When someone passes on, his or her assets are typically left behind to a beneficiary. If you find yourself the recipient of money, you may have a big question on your mind: will I have to pay taxes?
Before we go any further, remember this: it is a good idea to speak with a qualified attorney or CPA to ensure that you are paying all necessary taxes.
Whether or not you are required to pay inheritance tax depends on how much money you are receiving, the state in which you live, and your relation to the person who passed on.
You need to be fully aware of both federal and state taxes.
At the federal level, there is no inheritance tax to concern yourself with. That being said, there is an estate tax that could impact you.
At the state level, you may find that you have to pay inheritance tax. Obviously, this is based on the state in which you live.
When it comes to inheritance tax, most states charge a different level based on the relationship to the deceased. Along with this, there are states that vary the amount of tax owed based on the total inheritance.
Which state do you live in? Everybody knows the answer to this question, but most don’t look into their inheritance tax rate until this is going to impact them. There are nine states that impose an inheritance tax. That being said, there is typically an “exempt amount” meaning that many people don’t end up owing taxes.
Note: state inheritance tax has nothing to do with federal estate tax. If you are required to pay both there is no way around this. With an experienced attorney or CPA on your side, you may find that state inheritance tax can be deducted on your federal filing.
Until someone passes on and leaves you money, it is hard to say if you are required to pay taxes. Since there are so many variables, including where you live and the amount of the inheritance, you will never know for sure until you are in this position.
If you find yourself inheriting money from someone who has passed on, contact a qualified attorney or CPA who can review your situation and help you better understand what taxes you owe. Even if you do owe money, a professional can help you save as much as possible.