Filing and Paying Estate Taxes
Taxes on inheritance can be imposed by the Federal and State governments. Generally, the Federal tax is refereed to as an estate tax ,whereas, the state tax is refereed to as an inheritance tax.
Beneficiaries should be sure to consult local laws to ensure that they file and pay their estate tax in a timely manner. In addition, they will want to be sure that they calculate their tax on inheritance at an appropriate percentage, according to local and federal tax laws. The tax on inheritance should only be applied to the value of property after all allowable deductions have be taken. In some cases, beneficiaries may actually be exempt form paying a tax on inheritance.
Estate taxes are imposed on the total value of the estate on the day that the benefactor passes away. For example, if the benefactor owned stocks worth one million dollars on the day of their death, the taxes on inheritance would be on the one million dollars. Taxes on inheritance for one million dollars would apply even if the stock increase or dropped in price drastically the very next day. Whereas, taxes on inheritance of a specific beneficiary, are determined at a percentage of the value of the property they specifically inherited.
Taxes on inheritance are the direct responsibility of the beneficiary, or the person that inherits the property. The beneficiary is responsible for filing the proper paperwork with the federal and applicable state government. Generally, beneficiaries have around nine months to file estate taxes. The forms required for taxes on inheritance and the estate, often require an accurate evaluation on the value of the property on the day that the benefactor passed away. The taxes may sometimes be deferred for about to twelve months after the benefactor passes away but the forms must be filed by the nine month deadline.
In order to pay the appropriate tax on inheritance, it is vital that beneficiaries have an accurate assessment done on the value of the property. The value of inheritance should not be guessed or estimated. There are many professionals that can handle the assessment at a reasonable rate.
It is best to have a professional present in case the IRS contests the value of the estate or inheritance. If a beneficiary deciders to sell the property they would also be subject to a capital gains tax. That tax applies if they sell the property for an amount that is higher than the assessed value of the inheritance.
Filing taxes on inheritance can get rather complicated. The difference in each state's laws often adds to the confusion experienced because of the legal process associated with inheritance. When an estate tax is imposed by the Federal government, the beneficiary can locate the appropriate forms online. That is usually true in each state as well. However, beneficiaries will find it advantageous to hire a professional to handle tax on inheritance to be sure that they take advantage of all allowable deductions.
NEXT: Inheritance Tax Law at a Glance
