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What Are State Inheritance Taxes?

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  • Written By: Elise Czajkowski
  • Edited By: Susan Barwick
  • Last Modified Date: 02 October 2014
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State inheritance taxes are taxes levied on the recipients of an inheritance by state governments in the Unites States. The rules and regulations related to state inheritance taxes may differ from those related to estate taxes. While many states impose a state estate tax, only a few states in the United States impose a state inheritance tax.

While the definitions may vary in different jurisdictions, inheritance taxes and estate taxes are generally not considered the same thing. Estate taxes are taxes that are paid from the estate of the deceased. Inheritance taxes, on the other hand, are paid by beneficiaries who receive assets from the estate.

The relationship between state inheritance taxes and federal estate taxes is not consistent. Many states apply federal tax guidelines to states taxes, meaning that those exempt from federal estate taxes are also exempt from state inheritance tax. In some cases, however, estate assets are not enough to cause the estate to owe federal taxes, but state inheritance taxes may still apply. Additionally, some states impose both a state inheritance tax and a state estate tax.

Tax returns for state inheritance taxes must be filed in the county where the deceased lived. It is the beneficiary of these assets who is responsible for making sure that state inheritance taxes are paid. If these taxes are not paid according to the deadlines set forth in the state tax code, penalties and interest are levied against the beneficiary.

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Often, the relationship between the deceased and beneficiary will affect that amount owed under state inheritance taxes. In many cases, the spouse of the deceased may pay little or no taxes on assets received. Similarly, immediate family members of the deceased may pay less in tax than a friend who is bequeathed money in the will but is unrelated to the deceased.

The rules relating to state inheritance taxes change quite frequently. In some areas, these taxes may be unpopular, and some states have considered dropping their state inheritance taxes altogether. Due to the often complex nature of these laws, it is best to be as up-to-date as possible on issues related to inheritance and estate taxes. In many cases, consulting a tax advisor is important to ensure that all tax responsibilities are being met.

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