Estate Taxes and What You Need To Know
Federal Estate Taxes
If you inherited a large estate (worth more than $11,180,000 in 2018 or worth more than $11,400,000 in 2019) you will most likely have to pay a federal estate tax on the property (although in some cases the estate will pay the tax for you). All property (cash, securities, real estate, etc.) you inherited must be included when calculating the amount of the estate. After you arrive at the amount of the estate you may be able to subtract some allowable deductions (debts, gifts to political organizations, property given to qualified charities, etc.) but you must pay Federal Estate Taxes on the remaining amount.
Filing
You will need to complete Form 706 to file your federal estate tax return. Be sure not to undervalue your estate assets when you complete this form. An undervaluation of property is when a property’s value is reported as less than its actual value. Not only is undervaluing assets dishonest, but the IRS takes this violation very seriously and will heavily penalize you.
Deadlines
To avoid penalties, all federal estate taxes are due (to the Internal Revenue Service), no later than 9 months after the decedent’s date of death. This is a firm deadline. If you miss this deadline you will most likely pay a penalty. If you have a good cause for delay, you may ask for a deadline extension to avoid the penalty, but there is no guarantee that an extension will be granted.
State Taxes
If you inherited any size estate, you may owe state estate taxes or state inheritance taxes, even if you didn’t owe federal estate taxes. Each state differs in the type of taxes they collect and the amount exempted from state tax. The state rules that are in effect at the time of the decedent’s death will be the rules that apply to the estate/inheritance.
What state do I file taxes in?
The state of the decedent’s legal residence is where you would file state estate taxes if you are required to file them. If the estate includes property in more than one state, you may also need to file estate taxes in every state in which there is property.
Inheritance Tax
While the Federal Government doesn’t collect an inheritance tax, a few states do. When a state collects an inheritance tax, it isn’t the amount of the inheritance that determines the tax, but the person, who inherits the estate, relationship with the decedent that determines the tax. For example, a relative of the decedent may be taxed less than a friend of the decedent, while the decedent’s surviving spouse wouldn’t be taxed at all.
Future Responsibilities
You must file both federal tax and state tax for each year that the estate is in existence. Save your records from prior years to make the filing in the present year easier.
Mestayer Law Firm provides civil litigation for clients throughout the Gulf Coast area including Pascagoula, Biloxi, and Gulfport. If you are making future plans for your estate, then contact us today and let us help take care of every detail of your finances. Call us today at 228-762-1193 or visit www.pascagoulalaw.com. We are your legal experts! You can also visit our office located at 2128 Ingalls Ave. in Pascagoula, Mississippi. We look forward to talking with you!
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This article does not create an attorney-client relationship. I am licensed to practice law in Mississippi and have based the information presented on US laws. This article is legal information and is for entertainment and informational purposes only and should not be seen as legal advice. You should consult with an attorney before you rely on this information. Any information provided in this blog is accurate and true to the best of my knowledge, but that there may be omissions, errors or mistakes.