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Do You Get Taxed on Inherited Money?

Posted in Federal Tax Law

People spend their entire lives working hard in order to accumulate a good nest egg for themselves. However, this leads to the question of whether or not you have to pay taxes on inheritance money. Unfortunately, like anything else that has to do with taxes, this answer is muddled. Simply put, the answer is both yes and no. First of all though, you should know that there is a definite difference between estate taxes and inheritance taxes. This is because inheritance taxes are collected at a state level and thus they are a state tax issue while estate taxes are collected at the federal level and thus they are a federal tax issue.

As far as the question of whether or not you have to pay taxes on any money that you inherit, no you don’t have to pay any taxes if you inherit this money from your spouse. This is because there really isn’t any inheritance involved in this instance. However, you will have to pay an inheritance tax if you a direct descendant of the deceased person. As a child or a grandchild of the deceased person, the amount that you will have to pay will be very small with very big exemptions. If you are the brother, sister, brother-in-law or sister-in-law of the deceased person, then you will be paying taxes that are in the range of five to ten percent of the amount that you inherited. For those who are even further removed from the deceased person, you will need to pay an inheritance tax that will range from ten to twenty percent.

You have probably noticed that these percentages are not exact. This is due to the fact that the rates are different in every state. Another thing that will vary from state to state is whether or not you will have to pay an inheritance tax for the property that you inherit. For instance, if you live in Connecticut, Delaware, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Michigan, Montana, Nebraska, New Hampshire, New Jersey, North Carolina, Oklahoma, Pennsylvania, South Dakota or Tennessee, you will not have to pay inheritance taxes.

In order to avoid paying inheritance taxes you can begin planned gifting to your children while you are still alive. These gifts will need to be less than $10,000 per year though if you want to avoid the IRS’ gift levy.

There are a lot of people who consider the inheritance tax to be similar to a double indemnity. This is because they pay income taxes all of their life for their hard earned money without complaining. Then whenever they die they have their property taxed again. You will find that this is the main argument that people have whenever they want to abolish the inheritance and state taxes. They state that someone who has to deal with the death

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