Irs Tax Rate questions
Q.I found at www.irs.gov that the maximum estate tax rate is 49% in 2003. What is meant by the word "maximum"? In 2003, everything above $1M is taxed. Does the maximum tax rate apply to the first dollar above $1M, such that an estate of $1,000,001 would have to pay 49 cents? Or is there a graduated rate that tops out at 49%, such that an estate of $1,000,001 would pay something like 10 or 15 cents? How can I change the numbers in the IRS Tax rate tables ? Thanhk for advice
A.None of the above. The simple answer is that it's effectively graduated from 41% to 49%. The messier answer is that there is no $1,000,000 exclusion per se. The tax, which has a marginal rate of 18% to 49%, is first calculated on the entire taxable estate. Then a $345,800 credit is applied that effectively brings the tax to zero for any estate of less than $1,000,000. Estates above that have marginal rates of 41% to 49%. An estate of $1,000,001 would theoretically pay $0.41. You can take a look at the actual form and instructions at ... Form http://www.irs.gov/pub/irs-pdf/f706.pdf Instructions http://www.irs.gov/pub/irs-pdf/i706.pdf Actually, estates are taxed on a progressive scale, starting at 18%. The current $1,000,000 lifetime exclusion results in a CREDIT on the first $345,800 of TAX. The next $100 of estate value is charged $41 (41%). In other words, all the tax brackets between 18% and 39% are eliminated by the credit. You calculate the estate tax first (based on the net estate), THEN subtract the credit. You DON'T subtract $1,000,000 from the net estate first, then calculate the tax starting with the lower tax brackets. For an estate of up to $2,500,000, the tax will between 41% and 49% of the amount over $1,000,000. Over $2,500,000, the estate is taxed at 50% on each additional dollar. NOTE: the above discussion is based on 2002 figures, for 2003 the maximum rate has been reduced slightly, as have the other brackets. The Unified Tax Rates are published in IRS Form 706 instructions.
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