Future Business Leaders of America (FBLA) Agribusiness Practice Test

When might an individual be liable for inheritance tax?

1. When earning a high salary

2. When receiving gifts during their lifetime

3. When inheriting cash or property

4. When selling assets for profit

The correct answer is: When inheriting cash or property

An individual may be liable for inheritance tax when inheriting cash or property because this tax is assessed on the value of the estate or assets received from a deceased person. The law typically requires heirs to pay a percentage of the estate's value when it is transferred to them. Inheritance tax varies by jurisdiction, and not all states impose it. However, when someone receives an inheritance, they may be responsible for settling this tax obligation, which is calculated based on the total value of the inherited assets. Receiving gifts during one’s lifetime, earning a high salary, or selling assets for profit are related to different tax responsibilities and considerations. Gifts may be subject to gift tax but not inheritance tax, and income tax is typically the concern for salaries and profits from asset sales. Thus, the specific context of inheriting assets makes it clear why that scenario directly correlates to liability for inheritance tax.