One of the goals when you create an estate plan at Nicole Pavlik Law Firm is protecting your inheritance from taxes. In general, you should be aware of four types of taxes when creating your Phoenix estate plan: 1) estate tax, 2) inheritance tax, 3) gift tax, and 4) income tax.
Do You Have to Pay an Estate Tax in Phoenix?
An estate tax (sometimes called a “death tax”) is a tax imposed on gross estate assets. The estate pays the tax before the personal representative distributes the estate property to the beneficiaries.
Arizona does not have an estate tax. No matter the size of your estate, Phoenix residents do not have to pay estate tax when they pass away.
However, there is a federal estate tax. It only applies to large estates valued over $12.92 million. The rate of the estate tax increases with the size of the estate. This means the higher the value of your estate, the more taxes you will have to pay.
Do You Have to Pay an Inheritance Tax in Phoenix?
An inheritance tax is a tax beneficiaries must pay on inherited assets. There is no inheritance tax in Arizona. There is also no federal inheritance tax.
In certain circumstances, Phoenix residents may have to pay an inheritance tax if they inherit property from a resident of a state that has this type of tax. As of 2023, only six states (Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania) have an inheritance tax.
Do You Have to Pay Gift Tax in Phoenix?
A gift tax is a tax on the transfer of property by one individual to another while receiving nothing or less than full value in return. Arizona has no gift tax.
There is a federal gift tax on gifts of more than $17,000 on an individual basis. This means that if you gift a person more than $17,000 in one year, you will be subject to federal gift tax. As of 2023, the lifetime federal gift tax exemption is $12.92 for individuals.
Do You Have to Pay Income Tax on Inheritance in Phoenix?
An income tax is a tax on income generated by individuals or entities. In general, inheritance does not count as taxable income for state and federal income tax purposes. Arizona has a flat 2.50 percent individual income tax rate.
However, beneficiaries of retirement accounts or income-earning assets (i.e., rental properties, stocks, bonds, etc.) will have an income tax liability. A beneficiary of a retirement account is charged income tax at their ordinary rate when they withdraw funds from the account. Beneficiaries of income-earning assets must pay Arizona and federal income tax on all earned income after they inherit the asset.
Your Phoenix Estate Planning Attorney
Nicole Pavlik is an experienced Phoenix estate planning attorney who can help protect your estate from state and federal taxes. If you have questions about estate planning and taxes, call Nicole Pavlik Law Firm today at (602) 635-6176 for a free consultation.