I'm receiving an inheritance from the death of my grandmother. The money is being distributed from a trust, and I am told that the distributions are going to be reported on K-1 forms and I will need to submit a K-1 form.
What impact can I expect this to have on my tax liability? I file jointly in Rhode Island and Massachusetts since my wife and I live in Rhode Island, but I work in Massachusetts.
I found this explanation of a K-1 form, which says:
These Schedule K-1 forms are a lot like a 1099 or W2: You'll receive one from the trust, estate, LLC, S corp., or partnership, and it breaks down the income you received into various categories. This is where the tax complexity comes in, because some categories of income may be taxed as capital gains, while others are taxed as regular income, and you want to be sure you pay the appropriate tax rate.
I would assume that what I receive from this distribution would be taxed as regular income, but I wanted to make sure - I wasn't clear on whether it would fall under capital gains, as the article mentioned.