How to ‘Legally’ Avoid the Kansas Estate Tax

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Paul Sundin, CPA

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Our high-income clients in the Sunflower State have a lot of tax questions. Most of the questions revolve around the federal estate tax and how to implement certain strategies to reduce it. But what about the Kansas estate tax?

In this guide, we will discuss the Kansas estate tax and also touch on the inheritance tax and the gift tax. We will try to make this as simple as possible. If you have a large estate you should pay close attention.

Kansas Estate Tax

What is an estate? It is really the value of all the assets a deceased person had subtracted by debts of that person and certain administrative costs.

There is a reason why the estate tax is typically referred to as the death tax. It is a tax assessed against the estate of someone who died.

Kansas does not impose an estate tax on it’s residents. It is one of 38 states that does not impose such a tax. But just because you are not assessed a tax by the state of Kansas, does not mean that you are free of tax at the federal level.

What about the federal estate tax?

So how is the federal estate tax actually calculated? In theory, it is a simple calculation. But in practice it can be a little challenging. Most of the sticky issues revolve around valuing business holdings, farms and certain real estate.

The process starts when an executor is named to administer the estate. This person is responsible for handling all the legal and tax issues. Of course, they will hire an attorney and a CPA to handle the technical work.

All assets of the decedent should be identified and properly valued. The executor can then deduct the liabilities of the estate. This would include medical bills, credit card bills, mortgages on estate assets and any personal debts. The estate can also deduct certain administrative fees like appraisal costs, tax preparation fees and estate attorney costs.

The IRS has an exemption amount of $11.7 million for 2021. If the net assets exceed this amount then an estate tax is assessed at 40%.

However, if the estate is below the exemption amount no taxes due. In fact, no tax return is even required to be filed. Sounds easy enough?

Even though the calculation is simple, there is a lot of complexity involved in estate planning. With careful planning upfront, you can often mitigate the exposure to estate tax. The sooner you get started the better.

Inheritance tax and gift tax

Fortunately, I have some good news for residents. Kansas does not levy a gift tax. The federal gift tax exemption is $15,000 annually, per recipient. If you gift someone over $15,000 in a year, you must file a gift tax return with the IRS. The excess amount over the exemption goes against your lifetime exemption.

Kansas does not assess an inheritance tax either. However, another state‚Äôs inheritance tax rules could apply if you inherit money from someone who passes away in another state. 

Kansas Tax Structure

Here are some tax rates and exemptions that you should be aware of:

  • We have already discussed the fact that Kansas does not have an estate tax, gift tax or inheritance tax.
  • The state sales tax rate is 6.5%. Many cities and counties impose their own sales tax, bring the overall rate to between 8.5% and 9%.
  • Like most states, Kansas has a progressive income tax, with tax rates ranging from 3.10% to 5.70%.
  • The state property taxes average 1.40%, making it one of the higher rates in the country.

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