WHY IS THE SECTION OF THE IRS WEBSITE ABOUT ESTATE AND GIFT TAXES UNDER THE HEADING “SMALL BUSINESS AND SELF-EMPLOYED?”
Businesses don’t pay estate and gift taxes, nor do they file estate tax or gift tax returns. Individuals pay estate and gift taxes and file estate tax returns (Form 706) and gift tax returns (Form 709). So why is the section of the IRS website about estate and gift taxes under the heading “Small Business and Self-Employed,” where no one who knows those basic facts is going to think to look? Is it because the IRS thinks that most taxpayers have the (mistaken) impression that only business owners need to be concerned about estate and gift taxes?
Most government agency web sites are poorly designed, but this is a particularly egregious example.
That’s what the IRS claimed, although they apparently settled for a lesser amount in determining the tax due on the singer’s estate.
I have written about this type of situation before. This commentator brings up something I hadn’t really thought about: doesn’t valuing the right of publicity owned by the estate of a deceased celebrity assume that the estate or the beneficiaries of the estate are going to exploit that right? What if they don’t intend to, or they even agree that they won’t?
The right of publicity isn’t like a Picasso painting, that has value whether the beneficiaries plan to sell it or not. The fact that they could market Whitney Houston’s likeness, or her name, doesn’t mean they will, and if they don’t, it’s not worth anything.
I suppose if the estate has memorabilia (tangible items) containing her likeness, those items have value, but the IRS is talking about the right to something intangible and putting a value on it. Even if you don’t think that’s unfair, putting a value on it (like $11.7 million) seems like it would have to be awfully subjective.
Continuing my series of posts on the changes to the federal tax code under the recently passed Tax Cuts and Jobs Act, the biggest change for individual taxpayers is, in my opinion, the increase of the standard deduction from $6350 in 2017 to $12,000 in 2018 for single filers, and from $12,700 in 2017 to $24,000 in 2018 for married filing jointly. The effect of that increase will be to reduce the tax liability of taxpayers who use the standard deduction instead of itemizing deductions, which is a large percentage of all taxpayers.
The large increase in the standard deduction will also have the effect of reducing, perhaps dramatically, the number of taxpayers who itemize their deductions. If your itemized deductions were more than the old standard deduction, but are now going to be less than the new standard deduction, you won’t have to itemize anymore. That’s going to not only reduce your tax liability, it’s also going to simplify the preparation of your return.
I have seen some commentaries suggesting that the new legislation doesn’t benefit lower-income taxpayers. I just don’t see how that can be so. Most lower income taxpayers (probably the vast majority) take the standard deduction. With the standard deduction nearly doubling for both single taxpayers and married taxpayers filing jointly, the result would have to be a reduction in tax in almost every case. Am I missing something?
I changed my mind on writing about the new federal tax legislation. I have two reasons:
1) the tax services have started producing their own analyses, so there’s commentary that’s not tainted (or consumed) by politics; and
2) I’m seeing a lot of what I can only call misinformation about what’s in the legislation.
I’ll start with a change made by the new legislation that’s easy to explain: the value of property that can be transferred by an individual without being subject to the federal estate tax or the federal gift tax goes up substantially under the new legislation. The individual exclusion amount will be essentially doubled, from $5.6 million to $11.2 million.
The effect on married couples will apparently be consistent with current law: a married couple gets 2x the individual exclusion amount, meaning that a married couple can now transfer $22.4 million without being subject to the federal estate or gift tax.
Stay tuned to this space for more highlights on what’s really in that tax legislation (not what the political commentators claim will be the effects).
I was going to write about some of the particulars of the just-passed federal tax legislation, but I changed my mind. I think a lot of what is being said about it is misinformed, but we will find out over time, as sources more informed and reliable than the political commentators (who are the ones making all the noise right now) weigh in. The political commentators are undoubtedly more interested in partisan posturing than they are in conveying actual facts about the legislation, anyway. I’m going to do my best to ignore them.
In the comments to this blog post, which quotes a New York Times story (or is it an editorial?) about the IRS being faced with the task of implementing the extensive tax legislation that appears to be about to become law. Despite the suggestion by the author of the Times’ story, processing tax returns for the prior year while implementing legislation effective in the current year shouldn’t be an overwhelming task for the IRS. They do it just about every year. Not only that, but I’m pretty sure that the people at the IRS who process tax returns are not the same people who revise the regulations and publications.
You didn’t include the birthday check from your grandmother on your income tax return, so why would you have to include the money you receive from her estate? That question and a few others are answered in my latest Estate Planning Law Report. You’ll find it in the same place where it’s posted every month: in the publications section at deconcinimcdonald.com.
Your comments are welcome, as always.
This is the first sentence of the abstract for a paper by some guy at Harvard: “Historically, it is safe to say that very few laws did as much to stoke inequality as laws touching descents and hereditary transmissions.”
What exactly does he mean when he refers to “laws touching descents and hereditary transmissions?” Well, he gives us a hint in the last sentence of the abstract: “Hence, inheritance taxation is most likely necessary from a classical liberal point of view as an instrument of social mobility to counter notable problems of social immobility, say hereditary vocational stratification, which a system of private property rights creates.”
This is what I think he means: modern law allows you to leave your lifetime accumulation of assets to your children, as opposed to when no one but the King could own anything, so commoners couldn’t leave anything to their children (i.e. before the system of private property rights was created). Therefore, it is necessary for the government to take (at least some of) the assets you would otherwise leave to your children, to prevent your children from having an economic advantage over others whose parents didn’t leave them anything.
Via Taxprof Blog.
According to a report linked to by Instapundit, taxes collected by the federal government on a per capita basis, and after adjusting for inflation, more than doubled between 1961 and 2016. Those figures are from the government itself (the Office of Management and Budget), not some partisan think tank.
So when people say that the income tax cuts in the 1980s are the cause of the federal debt, or that the government just can’t afford to lose the revenue that it receives from the federal estate tax, you might want to take it with a grain of salt.
WHAT DO PRINCE, MICHAEL JACKSON, AND WHITNEY HOUSTON HAVE IN COMMON? AND HOW IS ROBIN WILLIAMS DIFFERENT?
The obvious thing that Prince, the Gloved One, and Whitney Houston have in common is that they were all pop music megastars who died young. As a result of that commonality, they also left behind a huge tax problem for their successors, thanks to the IRS’ claim that the future value of a performing artist’s publicity rights is an asset that is taxable under the federal estate tax.
Valuing those future publicity rights is probably not an exact science. I wrote about the issue when it was raised following Prince’s passing. To get a better idea of what I mean, all you have to do is look at the difference between what the IRS claims Michael Jackson’s persona is worth, $434,000,000, and what his estate said it is worth, $2,105.
And how is Robin Williams different? He wasn’t a musician, but his persona is undoubtedly every bit as much a taxable asset as the others' in the eyes of the IRS. Yet that value apparently won’t result in a tax liability for his estate. Why? Because he left his publicity rights to charity.
The contents of this blog, this web site, and any writings by me that are linked here, are all my personal commentary. None of it is intended to be legal advice for your situation.