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Estate Tax Lessons – Learn From Philip Seymour Hoffman’s Mistakes

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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 Tax Lessons – Learn From Philip Seymour Hoffman’s Mistakes

Fans around the world were stunned, shocked, and saddened to learn of Actor Philip Seymour Hoffman’s death. He has brought so many wonderful characters into our homes and hearts over the years and was continuing to do so with recent film endeavors. As devastated as fans were over his passing, it doesn’t hold a candle to what his closest friends and family felt.

The only people happy about his passing were likely to be at the IRS, which will be enjoying a windfall of nearly $15 million from Hoffman’s estate. While your estate may not have quite the $35 million worth Hoffman’s estate had, there are things you can learn from his mistakes that will help your family hang on to a much bigger portion of the estate you leave behind.

Update Your Will Frequently
At the time of his death in 2014, it had been nearly 10 years since the last time Mr. Hoffman updated his will. Two of his children were left out of the will as a result. They had not even been born when his will was last updated.

It’s true, no one wants to consider life after you’re gone, but it’s important to plan and provide for the people you love most. Updating your will ensures that no one is left out.

Marry your Partner
Whenever possible, it’s important to marry your partner. Had Hoffman and his long-time partner been married, he could have left her the entire estate without the IRS getting involved at all. You can give as much money to your spouse in life and in death, as you would like without your spouse paying taxes on that money. In this instance, it would have saved Mimi O’Donnell, his long-time partner, a cool $15 million in taxes.

Keep it Private
Establishing a revocable trust would have kept the details of Mr. Hoffman’s will private. Not only would we not be discussing it here, but no one would know the nitty gritty details of what was going on with the estate. If you value your privacy or have a spouse, partner, or children who value their privacy, it’s a small step that nets big benefits for everyone involved.

Work with an Estate Specialist
Another place where Mr. Hoffman went wrong was working with a real estate attorney to handle the details of his estate, instead of an estate specialist. It’s tempting to go with the people you know who are attorneys rather than venture out to find one who specializes. In this event, with all the taxes and tax laws involved, it’s in your best interest to work with someone who focuses on estate planning and wills rather than someone who dabbles in them.

The world has been robbed of a great presence on the silver screen. His family has been robbed of a sizable sum of money that should belong to them. Don’t let this happen with your family. Consult with your accountant today to make sure your estate plan is up-to-date and adequate to meet the needs of your family, while also protecting the privacy of all parties involved.

Filed Under: IRS

When is a “Tax Cut” not a “Tax Cut”?

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When it raises your tax bill!!

Recently, the NC General Assembly passed House Bill 998, the most significant overhaul of NC tax law in a generation, claiming they have lowered your taxes. This bill was co-sponsored by Senator Bob Rucho, a Mecklenburg County representative. However a closer look reveals that for many NC residents, especially the small business owner, and the retired, this is actually a tax hike.

While the rate of tax is lowered to 5.8% (allowing them to say, “We lowered your taxes”) under this new law, many tax deductions are eliminated, and new taxes are created which allows them to INCREASE tax revenue. Of greatest concern to NC business owners is the small business tax exemption that allowed the first $50,000 in tax to be exempt from NC taxes. For a small business owner with $50,000 in profit, this saved him or her about $3,000, a much needed break for the over-taxed business owner/employeer/entrepreneur. Now, this deduction, and many others are gone, causing the business owners State tax liability to actually INCREASE. Yup, this tax decrease may actually be an increase, unless you are a highly compensated employee, then you may save thousands.

Other deductions/tax credits that are eliminated-

Retirement income, unreimbursed job expenses, and 529 plan contributions, repeal of tax credits for child-care expenses, non-itemized charitable expenses and education expenses.

Taxes that are being increased or new taxes-

New tax on movie tickets, sporting events, concerts, plays, museums, newspapers, college meal plans, and certain service contracts.

Who will pay more tax?

Senior citizens on retirement income and small business owners will pay more under these new laws.

Who will break even?

A married couple making just $20,000 with two kids will break even.

Who will pay less tax?

A married couple making $40,000 will see a slight decrease, while a single taxpayer making $250,000 will see a tax savings  of about $4,000.

Look out for the federal government to be using the same tactics to increase revenue by eliminating tax deductions so they can make similar claims!

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

What are Consumer Operated Health Plans (CO-OPs) and How Do they Benefit Small Businesses?

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What are Consumer Operated Health Plans (CO-OPs) and How Do they Benefit Small Businesses?

Traditionally, freelance workers and small business owners have been unable to afford the high costs of health insurance. The investment was simply too high to justify the potential reward. However, as part of the health care Affordable Care Act, there are several new CO-OP (Consumer Operated and Oriented) plans being created to help generate competitive pricing among insurers and pass savings along to consumers.
What are Consumer Operate and Oriented Health Plans?
More commonly referred to as CO-OPs, these health plans have a single primary purpose, according to The Commonwealth Fund, to promote the long-term health and well-being of their customers as affordably as possible. The federal government is investing heavily in these startups in hopes of providing creative solutions to the healthcare problems throughout the country. They are investing by providing funding to help these programs get started and by also exempting them from paying federal taxes.
How Do CO-OPs Help Small Businesses?
Many small business owners want to offer benefits to their employees. They know it’s necessary in order to compete for talented employees. However, the high costs of health insurance for employees have always made the gesture impractical in the past. CO-OPs are private nonprofit health insurance companies. The fact that they aren’t “for profit” agencies means they are able to offer options traditional insurers, who have investors and boards to answer to, cannot. It helps keep the prices lower while offering more innovative and creative treatment options to the insured.
When Will CO-OP Health Insurance be Available?
HealthAffairs Health Policy Brief explains that, “Starting in October 2013, people without access to coverage through an employer, Medicaid, or the Children’s Health Insurance Program will be able to purchase health plans through health insurance exchanges for coverage taking effect in 2014.”  The brief goes on to say that while the initial law required funding for at least one CO-OP in all each of the fifty states, budgetary restraints have limited the number to the 24 CO-OPs that have already been created – for the time being.
There are many benefits to gain as a small business owner, or even a freelancer, or contract worker, for considering the benefits of a CO-OP health plan. Aside from the fact this law requires insurance coverage beginning in 2014, the peace of mind of having insurance coverage is a huge weight off the shoulders of small business owners everywhere.
To learn more about Consumer Operated Health Plans and how they can benefit your small business, we encourage you to speak to us.
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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.