It is said that there are two certainties in life: death and taxes. When it comes to some states those two things go hand-in-hand. The estate tax, which is also known as the “death tax” seems like a punch in the gut to many who oppose it. Not only do you have to deal with the loss of a loved one, but then the IRS takes a big chunk of the assets your loved one left you. The federal estate tax kicks in for any amount over $5.43 million for 2015. However, the estate tax for each state can vary greatly, with some states having no estate tax whatsoever, and other states, like Washington taxing as much as 20 percent.
Keep on Giving
So is there anything you can do to avoid high estate taxes? Yes, there are some measures you can take to avoid getting nailed by the IRS and the dreaded death tax. For starters, you can be the “gifter” that keeps on giving. In other words, by giving away a lot of your assets while you’re still alive that will mean you have fewer assets to be taxed when you die. You can actually give anyone as much as $14,000 every year without paying any gift tax. However, you need to stay under $14,000 or you will lose your lifetime exemption. There is an exception to that rule, though. You can make larger gifts to medical or educational institutions for the purpose of healthcare costs or tuition and those donations will not trigger the gift-tax liability.
Leave Your Assets to the Right Beneficiaries
Another good way to reduce the estate tax is by giving your estate to your spouse or to charity. These gifts can be deducted against the death tax. Therefore, if you leave your money to charity, or to your spouse, then the estate tax will be greatly reduced. These are the simplest ways to avoid a larger estate tax bill, but they are not the only methods. In fact, there are several other measures you can implement, while you’re still living, that can reduce the tax burden on your loved ones after you die. However, some of these methods can be complicated to arrange and difficult to follow. Having a financial planner and experienced tax accountant at your disposal will make a huge difference.
Plan Ahead and Stick With the Plan
The bottom line if you want to reduce your, and your loved ones’, estate tax bill is to be willing to give up a little more while you’re still living so that your estate tax bill will be much smaller. With the proper planning and implementation, you can keep your estate tax down. At GROCO, we can help you with your financial planning, including guiding you through the estate tax process. We’ll help you set up your assets so they can be used in the most cost-effective way possible, while keeping your tax bill as low as possible when you die. Please contact us today at 1-877-CPA-2006, or by clicking here to get in touch with us online for help with your estate tax.