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Get Tax Advice from Naples Estate Planning Attorney

income tax and inheritance in naples

Florida Has a Tax Friendly Reputation

Florida has the reputation of being one of the most tax-friendly states. With an experienced Naples estate planning attorney like James Nici you can protect your estate to ensure that your family is not stuck with a hefty tax bill. Getting good tax advice is an important part of estate planning.  Mr. Nici has been a licensed Florida attorney since 1994, and Board Certified in Wills, Trusts and Estates since 2000 and is able to help clients protect their estate with proper planning.

There are four main taxes that you need to be aware of when creating your Naples estate plan: 1) estate tax, 2) inheritance tax, 3) income tax, and 4) gift tax.

What is the Estate Tax?

The estate tax is a tax imposed on the gross estate assets. The tax is paid before the estate is paid out to the beneficiaries. It is sometimes referred to as the “death tax.” The Florida Constitution prohibits estate tax regardless of the size of the estate. When a Naples resident passes away, Florida will not levy an estate tax on their estate.

Although, depending on the size of the estate, it may still be subject to federal estate tax. Federal estate tax only applies to very large estates. Estates that do not meet the minimum amount do not need to pay any estate tax. As of 2022, only estates with values higher than $12,060,000 (doubles to $24.12 million for married couples) are taxed. Life insurance benefits are included when calculating the estate’s gross value (unless they were placed in an irrevocable trust). The estate tax is progressive. This means that the rate increases with the size of the estate—the rate caps at 40%.

Furthermore, if the deceased owned property in a state with an estate tax (i.e., New York or Illinois), there may be additional taxes, even if the deceased lived in Naples.

What is the Inheritance Tax?

The inheritance tax is a tax on specific assets that are paid out to the beneficiaries. Unlike the estate tax, the inheritance tax is paid by the beneficiaries, not the estate. Fortunately, there is no inheritance tax in Florida. There is also no federal inheritance tax.

States that have inheritance taxes include Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. If you are a Naples resident and inherit property from an individual who was a resident of one of the above states, you may be subject to inheritance taxes. There are exceptions, including if you are the spouse of the deceased. If you have questions about whether you are responsible for paying inheritance tax, a Naples estate planning attorney, like James Nici, can answer your questions.

What is the Income Tax?

The income tax is a type of tax imposed on the income generated by individuals or entities. Florida does not have an state income tax. Furthermore, inherited property generally does not count as income for federal income purposes.

It is important to be aware that in limited situations, some assets received through inheritance are subject to federal income taxes. For example, if you inherit a traditional IRA or 401(k), the beneficiary will have to pay federal income taxes as they withdraw property from these funds. Withdraws from some pension plans and investment accounts may also be taxable. In contrast, withdraws from an inherited Roth IRA are not taxed. Before taking money out of these accounts, it is a good idea to speak to an attorney or accountant.

In addition, if the inherited property generates income, you may owe income tax on the income generated throughout the probate process before the property is transferred to the beneficiary. For example, if you inherit a rental property in Naples, you may owe federal income tax on the rental income.

What is the Gift Tax?

A gift tax is a tax on the transfer of property by an individual to another while receiving nothing, or less than full value in return. Lifetime giving is a strategy that some individuals use to lower the value of their taxable estate. Florida has no gift tax. It was repealed in 2004.

There is however a federal gift tax. It applies to gifts of more than $16,000 on an individual basis. This means that you can gift $16,000 to an individual each year without incurring gift taxes. The lifetime gift tax exemption is $12.06 million and $24.12 million for married couples.

Call a Naples Estate Planning Lawyer

If you have questions about Florida estate taxes, you should contact Nici Law Firm. James R. Nici is an experienced Naples attorney with over 25 years of experience. He is well versed in these issues and can create an estate plan that fits your needs. Contact our office today at (239) 449-6150 or use our web form to set up a free consultation.

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