Arkansas Estate Tax Exemption: The Easy Guide

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Paul Sundin, CPA

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In this post, we take a look at some tax issues relating to Arkansas. Specifically, we will discuss the Arkansas estate tax, gift tax, and inheritance tax.

Hopefully, residents of Arkansas will be able to do some planning for their estate before they pass away. Understanding state taxes becomes critical. So let’s jump in.

Arkansas estate tax

First of all, I’ve got some good news for you. Arkansas has no estate tax. In fact, of the 50 states in the US, only 12 have an estate tax. So it’s actually not too common to have an estate tax.

But Arkansas does have other taxes you’ll need to be concerned about. Overall, it’s a very moderately tax friendly state.

Federal estate tax exemption

Even though Arkansas doesn’t have an estate tax the U.S. does have one. The estate tax is really not that challenging conceptually. But it can be difficult for people to calculate because there are a lot of moving parts.

Once a person passes away, the executor of the estate will need to aggregate all the decedent’s financial information. This will include a detail of all their assets and liabilities.

Once all assets have been identified, you will need to get a valuation of each asset. This can be very simple for stock and brokerage accounts. But it’s a lot more challenging for real estate and business holdings.

After the asset valuation is completed, you can subtract liabilities including mortgages and other debt from the asset value. Lastly, you can deduct administrative costs and funeral costs from the assets to determine a net asset value.

This net asset value is then compared to the federal exemption amount. If it exceeds the federal exemption amount then a tax will be assessed.

The estate tax is often called the death tax. But the good news is that it only impacts about less than 1% of all estates in the country. So in most cases it won’t affect you. But if it does, do whatever you can to reduce the estate value.

Arkansas gift tax and inheritance tax

I’ve got more good news for you. Arkansas does not have an inheritance tax or a gift tax. Most states that don’t have an estate tax don’t have a gift tax either.

The IRS has a gift tax, but offers an annual exemption of $15,000 per person. Any gifts above this level will go against the lifetime limit.

Only seven states have an inheritance tax. But just because Arkansas won’t tax your inheritance doesn’t mean that Arkansas residents won’t be taxed for inheritance tax in other states.

For example, if an Arkansas resident received an inheritance from an estate in Pennsylvania. They would have to pay inheritance tax to Pennsylvania. Most people have a tough time understanding how this works.

Arkansas tax structure

Arkansas is a moderately tax friendly state. It does partially tax retirement accounts like 401(k) plans and IRA‘s. The tax rate is progressive with it top tax rate of around 7%.

But property taxes are a little bit on the low side. They have a an overall rate of about .6%.

Arkansas does have a relatively high sales tax.The state rate is around 6.5%, but local governments can push that tax close to 10% in some areas.

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