4 Ways to Protect Your Inheritance from Taxes

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Inheritances are not considered income for federal tax purposes, whether you inherit cash, investments, or property. However, any subsequent earnings on the inherited assets are taxable, unless it comes from a tax-free source. You will have to include the from inherited cash and dividends on inherited stocks or mutual funds in your reported income, for example.

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• Any gains when you sell inherited investments or property are generally taxable, but you can usually also claim losses on these sales.
• State taxes on inheritances vary; check your state's department of revenue, treasury, or taxation for details, or contact a tax professional.

to deal with their assets. A trust allows you to pass assets to beneficiaries after your death without having to go through probate. Trusts are similar to wills, but trusts generally avoid state probate requirements and the associated expenses.

• With a revocable trust, the grantor can take the assets out if necessary.
• An irrevocable trust usually ties up the assets until the grantor dies.

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would begin at age 72, just as they would for the surviving spouse's own IRA.

If you inherit a retirement account from someone other than your spouse, you can transfer the funds to an inherited IRA in your name. You must begin taking minimum distributions the year of or the year after the inheritance, even if you're not 72 yet.

If you are younger than the decedent, consider electing the "single life" method of calculating the required distribution amount, based on your age. Your minimum distributions will be smaller, which means you'll pay less tax on them and the money can grow, tax-deferred, for a longer period of time.

• If you're expecting to leave money to people when you die, consider giving annual gifts to your beneficiaries while you're still living.
• You can give a certain amount to each person—$15,000 for 2021—without being subject to .

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Remember, with , we'll ask you simple questions about your life and help you fill out all the right tax forms. With TurboTax, you can be confident your taxes are done right, from simple to complex tax returns, no matter what your situation.