Each year, the IRS performs audits on tax returns, and discovers that many of us are making costly mistakes. But who do they target for these audits? Sometimes, audits are conducted at random, but in general the IRS has an idea of who is most likely to make a mistake. Large estates tend to trigger the most suspicion at the bureau.
In 2012, for example, the IRS audited 14.5 percent of returns filed for estates worth less than $5 million. That’s a significant number, but the percentage increased to 58.6 percent of estates worth between $5 and $10 million. On average, those taxpayers were found to owe an additional $105,388 per return. Estates worth more than $10 million were examined even more closely, with 100 percent of these returns audited (some more than once). These taxpayers were found to owe an average of $819,243 per estate, in addition to taxes they had already paid. Ouch!
As you can see, the IRS views larger estates with a skeptical eye. After you pass away, your heirs will have enough to worry about, between grieving, planning a memorial service, and sorting out various legal and financial matters. The last thing you want to do is leave them with a tax audit fiasco! But that’s exactly what often happens, particularly to those who neglect to take adequate financial and estate planning steps.
There are many different ways to shelter your estate from excessive taxation, and to protect your heirs from tax audits and costly settlements. These steps will be completed with an estate planning attorney. However, because these decisions are made while you’re still alive, and they impact your financial and tax planning, we like to offer our support to clients during this process.
We can help you with gifting strategies, charitable foundations, and other financial strategies to potentially reduce your taxable estate. As you continue to plan for the future, remember to integrate estate planning with your overall financial plan. Give us a call, and we can discuss these issues in depth. Careful planning now can prevent a major headache down the road, and offers you the financial stability you deserve.
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
Source: http://www.financial-planning.com/news/estate-tax-tips-for-wealthy-clients