How Does Estate Planning Reduce Taxes.
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Proper estate planning reduces taxes.
With the current estate tax exemption of eleven point seven million dollars, few people need to worry about estate tax. For those that do need to worry about it, there are advanced methods to reduce it some.
Where proper estate planning really reduces taxes is in the area of capital gains taxes.
Fair or not, capital gains tax is a tax you pain on the growth of investments. Real estate, stocks, bonds, artwork, and more are subject to capital gains taxes.
In the case of a gift to somebody, capital gains tax is paid on the difference between what you sell it for and what the person that gave it to you paid!
Too many people think that putting their children’s name on the deed is the right thing to do. However, they expose their children to the capital gains tax by doing so. That is because the IRS, and the law generally, see this as a gift.
An example here will help. Mom buys a house for $100,000. Then later, mom gives you the house. At the time of the gift, the house is worth $190,000. You end up selling the house for $200,000. You owe capital gains tax on $100,000. That is, what you received less what mom paid.
However, testamentary gifts get a reset. If you had received the house as part of a proper plan, less tax would be due. Say it was worth $190,000 the day of inheritance. You still sold it for $200,000. Now, you only owe capital gains on $10,000. If your rate if 15% that is the difference between paying $15,000 of taxes and $1,500 of taxes.
We take care of you so you can take care of your family. Start now at DeWitt dot law.