Tax Rate Of 137% On Net Disability Settlement
We don’t know how Mr. Nordloh actually made out on his 2011 refund claim, so we can’t determine how much he was net out of pocket. It is worth noting that the CPA computation was $5,169. That was on a net from the settlement of $3,771. That works out to a federal income tax rate of 137%. Congress should really do something about this, but I am not holding my breath. I’ve seen worse.
The other thing that is absurd about this case is the way the IRS vigorously went after the accuracy penalty. The Enrolled Agent, the IRS and the CPA came up with three different answers and then the IRS came up with a fourth answer. And the IRS wants to charge an accuracy penalty. Go figure.
IRS Offers Estate Tax Relief To Widows And Widowers
This is a matter that moderate millionaires need to consider if they are surviving spouses of people who died after 2010, where no estate tax return was filed. You have to weigh the administrative hassle of accomplishing the filing against the chance that you might die with a net worth over the exclusion amount. Remember it is not your current net worth, but what your date of death net worth might be. Who knows maybe one of your ships might come in?
If you do think this is something you should do, jump on it now. There may well be a premium on estate tax preparation in December. If your spouse died in 2011, gathering the information to do the return might be a bit of a project.
Tax pros should think about their widow and widower clients particularly those who have substantially boosted their net worth since their spouse died.
There is more to the procedure than I have laid out here, but I think I have given you the primary action item.
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Over and over again courts have said that there is nothing sinister in so arranging one’s affairs as to keep taxes as low as possible. Everybody does so, rich or poor; and all do right, for nobody owes any public duty to pay more than the law demands: taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant.