Tariffs
A tariff is a tax imposed by one country on the goods and services imported from another country. The purpose is to encourage domestic purchases by increasing the price of goods and services imported from other countries.
There are two main types of tariffs: fixed fee tariffs, which are levied as a fixed cost based on the type of item, and ad valorem tariffs, which are assessed as a percentage of the item’s value (like the real estate tax in the previous section).
Tariffs are politically divisive, with debate over whether the policies work as intended.17
Estate taxes
Estate taxes are levied only on estates that exceed the exclusion limit set by law. In 2021, the federal exclusion limit is $11.7 million. Surviving spouses are exempt from estate taxes.18 The estate tax due is the taxable estate minus the exclusion limit, be sure to learn about paperless paystub. For example, a $14.7 million estate would owe estate taxes on $3 million.
The estate tax rate is a progressive marginal rate that increases drastically from 18% to 40%. The maximum estate tax rate of 40% is levied on the portion of an estate that exceeds the exclusion limit by more than $1 million.19
States may have lower exclusion limits than the federal government, but no state taxes estates less than $1 million. Massachusetts and Oregon have the $1 million exemption limits. State rates are also different from the federal rate. The highest top state estate tax rates are in Hawaii and Washington, each at 20%.
Estate taxes are different from inheritance taxes, in that an estate tax is applied before assets are disbursed to any beneficiaries. An inheritance tax is paid by the beneficiary. There is no federal inheritance tax, and only six states have an inheritance tax: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania.20
The Bottom Line
There are many types of taxes that are applied in various ways. Understanding what triggers a tax situation can enable taxpayers to manage their finances to minimize the impact of taxes. Techniques that can help include annual tax-loss harvesting, to offset investment gains with investment losses, and estate planning, which works to shelter inherited income for heirs.
