Estate taxes can be a confusing topic. The state does not charge them, but the federal government may.
These taxes are typically only a concern for those with vast assets. The IRS explains estate taxation and how it works. You need to know this because your estate could be held up in probate if your estate taxes remain unpaid. Plus, it will allow you to plan ahead to maximize the inheritance for your heirs.
Who pays federal estate taxes?
The IRS levies taxation on estates based on their value. The actual amount changes yearly. In 2023, the cap was at $12,920,000, meaning estates worth under that amount pay no tax. When figuring the limit, the IRS will include all cash and assets.
Are there deductions available?
The government does allow for certain deductions, which can reduce the value of your estate and help you to fall under the threshold for having to pay estate taxes. You can deduct certain property that will pass directly to your spouse, charitable donations, debt owed, some business expenses and estate administration expenses.
Who files the estate tax paperwork?
Your executor will be responsible for filing estate taxes using Form 706. There is a deadline by which he or she must file. Filing after that time will result in the typical fees and penalties associated with not paying taxes on time.
Most estates will not have to pay federal estate tax. However, if you are unsure about your situation, it may be worth looking into now so that you can alert your executor to the matter.