Do you live in Colorado? Maybe someone has passed away and is concerned about Colorado estate tax? In this post, we answer some critical questions regarding Colorado taxation..
Let’s start off by saying I have some good news for you. Colorado is one of 38 states that does not have an estate tax. It does not matter the size of your estate nor what type of assets you have. There is no tax assessed.
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Colorado estate tax planning
So you are aware that there is no estate tax in Colorado. Some states have decided to recently enact statutes to tax estates based on a certain exemption amount. But even though Colorado does not have an exemption, the federal government may assess tax against your estate.
What is an estate tax and how does it work?
The estate tax is assessed on a specified estate once a person has passed away. It does not get assessed against the beneficiaries, it is assessed against the estate before money is passed to any heirs. Some people refer to it as a death tax.
Colorado gift tax and inheritance tax
In addition to having no estate tax, Colorado also has no gift tax or inheritance tax. Some states do assess inheritance tax if the decedent passes away in a specific state even if the beneficiaries live in a different state. So be careful if assets are owned in multiple states.
The federal government does have a gift tax, but no inheritance tax. The good news is that federal gift tax has an annual exclusion. As long as the gift amount is below the threshold, there is no gift tax return filing.
Federal estate tax
The federal government has an estate tax when the estate meets a certain exemption level. If the estate has not met the exemption, there is no tax filing to be made and no tax to be assessed. But be careful because estate tax thresholds and exemptions will change on an annual basis. So make sure you track it and do some planning in advance.
The good news is you have some planning options. These include estate tax strategies that can be done prior to the date of death and even after the persons date of death. These strategies can include valuation issues relating to specific assets and even charitable donations and certain administrative expenses.
Colorado is generally a fairly tax friendly state. Social Security and certain retirement accounts are taxed in part. But Colorado has a flat income tax rate. There are also in fact three cities in Colorado that assess a local income tax so make sure you check on your specific city.
Property taxes in Colorado are definitely on the low end. They will average around half of 1% of assessed value. State wide sales tax in Colorado is limited to 2.9%. But when you add any local taxes they can get up closer to 8%.
Estate tax can be very complicated. Make sure you have engaged an attorney or CPA to limit any tax that you have to pay.