2013 MN Omnibus Tax Bill

I wanted to write and let you know the latest on the bill that has made it through both the house and the senate in Minnesota and was signed into law by Governor Dayton on May 23, 2013.  Here are the highlights as they apply to income, gift, and estate taxes.  There are a number of details that I have omitted for your sake.  My hope is that you find this dialogue useful.

INCOME TAX BRACKETS

Beginning in 2013, joint filers who have taxable income over $250,000 will be taxed at 9.85%.  It’s important to note that taxable income is not the same as your adjusted gross income.  To calculate taxable income you are allowed to deduct from your gross income, payments for state income taxes, real estate taxes, medical expenses, mortgage interest, and charity.

Originally the 2013 tax table for rates looked like this:

The current bill awaiting signature will look more like this:

GIFT AND ESTATE TAXES

As it stands, the bill will also add a gift tax, making Minnesota only the second state to have such a tax (CT is the other).  This will apply to gifts in excess of a lifetime total of $1,000,000.  The law piggybacks off the federal calculations of a taxable gift.  Meaning, you can gift up to the annual exclusion ($14,000 for 2013) without having to report that gift as taxable.  The rate of tax that will apply to gifts in excess of the $1,000,000 is 10%.

The gift tax provision will become effective on gifts made on or after 7/1/2013.  Gifts prior to that will fall under the old laws and will not be taxable.

There are also a few estate tax provisions affected by this bill.  The most significant item of change is that the taxable gifts for the three preceding years shall be included in the calculation of the taxable estate.  This provision is aimed to prohibit gifting on your deathbed for the sole purpose of reducing a taxable estate in Minnesota.