Taxed in Life & Taxed in Death aka Estate Tax .

[BillStime]

I know so many of you are impacted by all of this... lmao

 

 

[Chef Jim]

42 minutes ago, SoTier said:

 

That's what estate planning is for.  If the children are "deeply involved in that business", then why don't they have  ownership stakes? 

 

You're absolutely correct.  These changes actually bode well for my industry.

 

Now what is the cost to the children to take an ownership stake?  What if the children don't have the means to have an ownership stake?  

 

Let's say the children are NOT deeply involved in the ownership of the company at the time of mom and dad's death.  The business lacks liquidity to pay the 40% (or higher) in estate taxes.  Now the children are likely going to have to sell the business in order to satisfy the tax bill due.  There goes the business that mom and dad worked so hard to build. 

[Chef Jim]

Just now, BillStime said:

I know so many of you are impacted by all of this... lmao

 

 

 

The elimination of step up in basis will likely affect us all. Any idea how hard it is to determine basis of an estate?  Take the family home bought by mom and dad in the 50's.   There have been additions, renovations etc over the years.  Some of those as far back as 50 years ago.  I suggest you get into the accounting business. There could likely be a big call for that.  

1 hour ago, SoTier said:

 

The average net worth of the top 1% of Americans is $10.8 million.

The average net worth of the top 2% of Americans is only $2.4 million.

I think excluding the first $10 million is ok.  I don't think it's fair since the median net worth of American households is $121,700, but I would be ok with it because it would put the exclusion just below what it was before before Trump doubled it in 2018.

 

 

This would be fine if Biden was floating out the first $10m.  However he's talking about the first $3m.  That may seem like a lot to many of you but here in CA that's chump change.  

[BillStime]

Biden to Omit Estate-Tax Expansion From Coming Economic Plan

 

Included in the plan is a near doubling in the capital-gains rate for the wealthy, Bloomberg has reported. The White House decided that that move was dramatic enough that the estate-tax hike could be excluded, according to people familiar with the discussions. Aides also did not want to include policy items unless they knew they had the backing of congressional Democrats, those people said.

 

The exclusion of a hike in the estate tax is noteworthy to both progressive groups and liberal economists, because Biden had made taxing the rich such a central part of his campaign and presidency -- and advocates view an estate-tax hike as one way to dismantle wealth passed along within families that’s often not subject to taxation.

 

Still, Biden’s coming tax package will feature an end to a major benefit for wealthy estates that drastically minimizes the levy for inheritors.

[Chef Jim]

11 minutes ago, BillStime said:

Biden to Omit Estate-Tax Expansion From Coming Economic Plan

 

Included in the plan is a near doubling in the capital-gains rate for the wealthy, Bloomberg has reported. The White House decided that that move was dramatic enough that the estate-tax hike could be excluded, according to people familiar with the discussions. Aides also did not want to include policy items unless they knew they had the backing of congressional Democrats, those people said.

 

The exclusion of a hike in the estate tax is noteworthy to both progressive groups and liberal economists, because Biden had made taxing the rich such a central part of his campaign and presidency -- and advocates view an estate-tax hike as one way to dismantle wealth passed along within families that’s often not subject to taxation.

 

Still, Biden’s coming tax package will feature an end to a major benefit for wealthy estates that drastically minimizes the levy for inheritors.

 

Well well well.  Biden favors billionaires over the middle class.  

[leh-nerd skin-erd]

1 hour ago, Chef Jim said:

So a family starts a business, let’s say a winery.  They children become deeply involved in that business.  Mom and dad pass. In order for the kids, who now want to continue running the business, to keep the business, they find they owe the government potentially millions in taxes. The government wants those taxes in 9 months.  The business only as a few hundred thousand in liquidity. Now the children are forced to sell the business they want to keep in the family in order to pay those taxes.  You ok with that?  

Not painting with a broad brush. It’s a complete lack of understanding how family businesses operate. 

Well, certainly an argument can be made that there are entitled rich people in the world, and that intergenerational wealth can contribute to that.  I did a term paper on the subject in college and sought to interview some of the poor Kennedy heirs— I couldn’t find any and I failed. 

[B-Man]

 

 

RIP, Biden's death tax hike?

FTA:

 

 Joe Biden campaigned on finding ways to hike taxes on the wealthy in order to fund his big spending agenda, and Democrats have long demanded an expansion of the estate tax for that purpose. Right now, the White House and Chuck Schumer desperately need pay-fors to get those bills through the Senate on reconciliation as a means of getting around Republican filibusters.

 

However, Bloomberg reported last night that the expansion of the so-called “death tax” is itself pushing up daisies, at least for now:

Quote

President Joe Biden and his economic team are planning to forgo an expansion of the estate tax in the administration’s coming individual tax-hike proposals, according to people briefed on the plan.

 

Biden during the 2020 campaign pledged to increase the estate tax, along with raising rates on capital gains and corporate income, as part of an effort to force companies and the wealthy to pay a greater share of federal revenue. But the estate-tax boost won’t be part of the funding measures in the “American Families Plan” the president will unveil Wednesday, the people said, asking not to be named as the plan isn’t yet public.

 

…

The exclusion of a hike in the estate tax is noteworthy to both progressive groups and liberal economists, because Biden had made taxing the rich such a central part of his campaign and presidency — and advocates view an estate-tax hike as one way to dismantle wealth passed along within families that’s often not subject to taxation.

 

The capital-gains tax hike will remain in the package, but it’s not going to be popular either. Democrats have become the party of Wall Street themselves, and the professional investor class lives off of capital gains rather than income. Their donors will demand all sorts of loopholes to avoid increasing their tax burden, while Republicans will correctly oppose it as an attack on risk-taking and economic growth.

 

https://hotair.com/ed-morrissey/2021/04/28/rip-bidens-death-tax-hike-n386386

[SoCal Deek]

Not sure why this had to get off track with a family business.  What about people who have simply saved and pass away without the complications of a business? Let's assume the children didn't work in the business.  Mom and Dad pass away, and the government swoops in and says "crack me off a piece of that".  Why, exactly? It's not the government's money. Mom and Dad have been paying taxes on the growth of those savings every year, not to mention the fact that the initial money was taxed before it became savings.  Then upon Mom and Dad's passing, when the money is distributed to the children THEY TOO will continue paying taxes on the growth of that money year after year. What's the Estate Tax for?

[SoTier]

1 hour ago, Chef Jim said:

 

You're absolutely correct.  These changes actually bode well for my industry.

 

Now what is the cost to the children to take an ownership stake?  What if the children don't have the means to have an ownership stake?  

 

Let's say the children are NOT deeply involved in the ownership of the company at the time of mom and dad's death.  The business lacks liquidity to pay the 40% (or higher) in estate taxes.  Now the children are likely going to have to sell the business in order to satisfy the tax bill due.  There goes the business that mom and dad worked so hard to build. 

 

Your concern for the super wealthy is soooooo heart wrenching.  Let's do some math ...  the current estate tax exclusion is almost $23 million.  Somebody who leaves and estate of $50 million would owe tax on $27 million, which at 40% would be $10.8 million, leaving the heirs $39.2 million. 

 

If the estate exclusion was lowered to $10 million, the tax on $ 40 million would be $16 million, leaving the heirs a paltry $34 million.

 

If the estate exclusion was lowered to $3 million, the tax on $47 million would be $18.8 million, leaving the heirs in poverty since they would only get $31.2 million.

 

Cry me a river. 

 

1 minute ago, SoCal Deek said:

Not sure why this had to get off track with a family business.  What about people who have simply saved and pass away without the complications of a business? Let's assume the children didn't work in the business.  Mom and Dad pass away, and the government swoops in and says "crack me off a piece of that".  Why, exactly? It's not the government's money. Mom and Dad have been paying taxes on the growth of those savings every year, not to mention the fact that the initial money was taxed before it became savings.  Then upon Mom and Dad's passing, when the money is distributed to the children THEY TOO will continue paying taxes on the growth of that money year after year. What's the Estate Tax for?

 

You wouldn't have money to save if the government didn't provide an environment where business and commerce flourish, not the least of which is a stable government itself. 

[sherpa]

3 minutes ago, SoTier said:

 

You wouldn't have money to save if the government didn't provide an environment where business and commerce flourish, not the least of which is a stable government itself. 

 

I think you might have that a little backwards.

The government wouldn't exist without being funded by "business and commerce."

 

Now it exists far beyond its support, but that is another subject.

 

 

[Chef Jim]

5 minutes ago, SoTier said:

 

Your concern for the super wealthy is soooooo heart wrenching.  Let's do some math ...  the current estate tax exclusion is almost $23 million.  Somebody who leaves and estate of $50 million would owe tax on $27 million, which at 40% would be $10.8 million, leaving the heirs $39.2 million. 

 

If the estate exclusion was lowered to $10 million, the tax on $ 40 million would be $16 million, leaving the heirs a paltry $34 million.

 

If the estate exclusion was lowered to $3 million, the tax on $47 million would be $18.8 million, leaving the heirs in poverty since they would only get $31.2 million.

 

Cry me a river. 

 

 

 

It's not what they are left with.  It's the liquidity (or lack thereof) of the estate to pay the taxes. 

 

Questions

 

1.  In your first example. Where is that $16m going to come from?  

2. In your second example where is the $18.8 million going to come from?

 

Let's say in your second example there is a family in California that have a home worth $3m (that's nothing for here) and other assets totaling $2m.  And for sake of argument those $2m of assets are IRA's.  This is not what you referred to as the "super wealthy" these are often average Americans.  The millionaire next door.  So here's what their heirs will owe in taxes:

 

$800k in estate taxes

$400k in income taxes from the required distributions of the IRA's over the next 10 years.  Which means these assets have been taxed TWICE!

 

So other than a money grab by the government why do we have an Estate Tax? 

52 minutes ago, SoCal Deek said:

Not sure why this had to get off track with a family business.  What about people who have simply saved and pass away without the complications of a business? Let's assume the children didn't work in the business.  Mom and Dad pass away, and the government swoops in and says "crack me off a piece of that".  Why, exactly? It's not the government's money. Mom and Dad have been paying taxes on the growth of those savings every year, not to mention the fact that the initial money was taxed before it became savings.  Then upon Mom and Dad's passing, when the money is distributed to the children THEY TOO will continue paying taxes on the growth of that money year after year. What's the Estate Tax for?

 

Well in my example the growth on the home and IRA have not been taxed every year. The beauty of RE is it grows tax deferred.  If calculation basis wasn't such a B word I would rather they eliminate the step up and the estate tax.  

[SoCal Deek]

51 minutes ago, SoTier said:

 

You wouldn't have money to save if the government didn't provide an environment where business and commerce flourish, not the least of which is a stable government itself. 

Let's not be silly. That's what I paid taxes on for all these years, and that's what my heirs will continue to pay taxes on going forward, forever.  The government is not making an investment in me. I'm making an investment in them! (Man, this country is messed up!)

37 minutes ago, Chef Jim said:

 

 

 

Well in my example the growth on the home and IRA have not been taxed every year. The beauty of RE is it grows tax deferred.  If calculation basis wasn't such a B word I would rather they eliminate the step up and the estate tax.  

My assumption is that the house (asset) will be sold, and it will indeed be taxed at that time. Someone is going to pay that tax.  Most likely my heirs.  But that should be no different whether I'm selling it or my kids are.

[Chef Jim]

10 minutes ago, SoCal Deek said:

 

My assumption is that the house (asset) will be sold, and it will indeed be taxed at that time. Someone is going to pay that tax.  Most likely my heirs.  But that should be no different whether I'm selling it or my kids are.

 

If the house is sold upon death there will be no taxation of the growth as there is a step (or down) in basis upon death.  If you sell it prior to death you will pay a gain above and beyond your $250k individual exclusion ($500k if married joint) 

[SoCal Deek]

9 minutes ago, Chef Jim said:

 

If the house is sold upon death there will be no taxation of the growth as there is a step (or down) in basis upon death.  If you sell it prior to death you will pay a gain above and beyond your $250k individual exclusion ($500k if married joint) 

Correct.  I've always thought all of that was way more complicated than it should be. The entire tax system should be cleaned out and greatly simplified....but of course there are lobbyist working hard to keep this ridiculously complicated mess going.

[\GoBillsInDallas/]

1 hour ago, Chef Jim said:

Let's say in your second example there is a family in California that have a home worth $3m (that's nothing for here) and other assets totaling $2m.

 

"In your second example there is a family in California that have a home worth $3m (that's nothing for here) and other assets totaling $2m."

[Chef Jim]

23 minutes ago, \GoBillsInDallas/ said:

 

"In your second example there is a family in California that have a home worth $3m (that's nothing for here) and other assets totaling $2m."

So I missed the word “say” in front of there.  🙄

 

Point still stands. 

[All_Pro_Bills]

It seems all these tax code changes may be DOA in Congress as there are 20-25 Democratic house members that are signaling they will not support the administrations legislation unless the SALT deduction limit of $10K is eliminated as part of any tax package.  The administration to this point has expressed no interest in removing current State and Local Tax deduction limitations.

[Chef Jim]

2 minutes ago, All_Pro_Bills said:

It seems all these tax code changes may be DOA in Congress as there are 20-25 Democratic house members that are signaling they will not support the administrations legislation unless the SALT deduction limit of $10K is eliminated as part of any tax package.  The administration to this point has expressed no interest in removing current State and Local Tax deduction limitations.

As long as the don’t eliminate the doubling of the standard deduction at the same time. This was a huge deduction increase for many who do not have the expenses (i.e mortgage interest) like renters. 

[All_Pro_Bills]

50 minutes ago, Chef Jim said:

As long as the don’t eliminate the doubling of the standard deduction at the same time. This was a huge deduction increase for many who do not have the expenses (i.e mortgage interest) like renters. 

Many felt this provision was inserted by Trump in the previous administration's tax package in order to "stick it to" wealthy blue state Democratic contributors and supporters.  That seems quite plausible.  And the idea now with Congressional members from these states is to give those party loyalist pulling in $400K+ and responsible for close to 90% of all donations to the party their deductions back.  How this contradiction resonates inside the party with the current "tax the rich" message is unclear.  

One alternative which is these states cutting their state and local income taxes to directly give back money appears to elude consideration and their thoughts.

[SoCal Deek]

7 minutes ago, All_Pro_Bills said:

Many felt this provision was inserted by Trump in the previous administration's tax package in order to "stick it to" wealthy blue state Democratic contributors and supporters.  That seems quite plausible.  And the idea now with Congressional members from these states is to give those party loyalist pulling in $400K+ and responsible for close to 90% of all donations to the party their deductions back.  How this contradiction resonates inside the party with the current "tax the rich" message is unclear.  

One alternative which is these states cutting their state and local income taxes to directly give back money appears to elude consideration and their thoughts.

Many thought?  That is exactly why Trump did it.