I’ve done some googling on this subject without getting any sort of real answer about it, and the IRS website doesn’t seem to have much information about profit sharing plans and taxation from my end of the deal. Tax time is coming up soon, I’ve inherited a portion of my deceased mother’s profit sharing plan recently, and I’d like to know if I need to list it as income and what I can do with it now that it’s mine. I’d like to be prepared well enough that I can do my own taxes with minimal assistance, or at least be able to do them on my own after this tax year if it’s too complicated with this stuff. I live in Florida, which is not a state that does their own income taxing system, and my mother lived in Florida as well.
Call a CPA, for around a hundred bucks you end up with legally defensible advice on how to proceed/handle these earnings.
This is the sort of thing that no responsible professional would advise you about on the internet, but rather is something for which you should get your own tax advisor.
If you’re really into DIY, the IRS.gov website is where I would recommend you look.
Thanks for the advice, but the IRS website does not have information for what to do in my situation. I guess I’m going to have to hire a CPA this year if nobody can actually give me more information about what one can do when they inherit a profit sharing plan.
The amount of federal tax you owe depends on how much you inherited and whether or not it is taxable. Regardless of the tax consequences of the plan for your Mom, it may well just be part of her gross estate for you.
What one can do is get advice from a professional or stumble through it themselves. It seems like the best advice here is that you seek the counsel of a professional. It’s a nice problem to have.
For the most part, property you receive as an inheritance is not suject to income tax. If there was any estate tax due, it was paid by the estate, with the after-tax balance left to heirs.
A significant exception to this general rule is “Income in Respect of a Decendent”(IRD). A common example of this type of property is an IRA or 401(k) plan that has money in it that no tax was ever paid on, since those plans are funded with pre-tax dollars. The linked article also includes “deferred compensation,” and your mom’s profit sharing plan may well be IRD, in which case you would owe income tax on that.
You do need to see a CPA, preferably one who is well-versed in IRD issues.
Thanks, Labdad. I figured this needed a slightly more specific answer than “go see a CPA”, as this and other things have given me options for what I can do with the money and I’ve been so busy that I haven’t really had much time to actually sit down and make decisions on this and get anything else important that needs to be done.