When we implement estate planning with our clients in Maine, the question always comes up about the Maine gift tax. This discussion is done in conjunction with estate planning.
If you are a resident of Maine and you are considering some estate planning strategies, this article will break down how the gift tax works and address some of the laws and requirements. Let’s get going.
So what is the gift tax?
So what is the definition of a “gift” in the eyes of the IRS? A gift is when someone gives someone else something of value. In return, the individual who provided the item receives nothing of any value back. A gift can also occur when something is sold for less than fair value or at a discount.
The gift tax is a tax imposed when a gift is made over the annual allowable exemption. Gifts are usually made with cash but can also be with property, such as collectibles, real estate, business interests, mutual funds, or stocks.
What is the Maine Gift Tax?
Maine is just one just a few states that impose an estate tax. But Maine does not levy a gift tax. However, any gifts above the federal exclusion made within one year before death are included in the decedent’s estate.
Thankfully, the Maine gift tax is not something that should concern you. But don’t rest easy yet. The federal gift tax still needs to be considered.
What about the federal gift tax and exclusion?
The IRS gift rules allow someone to give away $15,000 annually. This gift or transfer can be made to an unlimited number of people, and a gift tax return does not need to be filed. It also will not be counted against the individual’s lifetime exemption.
For example, a couple with four children can give away $15,000 to each child. If the children are married, they can make the same gift to each son-in-law or daughter-in-law. If planned correctly, the couple could gift away a large portion of their estate.
Gift Tax Return Requirements (Form 709):
When gifts are made over the annual exclusion amount, Form 709 must be filed to report the transaction.
For example, let’s assume you give $25,000 to your brother. Because the gift is over the exclusion amount, the IRS considers it a taxable gift. This results in the following:
- Form 709 is filed to show the $10,000 gift amount that is over the annual exemption.
- No tax is levied unless the amount exceeds the lifetime exemption amount.
By now, you should have a basic understanding of how the federal gift tax works. Fortunately, less than 1% of Maine taxpayers are expected to have an estate tax problem.
Annual gifts are one of the first estate planning strategies to implement. Take a close look at the value of your estate and have a discussion with your CPA and estate attorney about reducing your estate.