Posts Categorized: Tax

How a Community Property Trust Could Save You Money in Taxes

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

5 Financial Decisions to Consider Before December 31

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

4 Year-End Tax-Saving Strategies For 2022

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

Trusts & Taxes: What You Need To Know

People often come to us curious – or confused – about the role trusts play in saving on taxes. Given how frequently this issue comes up, here we’re going to explain the tax implications associated with different types of trusts to clarify this issue. Of course, if you need further clarification about trusts, taxes, or any other issue related to estate planning, meet with us for additional guidance.

A living trust uses your Social Security Number as its tax identifier, and this type of trust is not a separate entity from you for tax purposes. However, a living trust is a separate entity from you to avoid the court process called probate, and this is where the confusion regarding taxes often comes from. But before we explain the tax implications of a living trust, let’s first describe how a living trust works.  READ MORE

2022 Estate Planning Checkup: Is Your Estate Plan Up-To-Date?

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

Generation-Skipping Transfer Tax

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

Selling Real Estate Or A Business? Avoid Capital Gains Tax With A Charitable Remainder Trust

If you have a sale of real estate or assets coming up that will result in you owing capital gains tax, you may want to give us a call to discuss whether to set up a Charitable Remainder Trust (CRT) first. Think of it this way: would you rather pay taxes and send your hard-earned money to the government, or use that same money to provide yourself with a lifetime of income and support your favorite charity at the same time?

CRTs offer a number of benefits to everyone involved. These trusts allow you to contribute to your most beloved charities while also generating a valuable extra source of income for the beneficiaries, which can assist with retirement, paying off taxes, or being used for additional estate planning purposes. Such trusts aren’t for everyone, so call us to see if a CRT fits in with your planning goals. READ MORE

7 Last-Minute Moves To Save On Your Taxes For 2021

The American Rescue Plan’s expanded child tax credit was made fully refundable in 2021, and it was increased up to $3,600 per child through age five and up to $3,000 per child aged 6 to 17. Dependents who are 18 can qualify for $500 each. Dependents aged 19 to 24 may also be eligible, but they must be enrolled in college full-time. 

Eligible families automatically received half of the payments in advance monthly between July and December 2021 unless they opted out. When eligible parents file their taxes in 2022, they’ll get the remainder of the benefit they didn’t receive through advance monthly payments. If you did not receive the advance payments because you opted out or didn’t receive them for some other reason, you could claim the full credit when you file in April. READ MORE

When a Gift May Not Be a Gift

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

With Tax Laws in Flux: What Should Business Owners Do Now?

If you read last week’s blog titled, “House Democrats Propose Sweeping New Changes To Tax Laws That Stand To Have Major Impact On Business Taxation and Estate Planning—Part 1” or if you’ve been following the news about the coming changes, you know that none of us know what will ultimately happen – or even when we will know the final outcome.

Given that the 2017 Tax Cuts and Jobs Act was not passed until December 2017, and the same thing could happen here, with some provisions potentially impacting your taxes this year, as well as provisions that could impact decisions you’d make for next year, but those decisions must be made now, what should you do? READ MORE

With Tax Laws in Flux: What Should You Do Now?

Last week in our blog titled “House Democrats Propose Sweeping New Changes to Tax Laws That Stand To Have Major Impact on Estate Planning – Part 1,” we discussed the new bill’s proposed changes to tax rates and estate planning vehicles, including several different types of trusts.

Here, in part two, we’ll focus on what you should do now, given that the tax law is in flux and we may not have clear answers until close to the end of the year. READ MORE

House Democrats Propose Sweeping New Changes To Tax Laws That Stand To Have Major Impact On Business Taxation and Estate Planning – Part 1

On September 13, 2021, Democrats in the House of Representatives released a new $3.5 trillion proposed spending plan that includes a wide array of changes to federal tax laws. Specifically, the Democrats have proposed a number of significant tax increases and other changes to fund the plan, including increases to personal income tax rates and READ MORE

House Democrats Propose Sweeping New Changes To Tax Laws That Stand To Have Major Impact On Estate Planning – Part 1

On September 13, 2021, Democrats in the House of Representatives released a new $3.5 trillion proposed spending plan that includes a wide array of changes to federal tax laws. Specifically, the Democrats have proposed a number of significant tax increases and other changes to fund the plan, including increases to personal income tax rates and the capital gains tax rate, along with a major reduction to the federal estate and gift tax exclusion and new restrictions on Grantor Trusts that would basically eliminate such trust’s ability to be used as planning vehicles.

While the proposed legislation is still under consideration and far from being finalized, given the broad-reaching impact these changes stand to have, we strongly encourage you to take action now if you would be affected by the proposed legislation if it does pass. With the exception of capital gains rate increase, which could go into effect on transactions that occur on or after Sept. 13, 2021, most of the proposed changes would be effective after December 31, 2021, meaning that you have time to plan now.

That said, due to the time it takes to plan and execute some of the financial and estate planning actions we’d need to support you with, we suggest you start strategizing now. That way, you’ll have plenty of time to take the appropriate action before the end of the year. With that in mind, here we’ll outline how the proposed tax law changes stand to affect your financial, tax, and estate planning, so you can contact us if you would be impacted if the new bill does pass. READ MORE

Legendary Rapper DMX Dies With No Will, Millions in Debt, and 15 Children – Part 2

As we reported last week in part one, Legendary hip hop artist DMX born Earl Simmons passed away on April 9 at age 50 after suffering a massive heart attack a week earlier at his home in White Plains, New York. The heart attack was reportedly triggered by a cocaine overdose on April 2, which left the rapper hospitalized in a coma. After a week of lingering in a vegetative state, his family made the decision to remove him from life support.

Although DMX was wildly successful in both music and movies, the rap icon experienced serious legal and financial problems, along with frequent issues with drug addiction throughout his career. Having fathered 15 children with nine different women, DMX’s money issues largely stemmed from unpaid child support, but he also failed to pay income taxes, and both of these issues would land the rapper in prison and rehab on more than one occasion.

The saddest part of this whole situation is that virtually all of the conflict, expense, and trauma that DMX’s loved ones are likely to endure could have been easily prevented with straightforward estate planning. Using revocable living trusts, for example, DMX could have ensured that his children and fiancée would have immediate access to his assets upon his death or incapacity, avoiding the need for court involvement altogether and keeping the contents and terms of his estate totally private. READ MORE

4 Factors To Consider When Choosing a Business Entity – Part 2

When starting a business, you have to make a ton of different decisions. From deciding what to name your company to hire employees, getting your business off the ground comes with a nearly endless number of decisions.

Last week in part one, we discussed the first two of four leading factors to consider when selecting your entity, and here, we cover the final two.

Properly selecting, setting up, and maintaining your business entity is far too important of a task for you to try to handle all on your own. We offer you trusted advice on the most advantageous entity for your particular business and then help ensure that your entity is properly set up. We can also provide you with sound business systems to make your business more efficient and establish a clear separation between your business and personal finances, which is a crucial part of maintaining your entity’s liability protection. READ MORE