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Stephen G.
Stephen G., Sr Income Tax Expert
Category: Tax
Satisfied Customers: 7119
Experience:  Extensive Experience with Tax, Financial & Estate Issues
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Hi, I spoke with you earlier about some business inventory

This answer was rated:

Hi, I spoke with you earlier about some business inventory (grain) that I will inherit that doesn't receive the step-up in basis.

Who pays the tax on the grain?

The estate will pay tax on all assets in excess of 5.1 million later this month.

Then do I pay income or inheritance tax on the grain inventory when it is inherited / sold?
Does deceased father pay tax on the grain on his last return?

Stephen E. Grizey :

Hi & thanks for using our service. I'll do my best to give you a complete & accurate answer. Please ask me to clarify anything you don't understand.

Stephen E. Grizey :

First of all there is no Federal inheritance tax.


 


I will have to look up Iowa in terms of the state estate or inheritance tax.


 


In the meantime, in regards XXXXX XXXXX tax.


 

Customer:

ok


 

Customer:


(Let’s ignore the capital gains tax and everything else for the sake of simplicity.)


 

Stephen E. Grizey :

The decedent's final income tax return will reflect the grain as an ending inventory, so it isn't "taxed" as when it is reflect in income, it is a deduction.


 

Stephen E. Grizey :

So, if you inherit the inventory, you would be able to deduct whatever value it is carried at in the estate as a deduction when the grain is sold.

Customer:

I just need to know if any tax is owed on the grain inventory after the estate tax has been paid.


 

Customer:

ok


 

Stephen E. Grizey :

If the estate conducted the business, then the estate would report the inventory as a deduction when it was sold on it's fiduciary return (Form 1041).


 

Stephen E. Grizey :

Do you know the Iowa rules or do you need me to check that out now?

Customer:

I could use the help...I have had a lot of trouble locating the information..


 

Customer:

thanks


 

Stephen E. Grizey :

Iowa does have an inheritance tax, but surviving spouses and lineal decedents (children, grandchildren, etc.) are exempt from the inheritance tax.

Stephen E. Grizey :

Anything else?


 

Stephen E. Grizey :

I guess you aren't there............I have to go out for a few minutes, so if you have any other questions, let me know & I'll check back when I return.

Stephen E. Grizey :

OK, now you're there

Customer:

 


 

Customer:

I'm kind of tax retard so you'll have to explain something.....


 

Customer:

I just payed federal tax and I'm about to pay 500,000 in state tax at the end of this month.


 

Customer:

Now I pay again when the estate closes?


 

Stephen E. Grizey :

I don't understand what you mean?


 

Stephen E. Grizey :

What tax are you talking about? I didn't say anything about paying any taxes?

Customer:

The business expenses and revenue for the estate during the business year are reported when....


 

Customer:

??


 

Stephen E. Grizey :

The estate has to file an income tax return just like it was an individual if it has investment income or conducts business while the estate is open. It has nothing to do with estate taxes.

Customer:

ok...that's what I thought....


 

Customer:

The tax law kind of limited in terms of what you can deduct....Can I recover any the estate tax on the income tax??


 

Stephen E. Grizey :

Do you have a CPA involved with this estate? If not, you are going to need one. Fiduciary returns can get complicated & if I were you, I wouldn't be paying any kind of tax (estate or income) without a CPA on board to at least review what you are doing before filing anything & to do what you can't do yourself.

Customer:

I do have a tax attorney, but I wanted to confirm a few things...


 

Customer:

The no step up in basis thing kind of threw me a little bit...


 

Stephen E. Grizey :

You can't recover the estate tax on the income tax directly; however there is a relatively complicated deduction that you are entitled to on any income tax return that includes items of income that were also on the estate tax return. Most estates haven't been paying any estate tax between the unlimited marital deduction & the $5,120,000. exemption.

Customer:

I guess I can figure it out from here.... thanks


 

Customer:

I'm not married and neither was father..


 

Stephen E. Grizey :

OK, but estate tax attorneys seldom get involved in income taxes & that's where the problem is.

Stephen E. Grizey :

I wasn't talking about your Dad's estate, just estates in general.


 

Customer:

I've been looking for some bridge the gap....


 

Stephen E. Grizey :

There's a relatively small number of taxable estates compared to all estates.

Customer:

I'd like to deduct some ag machinery and improvements to the estate...


 

Stephen E. Grizey :

What was your Dad's date of death?


 

Customer:

This estate was valued at 5.8 million


 

Customer:

january 10, 2012


 

Stephen E. Grizey :

If that's the case, the estate tax should be nowhere near $500,000.

Customer:

Actually, it's he did something strange and deducted the executor and attorney fees first.....The estate is listed as 5.9 but should be about 6.2


 

Stephen E. Grizey :

Just so you know, an estate conducting a business would be entitled to all the same deductions that anyone else would be entitled to for income tax purposes.

Customer:

So I can deduct the full value of the grain inventory?


 

Stephen E. Grizey :

If the estate sold it, of course.

Customer:

So I could sell the grain, improve the estate and deduct it.


 

Stephen E. Grizey :

But, you have to realize, I'm operating with one arm tied behind my back; the only way to actually evaluate things, fiscal year options to save the beneficiaries tax dollars; deciding where & how much certain deductions should be deducted on the estate tax return or the income tax return, require that we have the complete picture; that's only 1 reason why you need a CPA.

Stephen E. Grizey :

What do you mean "improve the estate"?

Customer:

drainage tiling for


field

Customer:

I just took over the books after he died and it's a little overwhelming with all of the other stuff to do...


 

Stephen E. Grizey :

I'm not a farmer; but a local CPA would have that knowledge too.


 


We farm fish here in the Atlantic ocean; fisherman are considered farmers for income tax purposes.

Customer:

Ok thanks ...you've been a great help..


 

Stephen E. Grizey :

If you need to contact me again with any tax or financial questions, you can just ask for "Steve G" at the beginning of your question. Again, please remember to rate my response. Bonuses, where you think they are warranted, and excellent ratings, are always most appreciated. Thanks again for using JustAnswer.com.


 

Customer:

thanks again...

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