Posts Categorized: Tax

Community property trusts can save you money on taxes by adjusting, or “stepping up,” the basis of the entire property after the first spouse’s death. Basis is generally the cost or value of an account or property at the time it was originally acquired by the owner. When you and your spouse invest in property jointly – be it real estate, stocks, or other assets – it becomes community property if you live in one of the following nine states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin. However, there are five states – Alaska, Florida, Kentucky, South Dakota, and Tennessee – where community property treatment can be utilized via the creation of a community property trust, even if you do not live in one of these states or a community property state.

When married couples work with their estate planning attorneys to create these types of trusts, they can take advantage of a full step up on the property’s basis. At the death of the first spouse, the basis of the property is stepped up to the date of death value of the account or property. This is different from jointly owned property, which only receives the step up on one-half of the property – the half belonging to the deceased joint owner. A full step up in basis means the capital gains taxes are much lower if the surviving spouse wants to sell, because the value of the entire account or property has been adjusted. Community property helps couples reduce their income tax liabilities after the first spouse’s death if an account or property is sold. READ MORE

If you have investments in a taxable account (including cryptocurrency investments), you may want to consider selling off any losers to offset any gains you have made. Selling losses can help reduce your tax liability for the year if you have any capital gains. Then you can carry forward investment losses to offset capital gains in the future. 

If you are sitting with cryptocurrency losses that you haven’t recognized yet because you haven’t sold your cryptocurrency due to wanting to stay in the market for when crypto goes back up, you can have the best of both worlds. Sell your cryptocurrency now before the end of the year, and because the “wash sales” rules don’t apply to crypto tokens, you can buy the exact same tokens right back. In contrast,  with non-crypto investments, you’d have to wait 30 days to buy back into the same investment in order to harvest non-crypto losses. READ MORE

In 2022, you can contribute up to $6,000 to an IRA and up to $20,500 to a 401(k) if you’re under 50, and up to $7,000 to an IRA and $27,000 to a 401(k) for those 50 and older. If you don’t have the cash available to fund the maximum amount, try to contribute at least any amount that will be matched by your employer since that’s basically free money, and you lose it if you don’t use it.

That said, the ability to deduct your traditional IRA contributions from your taxes comes with certain limitations. These limitations are based on factors such as whether or not you or your spouse is covered by a retirement plan at work and your adjusted gross income (AGI), so make sure you know how your family is affected by these limits when taking deductions. On the other hand, Roth IRA contributions are not tax-deductible since they are made after taxes are taken out, but withdrawals from a Roth in retirement are tax-free. READ MORE

This year, Estate Planning Awareness Week runs from October 17th to 23rd, and one of our primary goals is to educate you on the vital importance of not only preparing an estate plan, but also keeping your plan up-to-date. While you almost surely understand the importance of creating an estate plan, you may not know that keeping your plan current is every bit as important as creating a plan, to begin with.

In fact, outside of not creating any estate plan at all, outdated estate plans are one of the most common estate planning mistakes we encounter. We’ll get called by the loved ones of someone who has become incapacitated or died with a plan that no longer works because it was not properly updated. Unfortunately, once something happens, it’s too late to adjust your plan, and the loved ones you leave behind will be stuck with the mess you’ve left, or they could end up in a costly and traumatic court process that can drag out for months or even years. READ MORE

The generation-skipping transfer (GST) tax is a federal tax on an individual’s transfer of property to a person at least two generations below the individual. Generally, GST tax applies to gifts made by an individual to grandchildren or descendants of the grandchildren. Gifts made by an individual to unrelated persons other than the individual’s spouse can also trigger GST tax. The recipients who would trigger GST tax are commonly known as “skip persons.” The GST tax is imposed whether the transfer occurs as a gift during the grandparent’s lifetime or at the grandparent’s death through inheritance by will or trust.

Congress first introduced the GST tax in the mid-1970s to close a loophole that allowed wealthy individuals to evade inheritance taxes by transferring property directly to grandchildren and skipping the grandchildren’s parents, which avoided estate taxes at the first generation. READ MORE

The federal tax code has particular rules about how much you are allowed to transfer to others each year – and throughout your lifetime – in the form of a gift. Any gifts above that amount may be subject to gift tax, paid by the giver. However, not every gift is subject to the gift tax. Annual exclusion amounts, a lifetime exemption amount, and other exclusions, such as education or medical exclusions, relieve a giver of paying federal gift taxes.

Because the lifetime exemption amount is very generous at this time, many people will not owe taxes on their gifts. However, high net worth individuals should be mindful of how gifting can affect the estate tax that may be due upon their death. READ MORE