annuity tax and individual tax
Have client who passed away (no husband) and left all to her sister. One of the investments was an annuity. The sister received the death benefit which has a about 70k of taxes to pay (380k total paid to sister – the annuity started with 310K). So we know she has to pay taxes on the 70k of growth.
She filed an inheritance tax form and paid 40k in taxes on all other investments, except the annuity. New Jersey came back and said the annuity is part of the inheritance and to pay another 40k in taxes based on the 380k payment to her. Is this correct?
Does she have to pay the taxes on the 70k growth from the annuity on her individual tax and also get hit with paying inheritance tax on the 380k annuity?
Thank you,
douglas
Permalink Submitted by Alan Spross on Fri, 2012-10-12 16:39
This requires specific knowledge of NJ tax code. Perhaps someone who practices there would know.
For federal estate taxes there is an IRD deduction to reduce the federal income tax when estate taxes are paid on IRD (includes annuity) assets. NJ may or may not include a similar provision, but that would be the primary provision to investigate.
Permalink Submitted by Bruce Steiner on Fri, 2012-10-12 22:01
In states where the state income tax is based on the Federal income tax, the income tax deduction for the Federal estate tax is available for state as well as Federal income tax purposes. However, the New Jersey income tax is not based on the Federal income tax. It’s essentially a gross income tax, with very few deductions.
Why did the lawyer for the estate omit the annuity on the New Jersey estate and inheritance tax returns?
Permalink Submitted by Douglas Bauerband on Sat, 2012-10-13 01:05
working on it…thank you.