Who do I ask: accountant, IRS, or ??

yoopermom

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To this point I've always done my taxes using Turbotax and keep track of our personal expenses and DH's business expenses using Quickbooks, but...

My DGM died last month and left DS18 and I each 12K. Each was in a separate CD in her name and the inheritor's payable upon her death. Since we live far away, her bank sent us the paperwork to have notarized to release the $$, plus a tax form to fill out.

Now my question is, who do I ask the following of:
Concerning DS's inheritance...
1)He's never filed taxes before, but will he have to now that he has this "income" for the year? (This will most likely be his only income for the yr)
2)Because FAFSA expects the student to contribute a larger percentage towards their college than the parents, we were told prior to this to keep as much in our names and out of his as possible. Therefore should we have him "gift" this 12K to me and, if so does it change the answer to #1?

His is *definately* going towards his education, there's no question on that. We just want to minimize the tax and financial aid implications. So do I pay an accountant for a consult, just call the IRS, or what??

TIA!
Terri
 
Call the IRS *you'll be on hold for a while* it's not a scary place *I've been with them for almost 7 years* call 800-829-8374 :flower3:
 

You wont necessarily pay income tax on it, you will possibly pay an inheritance/estate tax on it.

Additionally, you could put the money back into a trust, or speak with someone about keeping the trust going, and you may have some added benefits then.

I would look to a tax accountant or a financial planner even.
 
The IRS.gov site is pretty user friendly, so you might be able to get your answer there. Inheritances are generally not considered federally taxable income.

Some states do tax an inheritance, though.

To really be certain, I would recommend you speak to an accountant. He or she might also know the answer about how to handle it for financial aid purposes.
 
And spend money, why?

Because OP wants to know how to best deal with this in her family's situation as opposed to just how to report it on their tax return. For something this simple, the IRS could definitely tell you how to report it properly, and for that alone, for an amount this size, I would agree that an accountant might not be necessary. But to determine how best to do this in light of college expenses, the right accountant would be able to help if there is actually anything that can be done.
 
The 12k principal amount of the CD is not taxable income however the interest earned on that is. However you have to earn over $950 in interest in order to have to even file a return. I doubt the 12K would earn that in any given year (if so let me know which bank this is with :lmao:).

Did you receive a 1099 from the bank or perhaps a K1 form from the estate administrator?
 
The 12k principal amount of the CD is not taxable income however the interest earned on that is. However you have to earn over $950 in interest in order to have to even file a return. I doubt the 12K would earn that in any given year (if so let me know which bank this is with :lmao:).

Did you receive a 1099 from the bank or perhaps a K1 form from the estate administrator?

It was not in a trust, just in individual CDs (one for each child/grand/great).

I know it was only earning maybe 1-1 1/2% because grandma had complained frequently about how she used to be able to live off the interest, but no more!

Forgive my ignorance, is the interest earned in the year that she died what is taxable, I presume? So, since she died in Feb and the CDs will actually be broken in March, we'll only have to pay tax on maybe 3 months worth of interest?

Yes, we both received (I think, don't have it in front of me) 1099Ts from the bank.

Thanks everyone for the responses, I sure appreciate them all!

Terri
 
When my father died in Arizona in 2011, we were able to cash the CD in before the maturation date because of his death. We just had to provide a death certificate. We left it in until the end of the year because it was earning 5% (a GREAT rate).

We also were just responsible for the interest from the time of his death. No inheritance tax (5 million federal exemption at that time and no state taxes). Other things that we inherited we just had to pay the taxes or capital gains from the time of death. So if Dad bought a share of stock for $100 and when he died it was worth $1000.00, and when we sold the stock it was worth $1050.00 we had a $50.00 gain.

The only really bummer was an annuity that my mom had. I thought it would work the same way as stock, but it doesn't. It is based on the difference between amount of $$ my mom put into it and the amount we got when we sold it. It also had to be redeemed within 5 years. We waited until the very end of the 5 year period to cash it in, and took it all in one year because it was doing really well. It was worth $25,000 when Mom died and $38,000 when I cashed it in 4 1/2 years later. I thought our gain would be $13,000. Instead, it was based on the $8,000 my mom had put into it so we were liable for $30,000 in additional income. Yikes! We owed nearly $5,000 in state and federal taxes combined. Wish I would have taken it a little at a time over a longer period. Then it wouldn't have bumped us into another tax bracket.

Anyway, more information than you wanted, but I thought it might be helpful for someone else reading this thread.
 
Any money received as an inheritance is not taxable income to the recipient and is not reported on on an Income Tax Return.

There are two exceptions to this.

1. If there is income received from an investment, such as interest or dividends after the date of death the interest or dividends are reportable. But you will receive a 1099-INT or 1099-DIV for that portion.

2. If the money was from a retirement account, such as an IRA, there are special rules and it may be taxable.

But if it just money from a regular CD don't worry about it.

Mike (CPA Retired, but still doing taxes)
 
So, Mike,
If I'm understanding correctly, the 1099INT form the bank made me sign off on will just be sent to me next Jan showing the interest the CD (just a regular plain old boring bank CD) earned from the date of her death until the date we cashed it in?

Whew, that would be great!

Thanks everyone!
 
You have to inherit a lot more than $12K to owe taxes, so you're in good shape taxwise OP.

I inherited a house and a little bit of money from my parents, and I didn't owe any taxes. I also was a beneficiary on my parents' IRAs. I am now required to make the same withdrawals they would have been required to make. This is taxable income. My understanding is that, if I had inherited the IRAs through their will, I would have had to sell them and pay tax on the whole thing at one time. The IRAs remain in their names, which I find odd, but it may just be the way that bank does it.
 
We get a monetary gift from DH's parents each year. My 2 sons have been given the maximum amount allowed by law (from each grandparent) since they have been alive. They only owe taxes on any interest or capital gains that the early inheritance generates. We do have to file a tax return on them, simply for their income generated from the gifts.

You do not owe taxes on the CD - only on any interest it generates.
 
I believe you have it correct, as far as I see it you should get a 1099 for the interest the CDs earn while they were in your kids name ie March, as for Jan and Feb a 1099 should be issued in your grandmothers name (SSN) and this would be filed with her final tax return.

Also I am sorry for your loss...
 
Talk to an accountant that you trust or that comes with a recommendation from someone you trust.

IRS hires hundreds of temporary employees every year to handle the phone lines. If you call three times, you're likely to get three different answers - even if there is only one answer.

There are fifty people I would ask before I call IRS, and I don't even have to deal with the temporary people.

Also - never take specific tax advice from the internet. ;) Everyone has a unique set of circumstances, even if one particular issue is *exactly* the same.
 
Any money received as an inheritance is not taxable income to the recipient and is not reported on on an Income Tax Return.

There are two exceptions to this.

1. If there is income received from an investment, such as interest or dividends after the date of death the interest or dividends are reportable. But you will receive a 1099-INT or 1099-DIV for that portion.

2. If the money was from a retirement account, such as an IRA, there are special rules and it may be taxable.

But if it just money from a regular CD don't worry about it.

Mike (CPA Retired, but still doing taxes)

As a student working towards my CPA, you're my hero...always willing to help with accounting issues and retired/work at Disney.
 













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