Tax Tip of the Week
900 N. Kings Highway, Cherry Hill, New Jersey 08034
856.667.4100 ·
215.563.0276 ·
Fax: 856.667.3652
For the week of
July 17, 2000
The more you have, the more important tax planning becomes
Tax planning should include more than just income tax planning.
If you will have a taxable estate, you and your heirs could face some serious tax bills later on.
As property values increase and the stock market goes up, it doesn't take long to end up with enough assets to
have a taxable estate. If not properly planned, an estate can be paying tax on life insurance proceeds as well.
In the year 2000, the federal estate exemption is $675,000. This exemption is scheduled to increase to $1,000,000
by the year 2006. As it stands now, estates over $3,000,000 are in the 55% tax bracket.
What does all this mean for tax planning? Take this example. Let's assume that you will have an estate in the 55%
bracket and that you are currently in the top federal income tax bracket of 39.6%. What happens to the next $1,000
that you earn? First, you pay your income tax (rounded to 40% to make the numbers easier to follow) of $400. If
you don't spend or give away the $600, it will be subject to 55% estate tax when you die. That's another $330.
That leaves you (your heirs) with $270 out of your original $1,000.
If the person to whom you leave the $270 dies with that amount still in his or her estate, it could get taxed again
at another 55%. This could be the case if your children already had taxable estates and intended to pass this $270
on to your grandchildren. Maybe the answer is to leave the money directly to your grandchildren. This must be done
very carefully and then it only works to a limited dollar amount. The federal estate tax laws have what is known
as the "generation skipping tax."
Proper income, gift, and estate tax planning can reduce not only your current income tax bill, but your estate
tax bill as well.
Please contact us. A little time and money now could save you and your heirs substantial amounts in taxes later.
We will gladly assist you and your attorney with your estate tax planning.
Click here to view previous tax tips.
"Tax Tips" are published weekly to
provide useful tax information. Return to this site every week for helpful tax-cutting suggestions, tax reminders,
and current tax information.
The information contained in this site is of a general nature and should not be acted upon in your specific situation
without further details and/or professional assistance.
If you would like more information on anything in "Tax Tips," or if you'd like to be on our mailing list
to receive other tax-cutting information from time to time, please contact our office. We're here to help.
