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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 29798
Experience:  Taxes, Immigration, Labor Relations
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If youd like to tackle the question please expand on the following

Customer Question

If you'd like to tackle the question please expand on the following issue presented by Mr. Grizey. The estate was valued at just over 6 million.

Stephen E. Grizey :
If by some chance the estate did owe ESTATE tax, whomever received the "income in respect of a decedent" would be entitled to a miscellaneous itemized deduction for the estate tax attributable to the "income in respect of a decedent". The theory being that you shouldn't have to pay both the income & estate tax on the same funds
Submitted: 5 years ago.
Category: Tax
Expert:  Lev replied 5 years ago.

LEV :

Hi and welcome to Just Answer!
These are two different types of taxes - they they are based on different taxable amounts - estate taxes and income taxes.
Estate taxes are based on the total value of the estate at the time the decedent passed away. What Mr Grizey pointed out - estate taxes (if any) at some circumstances may be used as a deduction for income tax purposes.
Income taxes are based on income. The estate as a separate legal entity is responsible for income taxes on the income that the estate received. Because that income is received AFTER the decedent died - it is not included into the total value of the estate for estate tax purposes.
The income received by the decedent BEFORE he/she died - is reported on the decedent's final tax return.
Let me know if you need any help.

Customer :

The situation is this:
The estate is valued at roughly 6.2 million and I'm going to pay around 500,000 in estate taxes.
As pointed out by Mr. Grizy below, after the estate closes and I sell the inherited commodities, I will owe taxes on 100 of the proceeds.


Stephen E. Grizey :
"...For income tax purposes, whomever receives the proceeds of the sale of the corn will pay ordinary income taxes on 100% of the proceeds of the sale of the grain & soybeans less any business expenses of the farm."
The special circumstance is this:
Stephen E. Grizey :
"In prior questions that you have asked here; the respondents have been advising you as if the grain & soybeans were investments rather than business inventory. That's why they were talking about a step-up in tax basis; that doesn't apply to your circumstances as I (and I guess your attorney) interpret the facts."
The question is: What is the formula for estimating my personal tax liability, and how do avoid paying income tax twice on the same assets?

Customer :

The situation is this:


The estate is valued at roughly 6.2 million and I'm going to pay around 500,000 in estate taxes.
As pointed out by Mr. Grizy below, after the estate closes and I sell the inherited commodities, I will owe taxes on 100 of the proceeds.
Stephen E. Grizey :
"...For income tax purposes, whomever receives the proceeds of the sale of the corn will pay ordinary income taxes on 100% of the proceeds of the sale of the grain & soybeans less any business expenses of the farm."
The special circumstance is this:
Stephen E. Grizey :
"In prior questions that you have asked here; the respondents have been advising you as if the grain & soybeans were investments rather than business inventory. That's why they were talking about a step-up in tax basis; that doesn't apply to your circumstances as I (and I guess your attorney) interpret the facts."
The question is: What is the formula for estimating my personal tax liability, and how do avoid paying income tax twice on the same assets?

Expert:  Lev replied 5 years ago.
What is the formula for estimating my personal tax liability, and how do avoid paying income tax twice on the same assets?
There is no single formula for income tax liability. The tax liability is based on your total income and marginal tax bracket. You may review tax rate schedule on last page of this publication - www.irs.gov/pub/irs-pdf/i1040tt.pdf
Income taxes are not paid on the assets. Income is only recognized when assets are sold. The business income - as you stated above is determined as (total proceeds) MINUS (qualified business expenses).
There is no double income taxes. Income tax liability is based on when income is received who is receiving that income. If income received by your - that will be your liability.
If the income is received by the estate - the estate will responsible for income taxes or income tax liability is passed to beneficiaries (in this case it will be deducted on the state's income tax return).
Be sure to ask for clarification if needed.