Hopefully, you aren’t too surprised by your tax bill each spring. If you have been unpleasantly shocked in the past, you may be looking for ways to reduce your tax burden in the future. But before you act, keep in mind that things may not work out the way you had hoped. Talk to a tax professional before making any big decisions. In the meantime, check out these three surprising facts about federal income taxes.
Marriage isn’t financially wise for everyone. Obviously, marriage is more than a financial matter. But if you’re under the impression that getting married always provides a tax break, prepare to be surprised! For people in the upper income tax brackets, marriage can actually trigger a higher bill at tax time. That’s because combining your incomes can greatly increase your net worth.
Your estate tax exclusion is portable. When part of your estate is excluded from estate taxes, you can pass on that exclusion to your spouse after your death. Then, your surviving spouse’s heirs can actually add that exclusion to your spouse’s exclusion, reducing or eliminating the taxes due on the entire estate. But since this is a complicated tax maneuver, you should consult with an estate planning attorney or tax professional in advance of either of your deaths to plan accordingly. Also, make sure your heirs know that they must file IRS Form 706 within nine months of inheriting the estate.
Establishing a trust can reduce your tax burden. If you know that your estate will be subject to some taxes after your death, you can leave money to your heirs while also reducing estate taxes. By setting up a variety of trusts, or a charitable foundation that your heirs control, you can ensure that more of your money goes toward the people or causes you love the most. Best of all, your estate can avoid probate if you place assets in a trust. Talk to an estate planning attorney about your concerns, so that together you can craft a plan to pass your estate to your heirs while reducing or eliminating estate taxes.