Michigan Gift Tax: Top Planning Strategies [Example]

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Paul Sundin, CPA

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Our clients in Michigan have a lot of questions about the Michigan gift tax. The goal of any CPA firm is to educate its clients and address their concerns. But more than that, to assist clients with putting an estate plan in place. 

This article will explain how the gift tax works and cover the rules and laws covering gift tax.  

What is the gift tax?

A gift is when a person gives something of value to another person. The donor either receives nothing back or something back at less than fair market value. A gift can also happen when something is sold for less than fair market value. 

The gift tax is assessed on any gift that is made more than the annual exemption. It can be made in cash or other property, such as collectibles, real estate, stocks, or even business interests.

What is the Michigan Gift Tax?

Thankfully, I have great news for the residents of Michigan. There is no Michigan gift tax.  

State-imposed gift taxes are rare. There are just 12 states in the U.S. that assess estate tax, and very few states have a gift tax. 

What about the annual gift exclusion? 

IRS gift laws allow any individual to give away $15,000 annually. The person can make this gift to many people, and you will not need to file a tax return. It does not count against the person’s lifetime exemption. 

A married couple with four children is allowed to give away $15,000 to each child. This gift would be $60,000 per person or $120,000 for the married couple in total.

Form 709: Gift Tax Return Requirements & Laws

When a gift is made over the annual exclusion, you must file IRS Form 709. 

Let’s take a look at an example. Assume you gave $25,000 to one of your kids. Because the gift is over the annual exclusion, it is considered a “taxable” gift. As a result of the transaction:

  • Form 709 must be filed to report the $10,000 that is over the exemption amount.
  • There is no tax liability unless the lifetime exemption has been exceeded.

Final Thoughts

Hopefully, you now understand how the gift tax works at both the federal level and in Michigan. Fewer than 1% of all citizens will have an estate tax problem.  

Making annual gifts below the exemption level is the first step in estate planning. If you have a significant estate problem, you should discuss the process with your CPA and estate attorney. 

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