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How to File for Inheritance Taxes

how to file inheritance tax

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Inheritance tax, sometimes erroneously referred to as estate tax, is the tax liability that arises from the bequest a beneficiary receives upon the passing of the decedent. While liability is calculated by determining the gross worth of the estate, it is the beneficiary's responsibility to file for and pay any inheritance taxes owed. In contrast with estate tax, which is levied against the estate at a federal level, inheritance tax is levied at a state level.

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Calculate the total gross worth of your inheritance. If you received a small cash inheritance, this is simple--it is the total amount of money you received. For beneficiaries who received a significant inheritance that includes real property, investments or other assets, the process is slightly more complicated. You must have all real property, physical assets, investments and trusts appraised by an expert at your expense to determine the fair market value, or FMV. The FMV is the amount you use to calculate your inheritance's gross worth. Be sure to add in the amount of any cash inheritance or life insurance benefits you receive in your total amount.

Obtain the applicable individual inheritance tax forms from your state's Department of Revenue. Many states now offer state tax forms online through their respective official state websites; if not, contact your state Department of Revenue to request the forms be mailed to your home or to learn where to obtain the forms in person.

Locate your residential state's tax code. Within the tax code, search for the applicable section on estate and inheritance tax. Most states publish their tax codes online for easy access. For assistance with finding your state's inheritance tax code, visit the official website for your state Division of Revenue or contact your county municipal office. Your local law library may also have a full copy of your state's tax code in print form.

Review the section that sets forth the taxable levels for beneficiaries concerning the beneficiary's

relationship to the decedent. Most states divide the inheritance tax table according to this relationship; for example, spouses, children, adopted children and stepchildren of the decedent are typically ranked at the top tax level. A second level is usually reserved for the decedent's parents, siblings and former spouses. A third level is "catch-all" for anyone else, including friends, distance relatives and organizations. Your relationship to the decedent will determine your inheritance tax level.

Locate the tax rate table within the tax code. Here, you will find your state's inheritance tax table, which lists the minimum taxable inheritance, the minimum tax liability and the corresponding tax rate for each level. Match your tax level and the total gross amount of your inheritance to the applicable level to determine your minimum tax liability and tax rate.

Complete the inheritance tax form you obtained from your state Division of Revenue. Fill your personal information, including your full name, address and Social Security number. Enter the gross worth of your total inheritance, your tax level, the rate of your tax liability and your total tax liability that you previously calculated. Sign the bottom of the form when you are finished.

Make a copy of the signed form and any documents you need to submit along with your inheritance tax form. At the very least, you will need to provide copies of any assessments or appraisals you obtained for real property and other assets you received. Retain these copies for your records.

Submit the original signed inheritance tax form and documents of your appraisals or assessments to your state's Division of Revenue. The mailing address should be listed on your tax form. If you are submitting payment for your inheritance taxes, also include a personal check, money order or cashier's check for the total amount of your tax liability. If you are submitting payment, it would behoove you to mail your documents and method of payment via certified mail to ensure your inheritance tax form and payment are received.

Category: Taxes

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