Dealing with the aftermath of a death in the family is never easy, and it can get more complicated when you receive an inheritance from overseas. The inheritance may come with surprising strings attached, and it’s a good idea to plan ahead so that you understand what your tax obligations are.
An Overseas Inheritance Is Different
When you receive an inheritance from a relative in the United States, the IRS will tax it before it ever enters your bank account. However, things are different when you receive something from a foreign family member. First, the citizenship of your deceased relative will matter. If they retained American citizenship before moving abroad, most IRS rules will still be applied. We can help you determine the hoops that the money will pass through before heading to you.
However, if your relative did not have American citizenship or retain it, there are fewer tax consequences that you will face. If they did have some assets in the United States, those will be taxed by the IRS before being passed on to you. If all of their assets are foreign and they were not a US citizen, you will not be required to pay taxes on the money. Because exceptions can occur, it’s a good idea to consult with an accountant just in case.
State Tax Inheritance Consequences
It’s important to note that, while there are not IRS requirements for inheritances received by foreign relatives, some states do tax that money. Your accountant can work with you to determine whether state taxes will be owed. These states include Delaware, Iowa, Kentucky, Nevada, New Jersey, and Pennsylvania. Maryland also applies an estate tax and an inheritance tax on recipients. Consulting with your accountant before accepting the inheritance will make sure that you understand all your tax obligations ahead of time.
Do You Have to Report an Overseas Inheritance?
You should always report your income to the IRS, even if your relative was not an expat and you do not owe any taxes on the money. For example, if you got $100,000 or more in your inheritance from an overseas citizen who was not American, you may need to file Form 3520 along with your taxes. We will help make sure your taxes are as straightforward as possible.
Overcome International Tax Challenges with Help from MKS&H
MKS&H provides tax and accounting services to businesses of every size and in every industry. We can work with you to make international taxes easily and avoid the most common international tax challenges. Contact us today for a consultation.
About MKS&H: McLean, Koehler, Sparks & Hammond (MKS&H) is a professional service firm with offices in Hunt Valley and Frederick. MKS&H helps owners and organizational leaders become more successful by putting complex financial data into truly meaningful context. But deeper than dollars and data, our focus is on developing an understanding of you, your culture and your business goals. This approach enables our clients to achieve their greatest potential.