What Is The “Death Tax?”

The “death tax” is not nearly as scary as it sounds. Not even the IRS can set a tax levy on you after you’re dead. In reality, the term “death tax” is a slang or casual term for the estate and/or inheritance taxes that the IRS and certain states levy on property that passes from you to your heirs after you die.

The estate tax is one of those IRS efforts that sounds like it will hit everyone really hard, but actually only applies to a fraction of the population. Pretty much everyone has property, and many people have children and grandchildren, and most people with property want to leave it to their descendants. While all such inherited property is taxable by the estate tax, only a few people ever get taxed this way. Why? Because the purpose of the estate tax is not to collect hard-earned funds or properties from regular people. It’s to make sure that very irregular people—those with immense fortunes—don’t isolate those funds from the government and the economy by simply sitting on them for generations on end.

So while estate tax laws apply to pretty much everyone, you don’t have to worry about the IRS coming and taking Dad’s favorite watch or Grandma’s handmade shawls—or, most likely, the thousands of dollars they may have put away. The IRS provides a significant exemption to the estate tax every year—in 2017, it’s $5.49 million per person. That means that if your estate is worth less than that amount, according to fair market value, you don’t have to pay any estate tax. If you’re married, that number doubles to just short of $11 million to account for both you and your spouse. And certain items and monies can be deducted from your estate as well, including some charitable donations, items given to your surviving spouse and funeral expenses.

So really, only about one in a thousand households actually has enough money for the estate tax to apply to them. And even for those who do, the estate tax only applies to the value of their property over and above the exemption amount. So really, the only people who pay significant amounts of money through the estate tax are those who have far more money than they could ever spend. The funds collected from these very wealthy few people, despite coming from a small fraction of the population, provide a significant amount of support to a wide range of government projects and initiatives.

While most states do not have their own versions of estate taxes, a few do have an inheritance tax: Pennsylvania, New Jersey, Nebraska, Iowa, Maryland and Kentucky. In these states, the recipients of your inheritance will pay a tax on the amounts they receive. Your estate will also pay a tax on any real estate you own in those states, whether you yourself live in the state or not.

So in reality, there’s very little to worry about regarding a so-called “death tax” unless you live in one of those states or are already a multimillionaire several times over. For most of you, when you die, even the IRS will let you rest easy.

Contact Levy & Associates for Dependable Tax Audit Services

Levy & Associates is available for free initial consultations. We’re happy to answer any questions you have about the audit process or address any concerns about your specific situation.

There’s never a good time to be audited, and the time-consuming process will take away from your business or family if you try to face it alone. Let us handle and coordinate communication, so you can return to your daily life.