What Are Inheritance Taxes?
September 2, 2020 (Investorideas.com Newswire) Depending on what state you live in, inheritance taxes may become a part of your life when someone you know passes away. However, it is important not to confuse inheritance taxes with estate taxes. One is a federal government tax on the entire property of a deceased person which is transferred to another person, usually through a will. The other is a specific tax on property inherited by a specific heir.
Here are a few things to know about both types of taxes.
Not all property qualifies for the estate tax.
As of 2020, an IRS filing is required only if the total assets and taxable gifts surpass $11,580,000. Twelve states and Washington, D.C. also impose their own versions of this tax. As the Tax Policy Center explains, it used to be the case that all 50 states had these taxes, but that changed in 2001, when federal tax changes prompted most states to repeal their tax.
Inheritance taxes, unlike those described above, are imposed on specific assets inherited. Estate taxes are paid by the estate, and inheritance taxes are paid by the heirs. While the estate tax is a federal tax, inheritance taxes are taxes paid to the state. Inheritance taxes will vary based on the state in which the benefactor lived, according to U.S. News & World Report.
So what happens when the benefactor passes on?
In this case the executor would sort out the benefactor's assets and gives them to the beneficiaries. Then the beneficiaries may have to pay an inheritance tax on the assets they receive. There is a state inheritance tax form that beneficiaries are required to fill out if the inheritance tax applies to them. Because so few states have an inheritance tax, and because many of them impose conditions on who has to pay the tax, only 2% of taxpayers ever actually encounter inheritance taxes, according to TurboTax.
There are tax experts who specialize in these matters.
Are you concerned that you may have to pay an inheritance tax? The best move in that case is to contact a tax expert who can help you navigate the process of complying with local tax laws. Some states will even reduce the tax burden if the amount due is paid quickly. Pennsylvania offers a 5% discount if the inheritance tax is paid within three months of the benefactor's passing.
And if you are a trustee, beneficiary, administrator, fiduciary, guardian or conservator with specialized financing needs, you may not want to turn to a traditional bank for funds. HCS Equity has 15 years of experience serving as a financial resource for trusts and estates with liquidity issues.
Inheritance Tax is State-Specific.
You will have to pay inheritance taxes if your benefactor lived in one of six states: Iowa, Kentucky, Maryland, Nebraska, New Jersey, or Pennsylvania. In some states, the benefactor's spouse and children are excluded from the inheritance tax. NerdWallet recommends several ways to reduce inheritance taxes if you aren't in those categories and in one of those states. You can ask the benefactor to give away assets as gifts before dying, or you can and ask for help from a qualified tax expert.
The inheritance tax rate is different for each state. In Maryland, for example, the inheritance tax is 10% of the fair market value of the inherited property. In Iowa, the inheritance tax is either 5% to 10% or 10% to 15%, depending on the category of inheritor, and provided the inheritance is worth more than $25,000.
Seeing as this is such a knotty subject, with so many state-specific ins and outs, it's a good idea to work with someone who knows the terrain. Consider HCS Equity for help dealing with your financial problems and any questions you might have about taxes on an inheritance.
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