| Income taxes are charged based on a taxpayer’s taxable income for a given tax year. They may be due to the Federal Government, and/or various states, and or various communities. The key variable in an income tax calculation is the amount of taxable income, after deductible expenses, times applicable tax rates, less available tax credits. | |||
| Estate taxes, however, are not related to taxable income in a given tax year. They are taxes based on the net taxable value of a given taxpayer’s assets at the date of death times an appropriate estate tax rate. | |||
| In 2014, there is an exemption to Federal Estate Taxes of $5,340,000. There is also an aggregate Gift Tax exemption of the same amount. To the extent that a taxpayer has made gifts in excess of the annual excluded amount per donee of $14,000, they may use part of the estate tax exclusion to avoid gift tax liability. For example, if a donor makes a gift of $200,000 she or he may use $186,000 of the lifetime gift exclusion. The remaining estate tax exclusion in this illustration is reduced to $5,340,000 less $186,000, $5,140,000. | |||
| Many states assess estate and/or inheritance taxes, but the total exclusion is not the same as the federal amount. In Massachusetts, for example, the total exclusion is $1,000,000 and the tax rate is 16%, compared with the Federal exclusion of $5,340,000 and a tax rate of 40% | |||