We have many clients in Nevada who inquire about the Nevada gift tax. As estate planning CPAs, our job is to understand the complexity of gift taxes and offer solutions and strategies to our clients.
This post will review how federal and state gift taxes work. We will cover the laws, requirements, and limits and also offer a few compliance tips in the process.
Estate tax rules are constantly changing. In fact, there are several proposals and initiatives currently being discussed in Congress. Your CPA is the first person that you should discuss the issue with. They are in the best position to analyze what your tax impact will be. Now let’s get started.
The following table summarizes Nevada’s gift tax laws:
|Issue||Amount or Percent|
|Top federal rate||40%|
|Top Nevada Rate||N/A|
Table of contents
Tell me about the gift tax?
A gift occurs when a person makes a transfer to another person for less than fair market value. Also, it would include selling an item for less than it is worth or making an interest-free or lower-rate loan.
The gift tax is assessed when a gift is made over a specified exemption. The gift tax encompasses cash transfers property, such as mutual funds, real estate, business interests, and collectibles.
What is the Nevada Gift Tax?
Fortunately for Nevada residents, Nevada does not assess a gift tax.
State gift tax assessments are rare. Just twelve states in the U.S. impose an estate tax, and very few in fact even levy a gift tax. In many state-level situations, taxpayers can gift away their assets to avoid a state-regulated estate tax.
Annual gift tax exclusion
The IRS gift tax exclusion allows an individual to gift away an amount up to $15,000 annually. This can be made to an unlimited number of people, and there is no filing requirement or tax to be levied. It also does not count against the lifetime gift exemption.
A married couple with five children can give away $15,000 to each kid. These gifts would be $75,000 per spouse or $150,000 in total for both of them. These gifts can be made annually.
Tax Return Requirements & Rules
A Form 709 Tax Return must be filed when a gift is made above the annual exclusion.
As an example, assume you gave $25,000 to your one kid. This would be considered a “taxable” gift because it exceeds the annual gift exclusion. As a result of the gift:
- You would be required to file a gift tax return in order to report the $10,000 gift amount over the exemption.
- There would be no tax due unless you have exceeded the lifetime exemption.
How to Minimize the Nevada Gift Tax
Here are a few steps to reduce the gift tax:
- Make a detailed schedule of your assets and debts (liabilities)
Aggregating your assets and liabilities are the first step in the process. Assets include real estate, bank accounts, investment accounts and also life insurance. Liabilities include mortgages, credit cards, personal loans, etc.
- Obtain asset valuations for business holdings and real estate
Valuations are usually straightforward for many assets like mutual funds, retirement accounts, and stocks. Business holdings and real estate are a little more challenging and subjective.
- Review your asset valuations with your attorney
Just because Nevada does not impose a gift tax does not mean that there might not be a federal gift tax problem. Your attorney can discuss with you how to address these concerns.
- Take time to discuss with your CPA or tax advisor
Your accountant can calculate estate tax liabilities. Tax rates can change and estate tax exemptions at the state and federal level will go up and down.
- Set up a trust to reduce estate tax liabilities
Many trusts will limit estate tax exposure and allow for flexible funding. Using your gift tax exemption is a great way to limit overall estate tax exposure.
The good news is that the gift tax only impacts fewer than 1% of all taxpayers. But you may still have to file gift tax returns even if no tax is due.
Annual gifting is a great estate planning strategy that anyone with a large estate should use. Make sure you discuss your situation with your estate attorney or CPA to plan a strategy.