- The federal government doesn't impose a tax on beneficiaries who receive an inheritance during the year, regardless of whether it consists of money or property. If any tax is due on the decedent's estate, the federal estate tax will collect all amounts due directly from estate property before any beneficiaries receive their inheritances. Although the transfer of ownership of the savings account doesn't have any federal tax implications, you may still have to pay tax on income that relates to the savings account in the same year you inherit it.
- Once ownership of the savings account is in your name, you are responsible for paying tax on any interest income the savings account generates. The Internal Revenue Service taxes your interest as ordinary income, which imposes the same tax rates that apply to the salary and income you earn as an employee, sole proprietor or independent contractor. For example, suppose you inherit the savings account on June 1, 2011. You will be responsible for reporting all interest the account earns between June 1 and Dec. 31, 2011 on your tax return. However, you are not responsible for the interest that accrues between Jan. 1 and May 31.
- To choose the appropriate tax form to file your income tax on, you must first determine whether one is even necessary. As long as another taxpayer doesn't claim you as their dependent, you only have an obligation to file when the total of your income, including the interest earnings from the savings account, exceed the standard deduction available for your filing status plus one personal exemption for yourself, and one for your spouse if filing a joint return. If your income doesn't exceed this threshold, then you don't owe any income tax on the interest from your savings account. However, if you do, you must choose from three tax forms to file on.
- For citizens and residents of the U.S., the IRS provides three income tax forms: the 1040, 1040A and 1040EZ. However, there are major differences between the three. For example, you can only use the 1040EZ and 1040A if your taxable income is less than $100,000. But even if you satisfy this income requirement, the IRS doesn't allow you to claim any dependents or adjustments to income on a 1040EZ and only allows for two of the adjustments when using a 1040A. Therefore, if you can save money in tax by claiming adjustments such as the contributions to your health savings account or moving expenses, you should choose the full-length 1040 form that has no restrictions.
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