Final answer:
Generally, debts and liabilities are subtracted from the gross estate to calculate the adjusted gross estate. For payroll deductions, percentages such as 6.2% for Social Security, 1.45% for Medicare, and an assumed 15% for taxes are applied to gross annual income. A deficit is defined as the annual budget shortfall between revenues and expenditures.
Step-by-step explanation:
To calculate the adjusted gross estate, one typically subtracts debts and liabilities from the gross estate. This does not include interest and dividends, rental income, or fringe benefit compensation. By removing debts and liabilities, the value of the estate is adjusted to reflect the amount that will be subject to estate taxes.
Example of Deductions from Gross Estate:
- Mortgage debts on the decedent's property
- Estate administration expenses
- Medical expenses
For income-related deductions such as Social Security, Medicare, and income taxes, you would calculate these as percentages of the gross annual income. For instance, the Social Security deduction would be 6.2% of gross income, Medicare would be 1.45%, and taxes might assume a rate such as 15% for combined federal and state.
Explanation of a Deficit:
A deficit is not the accumulated debt of past borrowing nor the cancellation of an entitlement program. It specifically refers to the annual budget shortfall between revenues and expenditures, underlining the importance of understanding fiscal policy and budgeting within a government context.