seems like you may know the answer to this---- the problem i have with estate tax is if they apply to property values. i assume they do. so, if i inherit the family farm i may have to pay a ton of $ (if the land is now worth tons). so likely forced to sell the land or much of it to raise $ to pay taxes? is there a homestead exemption for estate taxes? what if its not your primary residence (i may not want to move into the family farm house)?
A family farm worth $2 million is likely able to earn a decent income from crops and cattle or rent. Perhaps quite enough to pay off a loan to cover that inheritance tax.
Only the portion of value over the exemption level is subject to the tax. If the farm is worth 2.5 Million only 500K is subject to tax. And there are deductions aplenty to reduce this amount, but I am not familiar with specifics. If it is something that truly worries you take note that only about 165 family farms in the entire country are valuable enough to be subject to the estate tax. There was an article about this whole issue in the New York Times when I was in school. In it the American Farm Bureau Federation was not aware of any cases of a farm having to be sold to pay the estate tax. If the farm is owned by one person who is still living they should divest it through sales to family and gifting portions until net worth is under the exemption level. A friend of mines grand father gave everyone in the family amounts of ownership in his estate as Christmas gifts until all he had left was his house and the money he needed to live on. If it really worries you talk to an estate planner.
Good financial planning including insurance can solve many tax inheritance issues. Better yet, spend it all b4 you die !
Agree. It seems like the tax system encourages you to spend and not bother saving much for your children to make their lives a bit easier, especially nowadays it gets to be prohibitively expensive to go to college or attain higher education. So many kids are in debt when they finish college or higer degrees. The financial planning you are talking about often involves the set up of insurance trusts to help pay for the estate taxes. Seems like the tax system helps support the insurance industry:dis:
well, you do pay much lower taxes (as little as half as much) on money you make on savings than you do on income. dont forget that there are these great tax free college savings accounts too. and you dont pay taxes on income you spend on higher ed
In terms of taxes on income from savings, your statement only applies to long term gains on investments. However you can guarantee that the Democrats WILL raise the long term gain tax rates if they take over the White House this election. The college savings accounts and health savings accounts are good deals. One of the "bad deals" to me seems to be the pension plan savings. Money was put in pre tax and allowed to accumulate tax deferred until time of withdrawal by age 60. However the withdrawal will be taxed at ordinary income rates rather than at long term rates for the long term gains obtained while in the plan. I can understand that the money put in should be taxed as ordinary income when it comes out, but NOT the gains. That seems to me another way the government can get more money from the taxpayers.
The rationale for taxing it all as income is because it is all pre-tax. If you put $1 pre-tax in a 401K and it grows to $10 it is all subject to be taxed as income. If you had put $1 in a mutual fund post-tax the gaines are taxed as capital gains. There is a simple soloution. Invest in a Roth IRA unless you need to lower your taxable income. It is post tax money and grows completely tax free. It is also easier to get hardship withdrawls since you have already paid taxes on this money. This is a great deal. About $500 post tax dollars a month for 40 years turns into about $5 Million at retirement. If your employer has a 401K ask about the Roth 401K option. It is the best thing ever.
That's exactly my point. It doesn't make sense for the taxpayer why capital gains accrued on a long term basis gets taxed at the income rate. If so, I would rather pay the taxes on the money put into the pension plan at the beginning and save and invest on my own, that's assuming the Dems. won't raise the long term capital gain rates to unpalatable levels. That would surely kill the economy. The Roth IRA IS the best deal around. It is amazing how a lot of working Americans not put aside part of their income as savings, and quite a few have the misconception that they can do by living on credit card debt! To me, credit cards are "legalized loan sharks" if you don't pay up every month. I hate it when the credit card companies send you mail about you being such a good customer, and offering "lower" rates, or give you "checks" to get money at a premium rate!
Every American should go to one of those online retirement calculators. You put in your savings and anticipated retirement benefits and then put in your expected living expenses and expected lifetime. The program calculates interest and inflation and shows you when you will run out of money. It can be pretty sobering to someone with only social security and more debt than savings. Such a poor soul can basically can never retire. Mine shows that I can retire early . . . but not too early or I become unable to maintain my lifestyle at age 80. Now, I could drop dead next month, but my Dad and Granddad lived to be 87 and 85 . . . Your 80's is no time to get poor.
