Merrier Deaths in 2010?
They Are Tax Free, at Least!
No body is happy when a loved one dies. This is human nature. A loss of life always brings sadness and sorrow. What makes deaths more unbearable in this nation is that it’s going be taxed, heavily for some by our dear Uncle Sam. I am talking about the federal “estate tax” here. You not only lose a loved one, but also may be forced to watch a chunk of your rightful assets being taken away lawfully. This dreadfully nicknamed “death tax” is downright awful.
But things are not all bad lately. The federal estate tax expired January 1, 2010, after Congress failed in 2009 to agree on how large a deceased person’s estate must be taxed, and at what rate. This means for the first time since the late 1800’s, U.S. citizens will be able to live without having to pay for someone’s death when they are lucky enough to inherit a sizable estate from the deceased.
The repeal of the estate tax was originally announced back in 2001 as part of a broader reform, which lowered the top tax rate on estates over $1.5 millions to 45% from 55% and increased the exemption from a paltry $675,000 to a high of $3.5millions in 2009.
We already had almost a decade worth of good run in this aspect. Of course, the U.S. government will ultimately act to reinstate the estate tax, in light of the current economical and financial downturn, as well as astronomical budget deficits.
In fact, this process was already under way late last year when the U.S. House of Representatives approved a bill that would have permanently extended the $3.5 millions exemption and kept the top rate at 45%. But the bill failed to win support in the U.S. Senate as many senators from both parties favored increasing the exemption to $5 millions.
The result of this disagreement between the House and the Senate is that, at least for now, there is no U.S. estate tax for deaths in 2010. Since U.S. estate tax returns are not due until nine months following the date of death, the U.S. government essentially has until the end of September to reinstate the tax before the first returns become due.
This free lunch will not last, however. In 2011, the “death tax” is set to come roaring back at full force, with a top rate of 55% and an exemption of only $1 million, if our hard-working congress cannot agree on something better by then. So, this one-year absence of any estate tax, followed by a likely restoration of a huge one, may provoke some interesting thoughts.
The fortunes of the super-rich are secure, shielded from the Uncle Sam by armies of tax lawyers and accounts. However, the middle class, especially those who have done the right things all along: work, prudence and savings, etc. will be punished once again when this year is over. So undeniably this death tax-free 2010 seems like a godsend to many.
But is this a tax break to die for?
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- coolbunch | eHow.com
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