I have to pay income tax on money I inherit?
In most cases, no, you do not pay income
tax on monies you inherit from an estate. Any estate tax that is due
should be paid by the estate – before you receive your inheritance.
Income taxes may be due on deferred income in assets such as IRA’s,
annuities, or pension assets. Either the estate will pay the income
tax , or the heirs will pay the income tax, depending on how the assets
I want to gift some money to my children. Do I have to
pay tax on these gifts? Do my children have to pay taxes?
Everyone has an exclusion of $2,000,000 ($3,500,000 in
2009) that can be given away to heirs without an estate or gift
tax to be paid. Of this total exclusion, $1,000,000 may be used
for gifts while you are alive. Your heirs do not pay the gift tax
– you do.
Remember, you may give up to $12,000 ($13,000 beginning in 2009)
to any person (as many people as you want) each year
without filing any returns or using up any of your lifetime exclusion.
- You give gifts worth $5,000 to your daughter
and $15,000 to your son during 2008. Gifts to each person are
- Your daughter received less than $12,000. Nothing
further is required for this gift.
- Your son’s gifts exceed the annual amount
allowed. You need to file a federal gift tax return Form 709 for
2008 (due April 15, 2009). $3.000 of your gifts will be used against
your lifetime exclusion. Your remaining lifetime exclusion for
gifts is $997,000. You have also reduced your total exclusion.
If you died in 2009, and your taxable estate is worth more than
$3,497,000 ($3,000 less than the maximum), federal estate taxes
would be owed.