South Dakota does not levy an estate tax. There is a federal estate tax, however, that will apply to South Dakotans who have estates of a certain size. This page is a guide for Mount Rushmore State residents who are looking for information about the estate tax as they plan their estates and make sure their families are ready to deal with every legal and financial step after they’re gone. A financial advisor can help make estate planning even easier. SmartAsset makes finding an advisor effortless with our free financial advisor matching service.
South Dakota Estate Tax
South Dakota has no estate tax. It is one of 38 states that does not levy an estate tax.
What Is the Estate Tax?
The estate tax applies to the estate of a person who has recently died. The estate tax is levied before the money and assets in the estate are dispersed to a person’s legally designated heirs. Sometimes called the “death tax,” the estate tax only applies to estates that are worth more than a legally determined threshold. The government levying the estate tax determines the threshold.
The inheritance tax is different from the estate tax. Inheritance tax applies to money and assets after they are passed on to a person’s heirs, who are responsible for paying the tax on their inheritance.
South Dakota Inheritance and Gift Tax
South Dakota does not have an inheritance tax. Another state’s inheritance tax may apply, however, if you receive an inheritance from someone residing in a state that does have an inheritance tax. In Pennsylvania, for instance, the inheritance tax applies to any money left by someone residing in the state, even if the inheritor does not live in the state. If someone from another state leaves you an inheritance, check local laws. The last thing you want to deal with is missing a tax payment.
There is also no gift tax in South Dakota. The federal gift tax has an annual exemption of $15,000 per gift recipient. This means that if you give one person more than $15,000 in a year, you must report the gift to the IRS. The amount over the exemption counts against your lifetime gift tax exemption of $11.18 million and reduces your federal estate tax exemption.
Federal Estate Tax
South Dakota does not have an estate tax, but the federal estate tax will apply to South Dakotans with estates of a certain value. The federal estate tax has an exemption of $11.18 million. That number, established by the 2017 tax bill, will increase to $11.40 in 2019. The exemption is portable for married couples. This means that one spouse can pass their exemption to the other, allowing the couple to protect a total of $22.36 million when they both die, provided they take the right legal maneuvers.
Estates worth more than the exemption are subject to the estate tax. The tax is progressive, with a top rate of 40%.
This is how it works: Say your estate is worth $15 million. First, subtract the exemption of $11.18 million. This leaves you with a taxable estate of $3.82 million, putting your estate in the top tax bracket. You’ll owe a base payment of $345,800 on the first $1 million. On top of that, you’ll owe 40% on the remaining $2.82 million, which comes to $1.128 million. Add those figures together and you’ll get your total tax burden, which is $1,473,800.
|FEDERAL ESTATE TAX RATES|
|Taxable Estate*||Base Taxes Paid||Marginal Rate||Rate Threshold**|
|$1 – $10,000||$0||18%||$1|
|$10,000 – $20,000||$1,800||20%||$10,000|
|$20,000 – $40,000||$3,800||22%||$20,000|
|$40,000 – $60,000||$8,200||24%||$40,000|
|$60,000 – $80,000||$13,000||26%||$60,000|
|$80,000 – $100,000||$18,200||28%||$80,000|
|$100,000 – $150,000||$23,800||30%||$100,000|
|$150,000 – $250,000||$38,800||32%||$150,000|
|$250,000 – $500,000||$70,800||34%||$250,000|
|$500,000 – $750,000||$155,800||37%||$500,000|
|$750,000 – $1 million||$248,300||39%||$750,000|
|Over $1 million||$345,800||40%||$1 million|
*The taxable estate is the total above the federal exemption of $11.18 million.
**The rate threshold is the point at which the marginal estate tax rate kicks in.
Overall South Dakota Tax Picture
South Dakota is very tax-friendly for retirees. It does not tax Social Security. The state also does not tax income from pensions or withdrawals from retirement accounts like 401(k) plans. In fact, South Dakota has no income tax, so even money you earn from a post-retirement job won’t be taxed by the state.
South Dakota’s average effective property tax rates are a bit higher than average at 1.30%. Home values tend to be low in the state, though, keeping actual costs relatively low. The state also offers a few programs for seniors to reduce property taxes. Citizens over the age of 70 with an income of less than $16,000 per year ($20,000 for multi-person households) can delay paying property taxes until they sell their house. The property tax accrues with an interest rate of 4%, but a payment won’t be due until the eventual sale of the house. Some cities also have a program that reduces property tax by between 16% and 55%. Citizens who are at least 65 and have an income of no higher than $5,575 ($7,764 for multi-person households) are eligible.
Sales tax is low in South Dakota. The statewide rate is 4.50%, and most major cities collect an additional 2%.
Estate Planning Tips
- One way to make estate planning easier is to find a financial advisor to help you through it. Find the right advisor for you with SmartAsset’s free financial advisor matching service. You answer a few questions and we match you with up to three advisors in your area. We fully vet all advisors on our platform and they are all disclosure-free.
- Forming a living trust won’t protect you against the estate tax, but it can make life easier for your family after you die by helping them avoid probate. Talk to your advisor about the possibility of using a living trust as part of your estate plan.
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