A person’s estate is more than just their accumulated wealth. It’s a living example of a life story, a story of hard work and commitment to a future for themselves and for those they care for. As executor of an estate, a person’s key role is to make sure that estate ends up going to those it is designated to.
Carefully planning for estate taxes can help to ensure as much of that estate goes to its beneficiaries as possible. When you work with a professional accountant, they understand the complex issues you face when planning for estate taxes. In this post from Boulay’s Accounting Clarity team, we’ll talk about how an outsourced accounting team can help you stay ahead of the curve with estate tax legislation issues and more.
Here are just a few factors that can impact estate taxes:
● Size of estate
● Charitable donations
● State and federal legislation
Understanding Estate Taxes
After a person’s death, their material assets will collectively become an estate with its own bank accounts and accounting. The entire collective value of a deceased individual’s assets are combined to determine the estate tax, which is to be paid out of those assets before distribution.
The estate’s personal representative or executor will be in charge of filing an estate tax return. The federal threshold for estate taxes has been fairly high in recent years, much to the relief of those planning for their estates. With recent changes to the federal tax code, most estates have become too small to qualify for estate taxes. In 2020, only estates worth a total of $11.58 million or more were subject to taxation.
However, the threshold for state taxes varies from one state to the next and often changes from one year to the next. In Minnesota, for example, the estate tax cut-off was $3 million in 2020.
Even if an estate is not subject to estate tax, it may be subject to an inheritance tax depending on where the estate is distributed. An inheritance tax is paid by each beneficiary. This amount is calculated per each beneficiary once the estate’s assets have been divided and distributed. The beneficiary is responsible for paying taxes on the inheritance. Not every state has an inheritance tax, and inheritance law varies from state to state.
Calculating Estate Tax
Calculating estate tax can be complicated. Many states use a graduated estate tax in which rates of taxation increase with the estate’s size. To calculate estate tax, an accountant will begin by calculating the total of the estate assets and find which bracket the estate falls in for that state. From there, the amount is calculated based on the tax rules designated by that state.
Contact Boulay’s Outsourced Accounting Services
Whether you’re an executor or in the process of planning your own estate, working with outsourced accounting services can help you take charge of planning for estate taxes. Contact our Accounting Clarity team at Boulay about controller, bookkeeping, and CFO services. To get help with your estate, give us a call at 952.893.9320 or contact us online today.
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