My Japanese wife’s father passed away recently and he left her a sum of money (approximately $100,000 dollars US after conversion). Do I need to report this to the IRS (or anyone else) as income and if so how much of it is likely to be taxed? My wife wants to simply wire the money here and not report it but I suspect we have an obligation under tax laws to report it as income.
And a related question…how does one legally transfer a sum of money that large from Japan to the US? I thought of travelers checks the next time she visits but I’d much rather do an electronic transfer of some kind.
The trick here is to avoid having the government/banking institutions take more than their fair share through transfer fees and other forms of taxation. We’re hoping to have enough left after the legalities to get into a better neighborhood with better schools.
My thanks in advance for anyone who might be able to clue me in…I’m a complete novice when it comes to dealing with money on this scale.
Before the large sum of money is transfered from her father’s estate get hold of a professional that can advise you. I’m not talking about a transfer from Japan to the USA either. I’m talking about before it is transfered to your wife in Japan. You may lose a lot of money because it wasn’t handle in a certain way as opposed to another. $100,000 is enough money were a few percentage points lost in in penalties and taxes is a large amount.
Walloon…that is very helpful, thank you. The way I read that is a cash gift is not taxable but anything I do to earn money with that gift is taxable. If thats the case its very good news, thanks again!
I’m a permanent resident of the US, and gence I have to pay tax on my worldwide income (thoiugh the severity of that for me is moderated by a tax treaty between the US and Australia).
I recently inherited money from an estate in England, which was paid by the executor into my Australian bank account. If it had been income, I’d have had to include it in my tax return in the US, even though the money never touched the US. However, since it’s an inheritance, the US does not need to know about it.
Also, the standard way to transfer fairly large sums of money between banks is a wire transfer. You fill out a few forms and the money is sent very quickly. It shouldn’t be very expensive–no more than $50.
Woa, wait a sec there. The reason it isn’t taxable to the recipient typically in that paragraph is that the estate is reponsible for the gift/inheritance tax (gifts are tax free up to 11k / per year / per person).
In this case the estate, being a foreign entity, is likely not paying US tax or filing a US return.
You may be on the hook for inheritance tax on this… Also you should figure your better off on reporting than not - bank reporting requirments being what they are, it’s pretty tough to hide a 100k transaction. Especially a 100k FX tranaction (at least if you are someone not normall doing large spot FX deals.) being a larger sum of money, 6 years from now back penalties and interest can add up to a serious fine if handled incorrectly.
Like previous posters said check w/ a tax professional on this one.
Have you considered the possibility that Japan might take some of the money too? I have no knowledge of Japanese law, but I think it would be a good idea to look into this.
I got an inheritance a couple of years ago. The lawyer for the estate did not mention in his transmittal letter with the check that part of the sum was income from the estate. All the people inheriting did not know that we had to pay taxes a year later, and got a nasty surprise come tax time.
If your wife’s inheritance turns out to be $100,000 or less after conversion to U.S. dollars, then she does not need to report the bequest.
It appears from the instructions (see p. 9, “Part IV—U.S. Recipients of Gifts or Bequests Received During the Current Tax Year From Foreign Persons”) that even if the foreign bequest amount is over $100,000, the U.S. recipient is only required to report it, not pay any taxes on it.
So far we’ve been discussing federal taxes. There are also state and city taxes.
I notice the OP lives in Philadelphia, as I do (hi, Bong!) Checking my 2005 tax instructions, I see that the PA revenue people follow the same rule as the IRS: “Cash and property you acquire from an estate or trust by gift, bequest, devise or inheritance is not taxable. You must report any PA taxable income that you subsequently earn or recieve from that tax or property.” (PA-40 2005 instructions, p. 19).
Philadelphia also collects a “school income tax”, which basically is the infamous city wage tax applied to income that is not wages, such as interest and dividends, rents, royalties, gambling winnings, etc… (How much actually goes to the schools is anybody’s guess.) According to the instructions from that, income from an estate is taxable “only if it is received by or credited to the beneficiary and is the type of income that would normally be subject to the tax”, such as interest and dividends. My non-authoritative opinion is that you’re in the clear until the money is in your bank and starts earning interest. IANAL, and all that.
That’s my understanding as well. The caveat is: If money is earned on the inheritance even before it is transferred to you - e.g. if it was sitting in a bank account owned by the estate, or there is appreciation in the value of stocks, or whatever, that is also considered as income to you. I’m not “up” on all the nuances but we’ve had tax implications in several inheritances (including one where we had not even received any money from the estate, yet had to pay income taxes on some of its income).
