When you learn that you will be inheriting stocks, mutual
funds, bonds, or even cash, this can often help, at least somewhat, to take the
sting out of the loss of a loved one. When you inherit these kinds of things,
though, there are practical matters to consider, such as whether or not you
will owe taxes on your newfound inheritance.
The good news is that, in most cases, you do NOT owe taxes
on your inheritance. If the total value of the related estate does not exceed
$5.45 million (and that’s a lot!), your inheritance is exempt from federal
taxes. Furthermore, the estate will need to pay the tax bill in this case, not
the heir (you!).
However, if you make the decision to sell off your
inheritance, then you could end up being subjected to some taxes. If, when you
get ready to sell, your investment is worth more than it was when you received
it, for example, you’ll owe capital gains taxes. Unfortunately, these can often
add up quite a bit- up to as much as 20%- so you will want to be mindful about
when you choose to sell these items and, thus, when you are subjected to the
relevant tax.
Typically, the smartest time to sell your asset, at least
when it comes to avoiding high taxes, is as soon as you receive it. The sooner
you sell it, the less time it has to make money and, thus, garner a higher tax.
You could also choose, though, to sell off parts of your inheritance, when
applicable. That way, you won’t face a huge tax bill all at once but can just
pay smaller taxes spread out over a period of time.
How you choose to reduce your tax bill, if you have one, is
up to you, but the important thing is that you are aware of when you have to
pay taxes and how you can help keep them under control! That way, you can
actually enjoy your inheritance without having it ruined by a bunch of taxes!
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