The estate tax is a tax that may affect people at some point in their lives. Various feelings exist about it and it’s an issue that politicians occasionally address. Donald Trump has publicly announced he plans to do away with it, while Hillary Clinton discussed ways she wishes to change it. People have lots of opinions about the pros and cons of it, but many people don’t realize what the estate tax even is until it affects their lives.
What is it?
It’s a tax that’s set at the federal level, but there is also an additional state estate tax. The tax is, as it name says, applied to a person’s estate. This tax is used when a person dies and attempts to transfer their property and remaining belongings to a family member or friend. Depending on the amount of the estate, a certain portion of it will be due the federal and state government in taxes. The estate heirs are required to pay this tax out of the estate. For more basic information and frequently asked questions, take a look at the IRS’s page on the estate tax here.
Some facts about it
It doesn’t apply to most people – Out of estates that are willed to heirs, 99.8% aren’t valuable enough to pay estate taxes. This exemption occurs because the people inheriting under $5.45 million can be exempt from the tax. Take a look at this website if you’re curious whether or not you’ll have to pay an estate tax.
You won’t pay full tax – The top rate for the estate tax is 40 percent, but the average paid is around 16 percent, which means that most people eligible to pay the estate tax will pay less than 20 percent, instead of almost half, of the estate’s estimated worth.
Significant revenue source – Over a ten year period, the estate tax will generate nearly $300 billion, more than what the government will spend on the CDC, FDA, and EPA.
Doesn’t affect most small businesses – Most farms and small businesses are unaffected, as seen by “Only roughly 20 small business and small farm estates nationwide owed any estate tax in 2013”. Only small businesses or farms valued at $5 million or more pay any kind of estate tax.
Less than most other countries – Of the 37 countries that are members of the Organisation for Economic Co-Operation and Development, 27 of them have some form of inheritance tax, of which the United States is the lowest.