Arizona Gift Tax: The Complete Guide [Illustration]

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Paul Sundin, CPA

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Many of our clients in Arizona have questions about the Arizona gift tax. Our goal is to educate our clients and address their concerns. But our most important task is to assist our clients in getting an effective estate plan in place. 

This post will break down the specifics of how the gift tax works and address the applicable laws and requirements. Let’s jump in.

What is the gift tax and how does it work?

A gift occurs when someone gives something of value to someone else and, in return, receives nothing back. A gift may also occur when something is sold for less than fair value. 

The gift tax is levied against a gift that is made over the annual exemption. A gift can be made in cash or even property, such as stocks, collectibles, real estate, mutual funds, or even business holdings.

What is the Arizona Gift Tax?

So let’s answer the question at hand. There is actually no Arizona gift tax.  

It is interesting to note that state levied gift taxes are rare. Only twelve states in the U.S. assess estate tax, and very few states have a gift tax. 

What about the federal annual gift exclusion? 

Federal gift laws allow any person to gift away $15,000 annually. This gift can be made to an unlimited number of people, and there is no requirement to file a tax return. It also will not count against the individual’s lifetime exemption. 

A couple with three kids can give away $15,000 to each kid. This gift would be $45,000 per person or $90,000 for the married couple in total. If planned correctly, the couple can give away a substantial amount of their estate. 

Form 709: Gift Tax Return Rules, Requirements & Laws

When you make a gift exceeding the annual exclusion, you must file Form 709 to report the gift. 

Let’s consider an example. Assume you give $20,000 to one of your children. Since the gift is over the annual limit, it is regarded as a taxable gift. The following is the result:

  • Form 709 (gift tax return) must be filed to show the $5,000 amount over the exemption.
  • No tax is due unless the amount exceeded the lifetime exemption.

Final Thoughts

By now, you should understand how the gift tax works at both the federal level and at the Arizona level. Fewer than one-half of 1% of all U.S. citizens will have to pay estate tax.  

Annual gift giving below the exemption amount is usually the first step in overall estate planning. If you have a large estate, make sure you discuss with your attorney or CPA. 

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