How to Deduct a State Inheritance Tax
When someone you love passes away, so many different emotions can run through you, especially if you are to receive an inheritance. The mixed emotions that come about can make it difficult for you to remember everything you need when dealing with an inheritance. The inheritance you receive will need to be distributed to your state as an inheritance tax, but it can later be used as a deduction on your federal taxes.
Receiving an inheritance can prove to be a tough time as you deal with loss. However, it is imperative to remember that there are laws surrounding receiving an inheritance. The most important law is the fact that both the federal and state governments are owed a portion of the inheritance. The good news is the state inheritance taxes can be claimed on your federal income taxes. Using the state inheritance tax as a deduction can lower your taxable income and repay the money to you the state took from the inheritance.
- Keep all documentation of the inheritance tax paid to the state. This includes any receipts you may have received along with any correspondence from the state stating it received your tax payment. This way you have the exact amount for your paperwork.
- Fill out the Form 1040 when filing your taxes. This form will allow you to itemize your deductions to include your state inheritance tax with your other deductions using Schedule A. The other forms will allow you to only take the standard deduction. Keep in mind; however, if the standard deduction is more than your itemized deductions, you should stay with the standard deduction.
- Locate the state inheritance tax that was paid and enter it on Line 8 of the Schedule A. This is the spot for "other taxes."
The state and federal governments will tax any inheritance received. Using this process, filing your federal taxes will allow you to regain the state inheritance tax that was paid.