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Archives for September 2013

Estate Planning in 2013

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Tax Tips  are not a substitute for legal, accounting, tax, investment or other professional advice.  Always consult with your trusted accounting advisor before acting upon any Tax Tip.

Estate Planning in 2013
Estate planning is an essential part of life, and it becomes more important with each passing year. Proper estate planning can help you minimize estate taxes, protect your assets and ensure that your property is passed on to the right people as quickly and painlessly as possible. Below are some issues to consider as you manage your estate in 2013.
Estate Taxes
As a result of recent tax changes, every individual can now pass a minimum of $5 million to heirs after death without incurring an estate tax. The IRS adjusts this amount for inflation, and the limit for deaths occurring in 2013 is $5.25 million. If your estate is larger than $5.25 million, your estate may owe up to 40 percent of its value in taxes, so keep this figure in mind as you plan for the future. For example, using irrevocable trusts, you can remove some of your property from the taxable estate in order to reduce or eliminate your estate taxes. Probate
In most states, estates with values above a certain limit must pass through a lengthy and expensive legal procedure known as probate. When assets are part of a probated estate, they won’t pass to your heirs until the process is complete. Since the probate procedure is still going strong in 2013, it’s important to plan your estate accordingly. By leaving clear instructions in your will, for example, you can expedite the probate procedure. You can also remove some assets from your probated estate by transferring them into a revocable or irrevocable trust.
Other Considerations
IRS and probate regulations are always changing, so it’s important to stay up-to-date and modify your estate plan accordingly. Consider hiring a qualified legal representative to help you manage your estate plan and ensure that it accomplishes all of your ultimate goals. Finally, make sure that the instructions you leave in your will and/or trust documents are up-to-date, clear and free of loopholes.
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TAX ADVICE DISCLAIMER: In accordance with IRS Circular 230, any tax advice included in this communication, including attachments, is not intended or written to be used, and cannot be used by you or any other person or entity, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions, nor may any such advice be used to promote, market or recommend to another party any transaction or matter addressed within this communication. If you would like such advice, please contact us.

Retirement Planning Topics for 2013

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Tax Tips  are not a substitute for legal, accounting, tax, investment or other professional advice.  Always consult with your trusted accounting advisor before acting upon any Tax Tip.

Retirement Planning Topics for 2013
In order to be competitive and attract the best possible employees, many business owners invest in retirement plans for their staff. The rules governing these plans change from one year to the next, so business owners must stay up-to-date on all of the latest retirement planning news.  Below is some important information to help business owners with retirement planning in 2013. New Contribution Limits
Most retirement plans offer certain tax benefits to employers and employees. Each year, the Internal Revenue Service publishes limits on the amount employers and their staff can contribute to various retirement plans without losing their tax benefits. For 2013, elective deferrals for 401(k) plans cannot exceed $17,500, while elective deferrals for SIMPLE IRAs cannot exceed $12,000. For SEP IRAs, employer and employee contribution totals cannot exceed $51,000. Social Security Changes
All employees must pay Social Security tax based on the amount of money they earn, and employers must pay their share as well. For 2013, the Social Security tax rate has increased to 6.2 percent. Previously, the rate was only 4.2 percent due to President Obama’s stimulus package. Unfortunately, that stimulus package recently expired, requiring employers and employees to pay more taxes on earned wages. Things to Remember
Employers should keep in mind that they can usually take tax deductions for the amount they contribute to employee retirement plans. Taking this deduction can reduce business tax liability. Employers should also remember to plan for their own retirement through investments, retirement plans and savings accounts. Finally, business owners must pay attention to the rules surrounding their retirement plans and Social Security tax obligations. Failing to make matching contributions to a 401(k) plan with automatic enrollment or failing to file quarterly payroll tax returns can result in serious penalties.
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TAX ADVICE DISCLAIMER: In accordance with IRS Circular 230, any tax advice included in this communication, including attachments, is not intended or written to be used, and cannot be used by you or any other person or entity, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions, nor may any such advice be used to promote, market or recommend to another party any transaction or matter addressed within this communication. If you would like such advice, please contact us.

Filed Under: IRS

What is the Basis for Gifted Property?

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Tax Tips  are not a substitute for legal, accounting, tax, investment or other professional advice.  Always consult with your trusted accounting advisor before acting upon any Tax Tip.

What is the Basis for Gifted Property?
Buying and selling property can be complicated for a number of reasons. One important consideration when selling real property is whether or not the sale will incur capital gains taxes. Capital gains tax is the tax which is levied by the federal government when the sale of real property results in a gain, or profit, to the seller. The capital gains tax rate depends on the income bracket of the seller and is also subject to change from time to time. In order to know what you will owe in capital gains taxes, you must know what basis to use in your calculations. If the property was gifted, you are typically required to use the donor’s basis when calculating the amount of gain realized by the sale.
As a general rule, capital gains taxes are computed by determining the basis of the property and then subtracting that from the sales price. The basis is usually the price that you originally paid for the property, although there are some adjustments that can be made to that figure. For example, if you purchased real property 20 years ago for $50,000 and recently sold it for $170,000 then your basis would be $50,000 and your gain would be $120,000. Capital gains taxes would then be figured on the $120,000 gain.
If the property was gifted to you, your basis will be the same as the donor’s adjusted basis at the time the property was gifted to you. If the donor paid any gift taxes as a result of the gift, your basis may be increased as a result. If, however, the fair market value at the time of the gift is less than the donor’s basis, then your basis will be the fair market value at the time of the gift. Because this can often result in a substantial capital gains tax obligation for the receiver of the gifted property, leaving the property as an inheritance should be considered when applicable. When property is received as an inheritance, the basis is the fair market value on the date the property is valued after the death of the decedent which is typically much higher than the decedent’s basis would have been had he or she gifted the property to you.
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TAX ADVICE DISCLAIMER: In accordance with IRS Circular 230, any tax advice included in this communication, including attachments, is not intended or written to be used, and cannot be used by you or any other person or entity, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions, nor may any such advice be used to promote, market or recommend to another party any transaction or matter addressed within this communication. If you would like such advice, please contact us.

Filed Under: IRS

How to Minimize the Possibility of a Wrongful Termination Lawsuit

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Tax Tips  are not a substitute for legal, accounting, tax, investment or other professional advice.  Always consult with your trusted accounting advisor before acting upon any Tax Tip.

How to Minimize the Possibility of a Wrongful Termination Lawsuit
As a small business owner, a wrongful termination lawsuit can quickly drain capital reserves, even if you ultimately win the lawsuit. Litigation costs along could bankrupt a fledgling business. As is often the case, the best defense is a strong offense. While there is no sure fire way to prevent the possibility of a wrongful termination lawsuit, there are steps you can take to prevent a previous employee from filing one, or at least be prepared in the event one is filed.
The term “wrongful termination” is a broad term. A statutory claim for wrongful termination can be made on the basis of one of the many federal or state anti-discrimination statutes. An employee who was employed pursuant to an employment contract can allege that the termination was in violation of the terms of the contract. Additionally, a somewhat vague “termination against public policy” argument is sometimes asserted as the basis of a wrongful termination lawsuit. Regardless of the basis of a potential wrongful termination lawsuit, taking steps before a lawsuit is even contemplated is your best defense.
Read, understand, and implement an anti-discrimination policy. Federal anti-discrimination statutes are much broader than most employers realize. Consult with your attorney if necessary to make sure that you are in compliance.
Don’t turn your “at-will” employee into a contract employee unwittingly. Most states are “at-will” states, meaning that, in theory, you do not need a reason to terminate an employee’s employment. Contracts, however, can be implied and verbal as well as express and written. Be certain that you do not verbally imply a contract between you and your employees if that is not your intention.
Negotiate a separation agreement when possible instead of an outright termination. If the employee agrees to the “separation” from employment, then it is not a “termination” for purposes of a future wrongful termination lawsuit.
Draft a well-written section in your employee handbook regarding the “at-will” nature of employment as well as a section outlining your compliance with all state and federal anti-discrimination laws. Your disciplinary procedures should also be explained at length in your employee handbook.
Document all disciplinary action taken against all employees. Allow the employee to review the summary of action taken and ask them to sign the summary. Keep these in the employee’s personnel file. Keep all personnel files at least as long as the applicable federal and state statute of limitations for wrongful termination lawsuits.
Give your employee a concrete reason for the termination. Conversely, do not offer any information to third parties regarding the reason the employee was terminated unless absolutely necessary and, even then, only if it can be easily and adequately substantiated.
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TAX ADVICE DISCLAIMER: In accordance with IRS Circular 230, any tax advice included in this communication, including attachments, is not intended or written to be used, and cannot be used by you or any other person or entity, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions, nor may any such advice be used to promote, market or recommend to another party any transaction or matter addressed within this communication. If you would like such advice, please contact us.