What Is An Estate
After a persons death, someone in charge puts all their possessions together. Experts call this collection an estate. A persons estate might be very large or very small. If the person owed money when they died, the estate has to pay it back. This might involve selling parts of the total estate to pay all debts.
What people do with an estate depends on the instructions written in the will. Sometimes, people sell properties or withdraw investments. That way, the estate is entirely in cash and will be divided among the beneficiaries. At other times, people divide parts of the estate by type.
A The Voluntary Nature Of The Federal Income Tax System
1. Contention: The filing of a tax return is voluntary.
Some taxpayers assert that they are not required to file federal tax returns because the filing of a tax return is voluntary. Proponents of this contention point to the fact that the IRS tells taxpayers in the Form 1040 instruction book that the tax system is voluntary. Additionally, these taxpayers frequently quote Flora v. United States, 362 U.S. 145, 176 , for the proposition that “ur system of taxation is based upon voluntary assessment and payment, not upon distraint.”
The Law: The word “voluntary,” as used in Flora and in IRS publications, refers to our system of allowing taxpayers initially to determine the correct amount of tax and complete the appropriate returns, rather than have the government determine tax for them from the outset. The requirement to file an income tax return is not voluntary and is clearly set forth in sections 6011, 6012, et seq., and 6072 of the Internal Revenue Code. See also Treas. Reg. § 1.6011-1.
Relevant Case Law:
Helvering v. Mitchell, 303 U.S. 391, 399 the Supreme Court stated that “n assessing income taxes, the Government relies primarily upon the disclosure by the taxpayer of the relevant facts. . . . in his annual return. To ensure full and honest disclosure, to discourage fraudulent attempts to evade the tax, Congress imposes sanctions.”
Other Cases:
2. Contention: Payment of federal income tax is voluntary.
Relevant Case Law:
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Relevant Case Law:
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Income Tax In The United States
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Income taxes in the United States are imposed by the federal government, and most states. The income taxes are determined by applying a tax rate, which may increase as income increases, to taxable income, which is the total income less allowable deductions. Income is broadly defined. Individuals and corporations are directly taxable, and estates and trusts may be taxable on undistributed income. Partnerships are not taxed , but their partners are taxed on their shares of partnership income. Residents and citizens are taxed on worldwide income, while nonresidents are taxed only on income within the jurisdiction. Several types of reduce tax, and some types of credits may exceed tax before credits. An alternative tax applies at the federal and some state levels.
In the United States, the term “payroll tax” usually refers to FICA taxes that are paid to fund Social Security and Medicare, while “income tax” refers to taxes that are paid into state and federal general funds.
Most business expenses are deductible. Individuals may deduct certain personal expenses, including home mortgage interest, state taxes, contributions to charity, and some other items. Some deductions are subject to limits.
Capital gains are taxable, and capital losses reduce taxable income to the extent of gains . Individuals currently pay a lower rate of tax on capital gains and certain corporate dividends.
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Expanded Penalty Waiver Available If 2018 Tax Withholding And Estimated Tax Payments Fell Short Refund Available For Those Who Already Paid 2018 Underpayment Penalty
The IRS lowered to 80 percent the threshold required for certain taxpayers to qualify for estimated tax penalty relief if their federal income tax withholding and estimated tax payments fell short of their total tax liability in 2018. In general, taxpayers must pay at least 90 percent of their tax bill during the year to avoid an underpayment penalty when they file. On January 16, 2019, the IRS lowered the underpayment threshold to 85 percent and on March 22, 2019, the IRS lowered it to 80 percent for tax year 2018.
This additional expanded penalty relief for tax year 2018 means that the IRS is waiving the estimated tax penalty for any taxpayer who paid at least 80 percent of their total tax liability during the year through federal income tax withholding, quarterly estimated tax payments or a combination of the two.
Taxpayers who have not filed yet should file electronically. The tax software was updated and uses the new underpayment threshold and will determine the amount of taxes owed and any penalties or waivers that apply. This penalty relief is also included in the revision of the instructions for Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts.
How To Get Your 1099
You may choose one of the two methods below to get your 1099-G tax form:
- Online:The 1099-G form for calendar year 2021 will be available in your online account at labor.ny.gov/signin to download and print by mid-January 2022.
- If you do not have an online account with NYSDOL, you may call:1-888-209-8124 This is an automated phone line that allows you to request your 1099-G via U.S. Mail. The form will be mailed to the address we have on file for you.
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Are Estate Taxes And Inheritance Taxes The Same Thing
Estate taxes and inheritance taxes are somewhat different. Anyone in the United States may have to pay estate taxes. Inheritance taxes are state taxes, and only a handful of states take them. A larger number of states collect state estate taxes, but each state offers a tax exclusion on those taxes.
Most people wont have to pay state inheritance taxes because they dont live in the state requiring it. On the other hand, other people can avoid the estate tax because the exclusion is so high. You would have to inherit many millions of dollars to have to pay federal estate taxes.
How To Avoid Double Taxation On Foreign Income
One issue that arises under a citizenship-based taxation system is that an individual could theoretically be doubly taxed on their income earnedboth by their country of current residence and the US. This scenario is especially relevant for an American living abroad full-time who may qualify as a resident in other local tax systems.
To help avoid this negative consequence, the US tax code contains a provision called theForeign Earned Income Exclusion. Under the 2022 FEIE, expats are permitted to exclude $112,000 of income earned abroad from their US tax obligation.
Another provision to help avoid double taxation is theForeign Tax Credit. This gives Americans a dollar-for-dollar tax credit for the taxes theyve paid or owe to a foreign government. What makes this provision complex, however, is that it applies to only certain types of income, and there are unique considerations related to each foreign country.
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Resident Individual Income Tax
Resident taxpayers who are required to file a federal individual income tax return are required to file a Louisiana income tax return,IT-540, reporting all of their income. If a Louisiana resident earns income in another state, that income is also taxable by Louisiana. A temporary absence from Louisiana does not automatically change your domicile for individual income tax purposes. As a resident taxpayer, you are allowed a credit on Schedule G for the net tax liability paid to another state if that income is included on the Louisiana return.
Residents may be allowed a deduction from taxable income of certain income items considered exempt by Louisiana law. For example, Louisiana residents who are members of the armed services and who were stationed outside the state on active duty for 120 or more consecutive days are entitled to a deduction of up to $30,000. In each case, the amount of income subject to a deduction must be included on the Louisiana resident return before the deduction can be allowed.
B The Meaning Of Income: Taxable Income And Gross Income
1. Contention: Wages, tips, and other compensation received for personal services are not income.
This argument asserts that wages, tips, and other compensation received for personal services are not income, arguing there is no taxable gain when a person “exchanges” labor for money. Under this theory, wages are not taxable income because people have basis in their labor equal to the fair market value of the wages they receive thus, there is no gain to be taxed. A variation of this argument misconstrues section 1341which deals with computations of tax where a taxpayer restores a substantial amount held under claim of right to claim a deduction for personal services rendered.
Another similar argument asserts that wages are not subject to taxation where individuals have obtained funds in exchange for their time. Under this theory, wages are not taxable because the Code does not specifically tax “time-reimbursement transactions.” Some individuals or groups argue that the Sixteenth Amendment to the United States Constitution did not authorize a tax on wages and salaries, but only on gain or profit.
Relevant Case Law:
Commissioner v. Kowalski, 434 U.S. 77 the Supreme Court found that payments are considered income where the payments are undeniably accessions to wealth, clearly realized, and over which a taxpayer has complete dominion.
Other Cases:
2. Contention: Only foreign-source income is taxable.
Relevant Case Law:
Other Cases:
Relevant Case Law:
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Coronavirus Tax Relief For Self
Coronavirus Aid, Relief, and Economic Security Act permits self-employed individuals making estimated tax payments to defer the payment of 50% of the social security tax on net earnings from self-employment imposed for the period beginning on March 27, 2020 and ending December 31, 2020. This means that 50% of the social security tax imposed on net earnings from self-employment earned during the period beginning on March 27, 2020, and ending December 31, 2020, is not used to calculate the installments of estimated tax due. Please refer to Publication 505, Tax Withholding and Estimated TaxPDF, for additional information.
States With No Income Tax
A good way to minimize your retirement income tax bill is to move to one of the eightor nine, depending on how you classify incomestates that do not have any income taxes. These states do not tax income earned from wages, salaries or investments.
New Hampshire is often misclassified as having no income tax. While the Granite State does not tax income from wages or salaries, it does tax income earned from interest and dividends at a 5% rate. Starting in 2024, the state will begin gradually phasing out this tax, and it will be completely eliminated by 2027.
Just remember, income taxes arent the only kind of tax you need to consider when choosing where to live in retirement. Its important to consider your total tax burden, including property taxes and sales taxes.
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Dont Forget Social Security Benefits May Be Taxable
Tax Tip 2020-76, June 25, 2020
Taxpayers receiving Social Security benefits may have to pay federal income tax on a portion of those benefits.
Social Security benefits include monthly retirement, survivor and disability benefits. They don’t include supplemental security income payments, which aren’t taxable.
The portion of benefits that are taxable depends on the taxpayer’s income and filing status.
Calculating Taxable Income Using Exemptions And Deductions
Of course, calculating how much you owe in taxes is not quite that simple. For starters, federal tax rates apply only to taxable income. This is different than your total income, otherwise known as gross income. Taxable income is always lower than gross income since the U.S. allows taxpayers to deduct certain income from their gross income to determine taxable income.
To calculate taxable income, you begin by making certain adjustments from gross income to arrive at adjusted gross income . Once you have calculated adjusted gross income, you can subtract any deductions for which you qualify to arrive at taxable income.
Note that there are no longer personal exemptions at the federal level. Prior to 2018, taxpayers could claim a personal exemption, which lowered taxable income. The tax plan signed in late 2017 eliminated the personal exemption, though.
Deductions are somewhat more complicated. Many taxpayers claim the standard deduction, which varies depending on filing status, as shown in the table below.
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Meet The Deadline For The Extension
The IRS must receive Form 4868 on or before the tax filing deadline, which is usually April 15, unless that day falls on a weekend or holiday. It would be the next business day in this case. This happens in 2022, when the due date for 2021 tax returns is pushed back to April 18.
The IRS will charge a late filing penalty, a late payment penalty, and interest on any unpaid balance you owe if you don’t file your return or an extension on time and if you also fail to pay on time. But you’ll at least avoid the late-filing penalty if you file an extension by the April due date, which is a hefty 5% of the taxes you owe for every month your return is late. Then be sure to file your return by the extended deadline in October.
This penalty increases to $435 or 100% of the taxes you owe, whichever is less, if you’re 60 days late or more.
Taxes On Unemployment Benefits
All benefits are considered gross income for federal income tax purposes. This includes benefits paid under the federal CARES Act, Federal Pandemic Unemployment Compensation , state Extended Benefits , Trade Adjustment Assistance , Pandemic Unemployment Assistance , Pandemic Emergency Unemployment Compensation , and Lost Wages Assistance . DES reports these benefits to the Internal Revenue Service for the calendar year in which the benefits were paid.
You may choose to have federal income tax withheld from your unemployment benefit payments at the rate of 10% of your gross weekly benefit rate , plus the allowance for dependents .
The amount deducted for state income tax will be 10% of the amount deducted for federal taxes, which is currently calculated as 1% of the gross weekly benefit amount. Please Note: State income tax cannot be withheld from the $300 additional weekly benefit in Lost Wages Assistance and the $600 additional weekly FPUC benefit for regular UI claims. Claimants who received FPUC and/or LWA in regular UI will be responsible for paying any tax due on those amounts when filing state income taxes for calendar year 2020.
After selecting your tax withholding on the initial Unemployment Insurance application, you can change your withholding preferences by completing the Voluntary Election for Federal/State Income Tax Withholding form . After completing the form, submit it to DES by mail or fax.
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Penalty For Failure To Pay Or Underpayment Of Estimated Tax
Revised Statute 47:118authorizes a penalty for failure to pay or underpayment of estimated income tax. The penalty is 12 percent annually of the underpayment amount for the period of the underpayment.
Determination of the Underpayment Amount
Determination of the Underpayment PeriodThe underpayment period is from the date the installment was required to be paid to whichever of the following dates is earlier:
Notification of Underpayment of Estimated Tax Penalty
Paying The Federal Income Tax
While everyone is subject to the federal income tax, the Supreme Court has carved out possible exceptions. One example of note comes from Cheek v. United States, 498 U.S. 192, . In Cheek, the petitioner was charged with failing to file a federal income tax return, violating §7203 of the Internal Revenue Code, as well as willfully attempting to evade his income taxes, violating § 7201. Cheek admitted that he did not file his returns, but testified that he had not acted willfully because he sincerely believed, based on his indoctrination by a group believing that the federal tax system is unconstitutional and his own study, that the tax laws were being unconstitutionally enforced and that his actions were lawful. The Supreme Court held that if a jury accepts Cheek’s assertion that he truly believed that the Code did not treat wages as income, then the Government would not have proved that Cheek willfully violated the tax code, however unreasonable the belief might appear to a court.
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