Category Archives: Tax

Many people make their charitable contributions at the end of the year, which is fast approaching.  Did you know that there can be even better ways to make donations than writing a check?

Appreciated assets:

One tax-efficient way to donate to a charity is to use appreciated assets.  This includes stocks, bonds, or other investments that you have held for more than a year and that have gone up in value since you bought them.  The great thing about donating these assets is that you get a charitable deduction equal to the fair market value of the asset (just like you would if you wrote a check), but you do not have to pay tax on the capital gains (like you would if you cashed in the asset in the future).

Qualified charitable distributions:

Certain individuals who are over 70 1/2 can request that the required minimum distribution from their IRA be made directly to a charity of their choice.  This can be an incredibly smart move for many people because you avoid paying any income tax on the distribution from the IRA.  So, people who do not need the income from their IRA, but must take a distribution anyway because it is required, have a great option for making their charitable donations.

If you have questions about charitable donations, including how you can include a charity in your will or trust, call our office today.  We are here to help.

This article from Forbes summarizes the extension of the IRA charitable rollover rules through 2013.  You can even still rollover some 2012 distributions, but you have to act before the end of January.

It appears that Congress has reached an agreement on the tax-side, but not the spending side, of the Fiscal Cliff situation.  Although the legislation has not been signed by the President yet, he has indicated that he will sign it.  In the agreement, Congress postponed their decision on automatic spending cuts for a short time.  Therefore, another Fiscal Cliff, albeit smaller, is on the horizon.

For our clients, the tax implications of the agreement are mostly good news.  Long-term capital gain and dividend rates will remain at 15% except for those earning more than $400-$450,000 (depending on marital status).  This is great news for anyone holding stocks, bonds or rental properties as the tax rate on the gain when you sell those investments will remain at 15%, assuming you have held them for at least a year before sale.

Perhaps the most important outcome from this agreement is its effect on estate and gift taxes.  In 2012, a person could pass up to $5.12 million by gift or inheritance, tax-free.  Any amounts over that exemption were taxed at 35%.  Absent an agreement from Congress, the exemption was set to fall to only $1 million with a 55% tax rate.  In this agreement, Congress has decided to set the exemption for both the estate tax and gift tax at $5 million with a 40% tax rate.  Additionally, this unused portion of the exemption is portable between spouses, which means the exemption is essentially doubled for a married couple to $10 million.  Best of all, the legislation makes all of the estate and gift tax laws permanent, so there is finally a little bit of certainty in this area.  The vast majority of Americans will no longer need to worry about the “death tax.”

A full summary of the provisions of the legislation, called the American Taxpayer Relief Act of 2012, is available here.

If you would like to discuss how these new laws affect you and your family, call us.  We can review your current plan or create a new plan that takes full advantage of all probate avoidance and tax minimization strategies available.

Here we are on New Year’s Eve and still no deal in Washington to avoid falling off the “Fiscal Cliff.”  You can read our post from last week to find out how the Fiscal Cliff might affect you, your estate and your family.

Unless Congress takes action today, the new year will begin with automatic spending cuts and significant tax increases.  Call our office to schedule an appointment to discuss the best way to minimize taxes and burdens on your beneficiaries.  We can help you protect your assets.

In July we posted about the major changes coming to the estate tax if Congress takes no action before the end of the year.  With only two weeks left in 2012, Congress has still not done anything to avoid the so-called “fiscal cliff.”

The fiscal cliff refers to a multitude of tax breaks all expiring at the beginning of 2013.  It also refers to automatic spending cuts that may be triggered.  Capital gain and income tax rates are set to increase.  However, one tax, which is set to change dramatically, is not getting much attention, but is critical for estate planning:  the estate tax (sometimes called the death tax or known as an inheritance tax).

Currently, the estate tax credit is $5.12 million per person.  There’s also a “portability” provision that effectively allows a married couple to double this exemption to $10.24 million.  At these levels, the vast majority of our clients can avoid estate tax issues and estate tax problems.

However, unless Congress passes a law stating otherwise, in 2013 estates worth $1 million and up will be subject to the estate tax.  In the event that no action is taken, and no new law is enacted, the exemption will drop to $1 million per individual, and the portability provisions of the estate tax will not exist.  At the new level of $1 million and without portability, there are a great number of people who need to review their current documents and planning to ensure the most tax advantageous plan.

Additionally, the top estate tax rate will go up to 55%!  This is not an error or typo – the top rate really is 55%.

While $1 million may sound like a lot of money, your estate for estate tax purposes, called the “gross estate,” includes your home, rental property, farming property and equipment, retirement accounts, life insurance, bank accounts, and everything else you own.  If you own your own business, it’s also included in your gross estate.  It does not matter if this property passes to your heirs by Will, Trust, beneficiary designation, through probate or avoiding probate.  By dropping the exemption from $5.12 million to $1 million, many people will be affected by the estate tax and will need a tax advantaged plan.

If you would like to discuss the estate tax in further detail and how you can limit the taxes on your own estate, contact our office.  We can help you protect your assets.

In 2012, credit card processors have been reporting all gross credit card transactions processed for businesses to the IRS; you will receive a form 1099-K for these gross receipts.  Your business may have received a form 1099-K from your credit card processor last year (for 2011).  This is required by tax code Section 6050W, which was designed to assist the IRS in identifying businesses not filing accurate tax returns.

Starting in January 2013, the IRS will begin imposing a 28 percent withholding penalty on all credit card transactions, if a business or firm’s taxpayer identification number (TIN or FEIN) and the legal name on each account does not exactly match with IRS records. Check your 2011 1099-K and make sure that your legal name and TIN are an exact match to that reported on the form.  If there is a discrepancy on the form, if there are abbreviations or misspellings of your name, if your business has changed names or if you are using a new fictitious corporate name, contact your credit card processor immediately.  Make sure that you are in compliance with these new IRS requirements by the end of the year to avoid the possible 28 percent withholding penalty that starts January 1, 2013.  This is your last chance to make sure that you have matched your exact legal name and your federal tax identification number with your credit card processor or 3rd party payment aggregators (such as Square or PayPal).  There is no reason to risk the 28% withholding penalty when it can be easily avoided.

This year, the gift and estate tax exemptions are $5.12 million, which means you can transfer up to $5.12 million as gifts or after you pass away, tax free.  At these current levels, relatively few people need to be concerned about the estate tax, also known as the “death tax.”

However, unless Congress takes action before the end of the year, the exemption will revert back to the lowest amount in a decade: $1 million.  Additionally, anything over $1 million will be subject to a 55% top tax rate.  Your home, bank accounts, retirement accounts, life insurance and all of your other assets are all included in your gross estate for estate tax purposes, regardless of whether the assets are held in trust, go through probate, or are jointly owned.  That means many more people may be affected by the estate tax in 2013.

If you would like to discuss the estate tax and how you can minimize the taxes on your estate, please contact us.  We can help you protect your assets.