There is no death tax in 2010. It was eliminated as part of the 2001 tax relief a GOP Congress passed, and it finally fully phased-out in January of this year
Because of this, family farms and small businesses don’t have to worry (this year, at least) about visiting the IRS and the undertaker on the same day
All that is going to change after December 31, 2010. With the turn of the New Year, the death tax is back with a vengeance. The top death tax rate will be 55 percent. All estates with assets over $1 million will be taxable
Do you think that you or your loved ones will have at least $1 million when you die? Consider that the following items all count toward the death tax:
Family-owned farms and small businesses
Primary residences and second homes
IRAs and 401(k) balances
Stocks and bonds held in taxable brokerage accounts
Jewelry, artwork, family heirlooms, and other personal possessions
Add all those items up, and you might find that your family will owe the death tax starting next year. A death tax at that level will easily start taxing middle class families, especially those who have struggled to build small family businesses. The death tax is a double- or triple-layer of tax on this saving and investment—after a lifetime of paying income taxes, property taxes, etc.
The death tax is—by far—the least popular federal tax. For nearly two decades, every public opinion poll has shown that 60 to 70 percent of adults want to repeal the death tax permanently—despite the fact that only a small fraction of families will ever pay the death tax. It’s a tax on work and hope.
The death tax collects little more than 1 percent of federal tax revenue, yet it has a much bigger negative effect on the economy. Studies have indicated that tax revenues may actually rise in the absence of a death tax, since its absence would prevent tax sheltering activities like life insurance contracts and trusts.
Contrary to popular belief, a no-death-tax world doesn’t mean that capital gains unrealized at death escape taxation. Those who inherit assets will eventually have to pay capital gains taxes when they sell those assets. The basis of these capital gains is the original basis of the deceased. For example, if you buy a stock for $100 in 1950, die, and pass along the stock now valued at $10,000; your heir will pay capital gains tax on $9900.
