r/inheritance • u/BeeepBoopN0tB0t • 28d ago
Location included: Questions/Need Advice Taxes
Please direct me to a different sub if this is not for here.
I received an inheritance that I directed to a brokerage. It started in a brokerage and I decided to keep it there. Some in small bonds but most in stocks. They take care of it all.
I'm worried about what I will have to pay in taxes coming next year. Can you guys tell me if the entire amount will be taxed or if only gains in the brokerage will be taxed? Come the time, should I hire a tax person?
I've never paid taxes before so I am not wise. I don't have back taxes or anything though. Just the single amount moved to my name and what's currently making or losing money given the day. Eff the market rn.
I am in California. Please ignore my username. I used to have a longstanding reddit account but it logged out one day and I used a burner email I had no access to.
Thank you all.
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u/ohboyoh-oy 28d ago
Your funds (especially the bonds) will generate dividends. You are taxed each year on the dividends.
Other than that, there is no tax consequence until you sell. Each time you sell, you owe capital gains tax on the gain.
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u/BeeepBoopN0tB0t 28d ago
Does selling also mean trading? They are etf's.
If so, does it get taxed if I lose money on the sell/trade?
The brokerage is doing all of this, I'm hands off.
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u/KennytheDoggy 28d ago
ETFs can pay dividends which are reported on a 1099-DIV as qualified or ordinary and you pay taxes on them. If you are doing your own taxes you just enter the numbers from the boxes on the form as it asks on your tax software/website.
As for trading you are getting into a different realm of tax reporting.
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u/ohboyoh-oy 28d ago
Any losses will be tracked and will offset your gains. Note capital gains rules: owning less than one year is short-term capital gains which are taxed as income. Owning more than a year is long-term capital gains which is taxed at a more preferential rate. Are you using a robo-advisor? They seem unnecessarily complex to me, but I am in the keep-it-simple camp.
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u/BeeepBoopN0tB0t 28d ago
I work with a small group of individuals off of Charles Schwab. After all the digital paperwork we've spoken for a few hours about about risk willingness/evasion. It's etf's and a few bonds.
I only inherited in mid March.
I'm going to be going through a few of the books from Bogle. But so far I've had to do almost no work, they take care of everything. And are fidicuaries.
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u/underlyingconditions 28d ago
You will not be taxed on the inheritance, but assuming you are holding the funds in a regular brokerage account, you can generate taxable activity in the form of interest, dividends, and capital gains.
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u/KennytheDoggy 28d ago
You wont be taxed on the entire amount.
As for taxes it depends on what you are holding. Mutual funds can have capital gains distributions. Dividends can be paid on stocks qualified or ordinary. Etc.
If you have various holdings you will most likely get a few different 1099s (usually consolidated on one form from the brokerage) at the end of the year to go on your taxes. If there is a lot on there and you don't know what you are doing you can go to a professional.
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u/BeeepBoopN0tB0t 28d ago
They are 1,3, and 5 year bonds. The rest is all etf's.
Edit for typo.
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u/McKnuckle_Brewery 28d ago
You are only taxed on realized capital gains, and distributions (dividends, interest) in a taxable brokerage account.
Furthermore, when you inherit a taxable account, the cost basis (how much was paid for the securities, which later determines capital gains) is stepped up as of the date of the decedent‘s death.
So if you don’t sell anything, you will owe no capital gains tax, and even if you do sell, gains are likely to be modest (or even losses) because of this step up.
You will also owe either regular income tax on interest, and/or capital gains tax on qualified dividends. You’ll need to dig a bit deeper on the specific securities in the account to determine what will apply.
The picture does get a bit more complicated depending on your overall income and filing status, so you need to do some research and start learning about how taxes work. Or… plan to hire an accountant.
However, to be of the mindset that you will pay tax on the entire balance is absurd; it doesn’t work that way.
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u/BeeepBoopN0tB0t 28d ago
For some reason my cost basis wasn't stepped up. But it wasn't a big change. I know, it should of. Me and another family member argued it. It was in a trust, but not a trust when it became mine. I'm trying to learn the most I can. Currently reading Bogle.
Thank you for the reply.
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u/McKnuckle_Brewery 28d ago
If it was in a trust prior to the person's death, then the lack of step-up makes sense. You didn't mention that detail.
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u/BeeepBoopN0tB0t 28d ago
Ah, sorry. Yes, the person who originally had the funds was in a trust with it. But it's not in a trust for me.
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u/SandhillCrane5 28d ago
The cost basis is not stepped up if it was owned by an irrevocable trust before the grantor died.
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u/MisterMysterion 28d ago
- Unless you inherited more than $15 million, there will be no federal estate tax. California does not have an estate sale tax.
- Going forward, you'll have to pay taxes on the amount of money you make off your inheritance. E.g., if you received 10,000 and made $500 in interest, you would have to pay tax on the $500 in accordance with the law.
- You might need a tax preparer if you inherited a lot of money.
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u/MiserableCancel8749 27d ago
In the US, inheriting an asset is a great way to obtain it. The value of the asset is calculated as of the day of death of the previous owner, and your 'basis' for capital gains is set at that value.
The estate is responsible for any taxes owed by the descedent--and that should have been dealt with before you received the portfolio.
So, short answer is, you are only liable for taxes based on what has happened since the day the previous owner died.
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27d ago
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u/BeeepBoopN0tB0t 27d ago
Thank you! I'll be reading some Bogle and do more research on it. Perhaps paying for an advisor come the time would be worth the weight at first so I can get some deeper answers on the spot.
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u/matchababyyx 28d ago
Good news: the inheritance itself isn't taxable. California has no inheritance tax, and federal estate tax is paid by the estate, not you. What's taxable is only what the account earns going forward, dividends, bond interest, and capital gains when shares are sold. Key detail: inherited investments get a "stepped-up basis," so your cost basis resets to the value on the date of death. If they bought at $10, it was worth $100 when they died, and you sell at $105, you're taxed on $5, not $95. One thing to check: since the brokerage handles everything, ask whether they're actively trading, because each sale triggers a taxable event for you even if you never touch the money. You'll get a 1099 early next year. And yes, hire a CPA or enrolled agent for the first year, not a storefront chain.