Income In Respect Of A Decedent Tax Deduction: Fill & Download for Free

Like totally unambiguous? 100%, completely clear? Then you have to make it extremely verbose and intricate.There’s a tension in setting forth laws: on one hand, you have flexibility — which is a more positive word for ambiguity — and on the other hand, you have simplicity. You can’t have both, and often what you gain in one, you lose in the other.Take something that’s at the very far “flexibility” end of this continuum: antitrust laws. The Sherman Antitrust Act. It reads, in pertinent part:Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.Although I’m not quoting the entire statute, I’m not hiding the ball either. There isn’t some other section that defines what “restraint of trade” means, for example. The quoted part is really the full “teeth” of this act.But it can’t literally mean what it says, right? I mean, if I sign up for a 1 year cell phone contract that has an early termination fee, at least arguably, that’s a “contract … in restraint of trade,” insofar as the early termination fee discourages me from going to a competitor whenever I want. Hell, every single patent license is, at least arguably, a contract in restraint of trade. So this statute clearly can’t be taken literally.This was by design. At the time this was enacted, Antitrust law was in its infancy. Congress wanted to give the courts flexibility to proceed judiciously and, to use a modern phrase, let the development of the law be “data driven.”Now go to the other end of the spectrum: the US tax code. It’s intricate and arcane, but you can’t say with a straight face that it’s ambiguous. Every sub-part begins with a nice table of definitions (like this), and those definitions are very precise. Just as an example, here’s a definition of “miscellaneous itemized deduction”:[1](b) Miscellaneous itemized deductionsFor purposes of this section, the term “miscellaneous itemized deductions” means the itemized deductions other than—(1) the deduction under section 163 (relating to interest),(2) the deduction under section 164 (relating to taxes),(3) the deduction under section 165(a) for casualty or theft losses described in paragraph (2) or (3) of section 165(c) or for losses described in section 165(d),(4) the deductions under section 170 (relating to charitable, etc., contributions and gifts) and section 642(c) (relating to deduction for amounts paid or permanently set aside for a charitable purpose),(5) the deduction under section 213 (relating to medical, dental, etc., expenses),(6) any deduction allowable for impairment-related work expenses,(7) the deduction under section 691(c) (relating to deduction for estate tax in case of income in respect of the decedent),(8) any deduction allowable in connection with personal property used in a short sale,(9) the deduction under section 1341 (relating to computation of tax where taxpayer restores substantial amount held under claim of right),(10) the deduction under section 72(b)(3) (relating to deduction where annuity payments cease before investment recovered),(11) the deduction under section 171 (relating to deduction for amortizable bond premium), and(12) the deduction under section 216 (relating to deductions in connection with cooperative housing corporations).Ho hum, just a 12 part definition. And I’m not sure if this is an example, but often in the tax code, you have to go several layers of definitions deep before you have the full meaning of a term.Now, you might say this is an unfair example. After all, the tax code is important. Its scope is sweeping. So of course a lot of ink is going to be spilled writing a law like that.But I don’t think the tax code is any less important than antitrust policy. Neither in terms of its impact to the macroeconomic picture of our country, nor to its impact to those it purports to regulate. It’s just that in antitrust policy, the ambiguities in the statute were seen as a good thing, to allow a flexible and incremental development of the law. In the tax policy, that flexibility wasn’t desired, and if you peruse the tax code you see what it takes to stamp it out.Footnotes[1] 26 U.S. Code § 67 - 2-percent floor on miscellaneous itemized deductions

As a refresher, an HSA, like an IRA, is an individually owned account. The account is yours and the funds never expire, though the monthly maintenance fee may slowly diminish the balance. Should you discontinue participating in a High Deductible Health Plan (HDHP) then you can no longer contribute into the HSA (note there are partial year contribution rules), but there are no tax implications regarding funds already deposited. The HSA balance is yours to spend in accordance to the guidelines (see IRS Publication 969, Health Savings Accounts and Other Tax-Favored Plans).To elaborate a bit more, and as Josh mentioned in his response, once the funds are deposited the tax treatment becomes a function of how the funds are used. Briefly, if the funds are for qualified expenses (see IRS Publication 502, Medical and Dental Expenses) then the deposits and any earnings in the HSA are tax-free. On the other hand, should you use the funds for non-qualified expenses then the amount withdrawn will be subject to ordinary income tax, and possibly a 20% early withdrawal penalty (prior to age 65).Note these feature makes the HSA more of a health IRA, allowing you to save for current and future, longer-term health expenses, as well as additional non-health expenses for retirees. Recall traditional IRA contributions are also subject to ordinary income tax at withdrawal, though unlike the HSA, IRA contributions do not provide the saver payroll tax relief. The net of this is an HSA creates some interesting retirement tax planning opportunities.Lastly, an HSA will roll over to a spouse and maintains its character as a health advantaged savings account should the account holder pass away. For other beneficiaries an HSA essentially becomes an IRA-like account in which they pay taxes on the amount received, called Income in Respect of a Decedent. For more details on how an HSA transfers upon death of the account holder, see IRS Publication 559, Survivors, Executors, and Administrators.

An inheritance is not taxable. (U.S.)That being said, there are some things that you could receive upon someone's death that are taxable, but that aren't an "inheritance" (though you can call it whatever you want). One that was mentioned, for example, is a retirement account where you are named as beneficiary. That is taxable to you as a distribution from a retirement plan -- or not, in the case of a Roth, or certain other situations -- not as an "inheritance." Also mentioned was "income in respect of a decedent" (IRD); IRD is not an "inheritance" -- it's money that the decedent was entitled to receive, but never got because he died (like a final paycheck, for example). You do get a deduction, though, for any estate tax that was attributable to the IRD (if the estate was large enough to pay estate tax).