100 words and reference 

Evan 

1.

Four deductions available to reduce the amount of the taxable estate include the marital deduction, charitable deduction, and the state death tax deduction. These deductions are reported on IRS Form 706, the United States Estate Tax Return (IRS, 2022).

The marital deduction is unlimited as long as the assets are placed in the full control of the surviving spouse or irrevocably provide income to the surviving spouse at least once per year (Leimberg, 2017, Ch. 17). The charitable deduction is also unlimited as long the assets are given to a qualified charity (Leimberg, 2107, Ch. 17). Lastly, the estate can deduct death taxes paid to the state up to the full value of the tax (Leimberg, 2017, Ch. 17).

From what I can tell, there is currently no deduction for family-owned businesses on estate taxes (IRS, 2022). However, under Section 2032A, there is an alternate valuation available for closely held businesses, of which many are family-owned, to use the business use value rather than a fair market value when including with the estate (IRS, 2022).

2.

Currently, an estate can defer the filing of taxes by four years and the payment of the taxes by another ten years (Leimberg, 2017, Ch. 18). There are numerous code sections that permit the extensions to varying degrees requiring approval from the IRS (Leimberg, 2017, Ch. 18). The deferral can be used when liquidating the estate quickly would cause a substantial loss, when it can earn more in after-tax income than it would paying the deferral interest, and when there is still future income to be earned that is needed to pay the taxes (Leimberg, 2017, Ch. 18).

3.

The adjusted gross estate is determined by subtracting funeral and administration expenses, debts and unpaid taxes, and casualty and theft losses from the gross estate (Leimberg, 2017, Ch. 17). The first category includes all costs associated with the funeral and burial (Leimberg, 2017, Ch. 17). Administration expenses can include fees from the court, accountants, estate attorneys, financial advisers, appraisers, and executors (Leimberg, 2017, Ch. 17). Debts held by the deceased can be deducted, which includes mortgage debt (Leimberg, 2017, Ch. 17). Taxes that can be deducted include unpaid income taxes, gift taxes, and property taxes (Leimberg, 2017, Ch.17). Finally, casualty and theft losses are deductions taken from loss of property that occurred after the owner’s death but before the estate was settled (Leimberg, 2017, Ch. 17).

Best regards, Evan

References

IRS. (2022, September). Instructions for Form 706. Retrieved November 23, 2022 from https://www.irs.gov/instructions/i706

Leimberg, S. R. (2017). Tools & Techniques of Estate Planning, 18th Edition. The National Underwriter Company.

kelly 

1. Review the four categories of deductions available for calculating the taxable estate including:

(i) The marital deduction;

A marital deduction can usually eliminate federal estate taxes at the death of the first spouse to die through a plan that capitals on the combination of the unlimited marital deduction and the unified credit. The marital deduction is a deduction for gift or estate tax purposes for property passing to (or in a qualifying trust for) a spouse. The unified credit is a credit provided to each U.S. citizen or resident, which can be used against either gift taxes or estate taxes. The use of the unified credit is to reduce gift taxes correspondingly reducing the amount available for estate taxes (Leimberg 2017).

(ii) The charitable deduction

A charitable deduction is when a person makes a transfer of property to a charity and can receive a deduction equal in value to the gift. A charitable deduction is that all charitable gifts are exempt from gift tax. There is no limit on the amount that can be passed, gift tax-free, to a qualified charity (Leimberg 2017).

(iii) The family-owned business deduction

 A family-owned business deduction can be if you own a family business or farm, and your estate qualifies, then the qualified family-owned business deduction allows your representative to deduct a portion of the value of the business from your gross taxable estate. This results in reducing your net taxable estate and may result in reducing any taxes that are owed. The IRS allows the qualified family-owned deduction because it wants to encourage your heirs to continue the family business and not have to sell it just to pay the taxes (The Retirement Group, 2020).

(iv) The state death tax deduction.

I went state specific by picking Ohio (getting ready to move to) to learn more about. I learned in Ohio that under their current law, the estates of residents with a net taxable value of $338,333 or less are effectively exempt from the Ohio estate tax through a $13,900 credit. A 6 percent tax rate applies to any net taxable value above that mark, up to $500,000. A 7 percent rate applies to any net taxable value over $500,000. The effect of this credit applies to dates of death on or after Jan. 1, 2002 (Ohio Department of Taxation, 2002).

“At this time, thirty-two states have either repealed their death taxes outright, or those taxes are tied to the former credit for state death taxes paid under now effectively repealed Code section 2011. The states that have no death tax at this time are Alabama, Alaska, Arizona, Arkansas, California, Colorado, Florida, Georgia, Idaho, Indiana, Kansas, Louisiana, Michigan, Mississippi, Missouri, Montana, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, West Virginia, Wisconsin, and Wyoming. IRC Sec. 2011(f) terminated the credit for state death tax for deaths occurring after December 31, 2004” (Leimberg 2017).

2. Review the rules for payment of federal estate tax with the statutory provisions that might allow an extension of time to pay the federal estate tax.

Typically federal estate tax is payable in full within nine months of the date of death. Code section 6166 permits a four-year deferral of tax followed by a maximum ten-year payout of the tax. If the requirements of Code Section 6166 are met, the executor in his discretion has the right to elect to pay the federal estate tax (and generation-skipping transfer tax) attributable to the decedent’s interest in a closely held business in installments for up to fourteen years. During the first five years, the executor pays only interest on the unpaid tax. Then, in equal annual increments over as many as ten additional years, the executor pays off the principal of the unpaid tax (together with interest on the unpaid balance). Deferral interest is payable at 2 percent on the tax generated by the first $1,490,000 of business value and at 45 percent of the regular underpayment rate on the balance (Leimberg 2017).

If the estate does not qualify for code section 6166 then a person can try to use code sections 6161, 6159, and 6163. Code section 6161 states the IRS may extend the period for a person to make a payment of tax for up to ten years beyond the due date of the estate tax return if the IRS finds that there is “reasonable cause” to grant such an extension. Section code 6159 states the IRS may permit the installment payment of taxes where the IRS believes doing so will facilitate payment of such taxes. Finally, code section 6163 states estate tax can be deferred until six months after preceding interests in the property terminate (Leimberg 2017).

3. Review the three categories of deductions available for calculating the adjusted gross estate including:

(i) Funeral and administrative expenses

Funeral expenses are limited to a reasonable amount to include internment, burial lot or vault, grave marker, perpetual care of the gravesite, and transportation of the person bringing the body to the place of burial. Deductible administrative expenses include costs of administering property includible in the decedent’s gross estate. Examples of such expenses are those incurred in the collection and preservation of probate assets, in the payment of estate debts, and conjunction with the distribution of probate assets to estate beneficiaries. They also include court costs, accounting fees, appraisers’ fees, brokerage costs, executors’ commissions, and attorneys’ fees. Administrative expenses can vary widely from location to location, and depend on the size of the estate as well as the complexity of the administrative problems involved. Administrate expense deductions cannot exceed the amount allowed by the laws of the jurisdiction under which the estate is being administered (Leimberg 2017).

(ii) Debts and unpaid taxes

Certain taxes unpaid at the time of the decedent’s death are considered debts. Three common deductible taxes are (Leimberg 2017):

(1) Income taxes unpaid but reportable for some tax period before the decedent’s death;

(2) Gift taxes that were not paid on gifts the decedent made sometime before death

(3) Property taxes that accrued but remained unpaid at the time of the decedent’s death.

(iii) Casualty and theft losses

Casualty and theft losses incurred by the estate are deductible if the loss arose from fire, storm, shipwreck (or other casualties), or theft. To be deductible, the loss must have occurred during the time the estate was being settled before it was closed. Such deductions are limited in two respects: the deduction is reduced (1) to the extent that insurance or any other compensation is available to offset the loss, and (2) to the extent that a loss is reflected in the alternate valuation (Leimberg 2017).

References:

Leimberg, S. R. (2017). Tools & Techniques of Estate Planning, 18th Edition. The National Underwriter Company.

Ohio Department of Taxation. (2002, May 11). Estate tax - Ohio Department of Taxation. Department of Taxation Estate Tax. Retrieved November 25, 2022, from https://tax.ohio.gov/static/communications/publications/estate_tax.pdf

The Retirement Group. (2020, August 31). Qualified family-owned business deduction. Qualified Family-Owned Business Deduction. Retrieved November 25, 2022, from https://www.theretirementgroup.com/blog/qualified-family-owned-business-deduction#:~:text=A%20Federal%20Gift%20and%20Estate%20Tax%20Deduction&text=If%20you%20own%20a%20family,from%20your%20gross%20taxable%20estate.