Have you ever heard that saying, “The only sure things in life are death and taxes”? You know it’s true. If there is a way to get taxes out of someone, the government will be right there. And probate is no different than any other tax situation. Even after someone dies, the IRS will want their share of the estate. What are they entitled to?
It doesn’t seem fair that the IRS would have a handout at such an emotional time for a family. That won’t stop them. There are essentially two tax issues that happen when someone dies. Their last tax year has happened. Their earnings for the year will have to be filed and any taxes due will need to be paid. And the estate is beginning, a totally new taxable identity.
What kind of identity can the estate have? The estate can have earned income over the course of time. Perhaps there are stocks that were purchased years ago for $10 each. Now they are worth $50 each. That profit of $40 for each stock will be taxed. Perhaps a home was bought 50 years ago for $25,000 and now the value is $250,000. That difference of $225,000 will be taxed. The same goes for savings accounts or IRAs. Any interest profit will be taxed. These taxes will need to be paid before the estate can be settled. There is a time frame of 9 months to file these taxes after the date of death, however an extension of 6 months can be requested if more time is needed.
Ok, now those taxes have been paid. The tax part is done, right? Not so fast. Any inheritance that is given is going to be taxed to the person who is receiving it. Any money is considered income. Anything of value has a dollar amount and will be taxed accordingly. It doesn’t seem fair, but that’s the way it is.
Taxes can be confusing. Causing errors can result in penalties and fines. There may be a need to consult with an accountant or a tax attorney. The cost of hiring one of these professionals will be worth every penny considering the amount the penalties and fines can cost you. Keep in mind that the old saying about death and taxes is absolutely true. Taxes even continue after death. Did you even think that was possible?