If you own over a million dollars worth of domains or any assets for that matter, your family better hope you don’t die. Because on January 1st, the estate tax threshold moves from $5 million ($5.12 to be exact) all the way down to $1 million. And the rate? It moves from a top rate of 35% all the way up to 55%. That’s right. Your family could conceivably pay $550,000 in taxes on your million dollars.
Whether you liked George Bush or not, there is one gift he gave to the families that had people pass. In 2001 the tax relief bill (EGTRRA) was introduced that reduced the death tax to it’s present 35% (it was actually 0% in 2010) and raised the threshold to $5 million. It also allowed spoused to “bag” the leftover dollars that their husband/wife didn’t use at their time of death. Unfortunately President Obama has not extended that relief and it’s going to effect thousands of small businesses and families across the United States. To be exact, according to the Tax Policy Center, last year roughly 8,000 families had to file the death tax but with the new law 114,000 will be effected. Of that 114,000, approximately 52,000 will have to pay up.
So what does that mean to a person with over a million dollars worth of assets? It’s the same as it’s always been but now even more important. It means giving your money away to your family at the maximum allowable limits before you die. It means working with estate planners to put your money in trusts and other places that minimizes how much the government takes for doing absolutely nothing.
You can tell that I am absolutely against this raising of taxes. I am not against taxes. I understand that I must pay much more than the average person because I make more and use more resources for my business. I am against the estate tax because I have a family business that involves many generations working tirelessly to build the business. A business at which we pay local taxes, salary taxes, federal taxes, and personal income taxes. I am taxed at every level. Then I take that profit (of which I’ve paid taxes) and invest it in other ventures and when profitable, I have to pay another capital gains tax. Then when I die I have to pay taxes on everything AGAIN. Don’t think it effects you?
If you own a home in California or New York City, a million dollar home will be commonplace in 10 years. I’ll put this in reality for a domain investor. You buy a domain, build it out and sell it for a million dollars. Let’s say you pay 35% capital gains and net $650,000. Then 10 years later after some investments that total is back up to $1 million dollars and you die. Your family could pay $350,000 in taxes. So of the million dollar sale the government will get $700,000. Doesn’t sound like something that would be good for promoting reinvestment and family business.
I understand why those that aren’t effected feel that passing of wealth is just promoting young heirs into a world of unproductive. Yet if I choose to try and provide my kids with a financial head start who is anyone to try and deny me that right? I understand that they have no guilt towards taxing the wealthy because they think that taxing will force equality or that the wealthy need to give up some of their money. But forcing family businesses to sell assets that are essential to their livelihood (and their employees) or to take out loans, makes no sense. Some will say “That NEVER happens” At a million dollars it will. Yes, there are exemptions to help small businesses but believe it or not, a million dollars in assets is not a lot for a business. A person that saves their money for 30 years will EASILY have a million dollars in assets. Plain and simple, the dollar amount is too low. It needs to be at least $5 million and even $10 million. At those dollar amounts, any person that has dual income, both work for 30 plus years, and live for the average life span will have to pay taxes.
So continue to try and make your millions online. The government is hoping you reach your goals.