 1 million + whatever the remainder less the tax is?
I believe there is a push to up the exempt limit to 4 or 5 million. However, where do you draw the line? If you put the limit at 5 million, people with 10 million in asset will claim the same thing as you just did, and the we can go on until we hit 100 million. I guess government can only come up with a number that most people would consider fair.
How is it not fair? You are of the opinion that it is "unfair" to be allowed to inherit your family's money? Or their business?
They could give it/sell it to you before they pass to limit the burden. You could also sell some of it to pay the taxes. Here is the rational of the estate tax. There is no difference between your parents giving you money than you making it from investments or by working for it therefore you should get taxed for it. What did your wife do to deserve the business land owner than be part of the lucky sperm club? Not that there is anything wrong with that. That is no morality or fairness when it comes to taxes. Someone has to pay them, and everyone wants the other people to do it. The thinking is that it better for society if people who can afford like you who will have millions in assets to pay them than somebody is barely making ends meet.
You gotta time your death properly. a la George Steinbrenner. Estate taxes are immoral and our tax code is too complicated.
Because they give it the person? If I give you $100 while I'm alive, that doesn't get taxed. If I die and give you $100 in my will, why does that get taxed (the exception aside)? Why is the government more entitled to it that the children/benefactors? As it stands, if there is an estate tax, there would be two options: (1) Go to jail for tax evasion. (2) Gut the business and sell pieces to give the tax money to the IRS. The income used to purchase the assets of the estate was taxed already, so this is double dipping by the government isn't it? We're talking mom 'n pop businesses, here. They employ a lot of people, give them all health insurance (even part timers) and make little profit. It just doesn't seem right to only have the above 2 options if the owners pass away.
That's exactly what I was thinking. This tax code seems to be complicated to force the smart ones with money to best it by hiring white collar help. Go hire the attorney and buy a bunch of life insurance to offset the tax penalty. Attorneys, insurance agents & insurance companies all get a cut to help you beat the system.
If I gave you $100, it is not taxed, but If I gave you 100k, you bet it will be subject to tax, tax free gift is 10k per year I believe.
They taxed the money that was earned and eventually used to start the business, they taxed the profits of the business that grew it and they'll tax the value of it when it goes to the next owner after death, even if that ultimately means the company gets sold off to pay those taxes. That's just called paying your fair share.
Liberals/Socialists do not believe in private property. Obama needs that money for his drone bombing and medical mar1juana raids. Liberals want everyone to have the same amount of money - $0.
Is this business a single proprietorship or is it incorporated? You may want to talk to a tax attorney about the best way to protect the inherited business from the estate tax instead of talking theory about the fairness of it all. There are mechanisms around the tax law for people and companies who prepare for it. I own property through a trust so it won't be taxed when my parents die.
When you pay someone to fix your car, they have to pay taxes on that money. Isn't the government double dipping? You already paid taxes on that money, why should the mechanic pay taxes on it?
I personally think it would be fairest if everyone started with a clean slate. Everyone idealizes meritocracy, but few people want their children to go through one.
I think he said the business is worth that amount. However, it's only worth that amount if you sell it. Much like land. If your father owns a ranch and that is the family business, it is very possible you'll have to sell it upon his death because you don't the money to pay the tax on the value.
