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New gift tax sparks questions for taxpayers
As part of a campaign to educate taxpayers on confusing, challenging and emerging tax issues, the Minnesota Society of Certified Public Accountants offers important reminders related to Minnesota’s new state gift tax.
The new tax, effective July 1, 2013, and included in 2013 tax filings, collects 10 percent of a taxpayer’s cumulative lifetime gifting exceeding $1 million. Minnesota is only the second state in the country to enact a state gift tax.
All taxpayers in Minnesota should be aware of the gift tax and understand how it may affect their taxes and their financial planning. Small-business owners, property holders, or those with large life insurance policies will see a significant impact on their offerings, should they choose to pass along their assets to family or friends before their death.
Multiple aspects of Minnesota’s gift tax have created confusion about the filing process. The federal government begins collecting a gift tax from individuals after $5.34 million in cumulative gifting, a notably higher cap than in Minnesota. Minnesota estate tax was also revised to coordinate with the changes in the Minnesota gift tax, requiring beneficiaries of individuals deceased on or after Jan. 1, 2013, to report any federal taxable gifts made up to three years prior. This may cause some returns to be filed that were not required under the old law.
With tax filing season underway, the MNCPA offers the following recommendations and reminders to taxpayers:
• Keep in mind that the tax is cumulative, and will affect the total amount of gifts given over a lifetime in the state of Minnesota.
• Be aware of gift tax issues of residency, which may provide planning opportunities for properties and assets that are located outside of Minnesota.
• As with federal law, there are important exclusions to the tax:
• Gifts made to qualified charities and U.S. citizen-spouses, and direct payments made to third parties for medical or tuition costs are exempt from taxation.
• Taxpayers may also give up to $14,000 per year, per recipient, to children, friends, relatives and other individuals before the gift is considered taxable and added to their cumulative lifetime total.
• Spouses are eligible to combine their cumulative lifetime gifting totals, which may reduce the impact of the tax on their assets.
• Remember that transfers of life insurance policies are also considered taxable gifts.
• Seeking assistance from a qualified tax professional will help you plan gifting to family and friends in a way that could reduce the amount of taxes imposed on your offerings.
To comply with the state gift tax, the Minnesota Department of Revenue has introduced a gift tax return form for 2013 that must be filed electronically. The new form tracks the total amount of gifts made by individuals and must be included with the 2013 tax return filing.
A CPA can help unravel the intricacies of the new gift tax law and other complex and emerging tax-related questions.
— Information and resources from the Minnesota Certified Public Accountants organization are available to the public at www.mncpa.org/information, including tax and financial planning information for individuals and small businesses.