When individuals or families craft inheritance and estate plans in Kansas, Missouri and Oklahoma, they often have a host of questions about the kinds of tax that might apply to those inheritances. Will you have to pay tax if you receive an inheritance? What kind of tax will that be? Will you have to pay that tax to the state, the federal government, or even a local government?
While questions about taxes and inheritances can be complicated, there is some basic information that can help you better understand the differences. Today, as a part of our blog series on estate planning issues in Kansas, Missouri and Oklahoma, we turn our attention to the question of how much tax you might have to pay on an inheritance.
Will I have to pay an estate tax on my inheritance?
The issue of estate taxes has been misunderstood and misrepresented in recent years. An estate is a collection of property left behind by a deceased person, while an estate tax is a tax levied against the total value of that property by either the federal or individual state governments. Once a person dies and leaves behind an estate, the person managing that estate, known as an administrator, executor, or personal representative, must determine whether an estate tax applies. If it does, the administrator will use estate funds to pay the tax.
Currently, the federal estate tax exemption is relatively high, and most estates will not pay any federal estate taxes. Only a handful of states have state-level estate taxes, and Kansas, Missouri and Oklahoma do not.
If a tax is owed, the estate and never the individual inheritor will pay the estate taxes due.
Will I have to pay an inheritance tax on my inheritance?
Inheritance taxes are slightly different from the estate tax. Once an estate distributes inheritances to individual recipients, inheritance taxes might apply to the gifts received. An inheritance tax is either a state or federal tax that is levied against the total value of the inheritance received by an individual.
Currently, Kansas, Missouri, Oklahoma, and the federal government do not impose inheritance taxes. There are, however, some states that impose inheritance taxes on property located in those states. If you receive an inheritance of out-of-state property, you should speak to your attorney to see if any inheritance taxes might be due.
How does income tax affect my inheritance?
Inheritances do not count as income for state or federal income tax calculation. If you receive an inheritance that pays you income, such as rents or interest, you must report the income and pay appropriate state and federal income tax.