Being the beneficiary of someone’s will or inheriting some money can bring you joy as well as sorrow. Joy because you stand to receive some money and the sorrow comes from the loss of a loved one. But you may have to contend with another kind of sorrow – that of inheritance taxes. If you have been left any property, assets, or money by a relative at the time of their death, then you may be liable to pay inheritance taxes.
Inheritance Taxes Explained
Inheritance taxes are the taxes that a person pays on anything that they inherit from another person. Usually these taxes are paid when you are the beneficiary of a deceased’s will, but sometimes you may have to pay inheritance taxes if you inherit something even from someone who is alive.
People often confuse inheritance taxes with estate taxes. While both these kinds of taxes are forms of death tax, there is a huge difference between the two. Inheritance tax is paid by the beneficiary of any inheritance, whereas an estate tax is paid on the entire estate of the deceased, irrespective of who it passes on to.
Estate taxes are levied by the federal government, but inheritance tax is completely a state tax and is levied by the state governments. The federal government does not levy any kind of inheritance tax, which is done solely by the different states.
Factors Influencing Inheritance Taxes
Inheritance taxes are levied by the states, and as such the rules vary from state to state. Although different states have different rates at which inheritance taxes are charged, by and large, the rate of these taxes usually depends on the following factors:
Exemptions Allowed Under Inheritance Taxes
Not everything that you inherit is subject to inheritance tax. Here are some exemptions allowed under the inheritance tax rule (remember, these too vary from state to state):
Inheritance taxes can take out a huge chunk of your inheritance. But with careful planning and preparation, you may be able to reduce your inheritance tax payments. Consult a tax attorney to know all your options as regards to inheritance taxes.
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