Estate and gift tax planning is tough. No matter your situation, it is essential to understand state and federal taxation principles to avoid an unpleasant surprise.
In this article, we shall discuss such a popular topic as gift tax in Kansas, so you could understand how gifts that you make and receive in the state can influence your taxable estate.
Table of contents
What is a gift?
First of all, let’s determine what can be considered a taxable gift. Technically, any transaction free of charge, a deal made at a rate lower than the market pricing, or even an interest-free loan can be considered a taxable gift.
At the same time, Kansas does not impose a gift tax on its residents. It means that neither donor nor the recipient of the gift is not responsible for the tax due in Kansas.
However, liberated from the state gift tax, you can still have to deal with federal gift taxation, which can significantly influence tour lifetime exemption.
Gift Tax Exclusion
According to the federal gift tax exclusion, Kansas residents can give away up to $15,000 to as many people as they want. In this case, there won’t be any need to fill the gift tax return. Moreover, those gifts won’t influence the lifetime exemption.
Many Americans use this practice of giving away their property to children to reduce their taxable estate. Kansas does not have an estate tax either, but its residents still face federal taxation if their estate is sufficient.
It is also essential to remember that you can “split” a gift with your spouse without affecting their or your lifetime exemption.
Suppose you want to gift your child a car worth $20,000. Splitting such a gift with your spouse, you avoid acceding the annual $15,000 federal gift tax exclusion limit.
Moreover, sure gifts are exempt from the federal gift tax entirely.
Once you pay for someone’s education or medical treatment, donate to IRS-approved charities, or even make a gift to your spouse who is also an American citizen, those gifts won’t have any effect on your lifetime exemption or be considered as “taxable” at all even if they go way above the $16,000 bar.
How to Avoid
Let’s look at the 5 steps to eliminate or reduce the tax:
- Review the federal statute
Remember that most states do not have a gift tax. So taking a close look at the federal gift tax requirements is critical.
- Consider trust options
Make sure you review both revocable and irrevocable trust opportunities. These trust structures can come in different shapes and sizes.
- Make gifts below the exclusion threshold
If you have an estate tax problem, the first step is to make sure you gift annually below the exemption level. In this case, you will not have to file a gift tax return.
- Determine spousal gifts
Gifts can be carved up between spouses in an attempt to stay below the exemption level.
- Discuss with your CPA
Your CPA is in the best position to offer advice on how to manage any estate or gift tax issues. There are many planning strategies that you can put in place.
Final thoughts
Only 12 American states have an estate tax, and even fewer impose gift taxation. Therefore even though we make “taxable” gifts, there is no tax responsibility in most cases. However, it is still essential to remember about the federal estate and gift taxes, even if you are a lucky Kansas resident.
