Individuals work hard all their life to accumulate wealth. This raises the question of do you pay tax on inheritance money?
Do You Pay Tax on Inheritance Money
As with anything tax related, the answer to do you pay tax on inheritance money is a muddled one. Simply put, the answer is no and yes. Before we get to that, however, it is worth noting here that estate taxes are different from inheritance taxes. Inheritance taxes are a state tax issue, while estate taxes are a federal issue.
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Back to our question of whether you pay or not. No, you do not have to pay inheritance tax if the deceased person is your spouse. There is no inheritance involved if you are inheriting your spouse’s property. Yes, you have to pay inheritance tax if you are a direct descendant of the deceased person. If you are child or grandchild of the deceased person then you will have to pay a very small inheritance tax with large exemptions. If you are a brother, sister, brother-in-law or sister-in-law then you need to pay five to 10 percent inheritance tax. If you the inheritor are more distantly related then inheritance tax goes up from 10 to 20 percent.
Undoubtedly, you have noticed the above percentages are not exact. This is because each state has different rates. Whether or not you will pay inheritance tax for the property inherited also depends on the state you live in. Connecticut, Delaware, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Michigan, Montana, Nebraska, New Hampshire, New Jersey, North Carolina, Oklahoma, Pennsylvania, South Dakota and Tennessee are the states that do not charge inheritance taxes.
To avoid paying inheritance taxes you can plan gifting your children in installments while you are still alive. Gifts have to be less than $10,000 per year to escape a gift levy by the IRS. Inheritance tax is considered similar to a double indemnity. Joe Schmoe pays income tax all his life for his hard earned money. Fine, he doesn’t complain. But when he dies his property is again taxed. Many who support abolishing inheritance and estate taxes raise this argument. Those who have experienced the death of a dear one had to bear two pains. The first being the departure of a loved one and the second is the paying of tax.
Do You Pay Tax on Inheritance Money
As with anything tax related, the answer to do you pay tax on inheritance money is a muddled one. Simply put, the answer is no and yes. Before we get to that, however, it is worth noting here that estate taxes are different from inheritance taxes. Inheritance taxes are a state tax issue, while estate taxes are a federal issue.
PART1
PART2
Back to our question of whether you pay or not. No, you do not have to pay inheritance tax if the deceased person is your spouse. There is no inheritance involved if you are inheriting your spouse’s property. Yes, you have to pay inheritance tax if you are a direct descendant of the deceased person. If you are child or grandchild of the deceased person then you will have to pay a very small inheritance tax with large exemptions. If you are a brother, sister, brother-in-law or sister-in-law then you need to pay five to 10 percent inheritance tax. If you the inheritor are more distantly related then inheritance tax goes up from 10 to 20 percent.
Undoubtedly, you have noticed the above percentages are not exact. This is because each state has different rates. Whether or not you will pay inheritance tax for the property inherited also depends on the state you live in. Connecticut, Delaware, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Michigan, Montana, Nebraska, New Hampshire, New Jersey, North Carolina, Oklahoma, Pennsylvania, South Dakota and Tennessee are the states that do not charge inheritance taxes.
To avoid paying inheritance taxes you can plan gifting your children in installments while you are still alive. Gifts have to be less than $10,000 per year to escape a gift levy by the IRS. Inheritance tax is considered similar to a double indemnity. Joe Schmoe pays income tax all his life for his hard earned money. Fine, he doesn’t complain. But when he dies his property is again taxed. Many who support abolishing inheritance and estate taxes raise this argument. Those who have experienced the death of a dear one had to bear two pains. The first being the departure of a loved one and the second is the paying of tax.
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