Many of our clients in the Green Mountain State have questions about the Vermont gift tax. Not much about estate and gift planning is easy.
If you are a Vermont resident and you are doing some estate planning, this article will address how the gift tax works and consider some of the requirements and rules of how it is implemented. Let’s get started.
What is the gift tax?
A gift is made when a person gives another person something of value. In return, the person who made the gift gets nothing of value back. A gift can also happen when something is sold for less than fair market value.
The gift tax is a special tax assessed against a gift made over the annual exemption amount. Gifts can be made in cash or even with property. They can be real estate, business holdings, stocks, collectibles, or mutual funds.
What is the Vermont Gift Tax?
Vermont is surprisingly one of the few states that assess an estate tax. Vermont has a flat tax of 16% for estates valued at over $2.75 million (the exemption amount).
But the good news is that Vermont does not have a gift tax. That’s one less thing for you to worry about. But don’t forget about the federal gift tax.
Tell me about the federal gift tax and exclusion?
The federal gift rules allow a person to give away $15,000 annually. This gift can be made to any number of people, and there is no need for a tax filing to report the gift. It also does not count against the person’s lifetime exemption.
For example, a married couple with two married children can give away $15,000 to each child and the same amount to each son-in-law or daughter-in-law. This gift would be $60,000 per person or $120,000 for the married couple. If carefully planned, the married couple is allowed to give away a substantial portion of their estate.
Form 709: Gift Tax Return Requirements
When you make a gift (or gifts) that exceeds the annual exclusion, Form 709 is required to be filed to report the gift.
For example, let’s assume you give $40,000 to your sister. Because the gift exceeds the annual exclusion, it is considered a taxable gift. The following results:
- Form 709 must be filed to show the $25,000 amount over the annual exemption.
- No tax is required to be paid unless the amount exceeded the lifetime exemption amount.
By now, you should be up to speed on how the gift tax works at the IRS level and for the state of Vermont. Fortunately, less than 1% of all U.S. taxpayers will have an estate tax liability.
Making annual gifts below the exemption is one of the first steps in estate planning. If you have a significant estate, make sure you review your situation with your family and, of course, your CPA and estate attorney.