Equifax Data Breach – 7 Ways to Protect Yourself

4 10 2017

There has been quite a bit written about the Equifax data breach – why it happened; how it happened; and what you can do about it.

 

The most important thing for our clients is the what you can do about it. We’ve listed several steps you can take to help protect your credit report, as well as put some measures into place that may protect it in the future.

Read more … 





2019 Tax Changes That May Impact You

23 04 2019

There were a number of important tax developments in the first quarter of 2019, that may affect you, your family, your investments, and your livelihood, including:

  • Estimated Tax Penalty Relief
  • Employer Identification Number (EIN)
  • Electric Car Credit Declines
  • Deduction for Back Alimony
  • Qualified Business Income Deduction
  • Qualified Business Income Deduction: Calculating W-2 Wages
  • Qualified Business Income Deduction: Rental Real Estate Safe Harbor
  • Options for Those Unable to Pay the Taxman

Estimated Tax Penalty Relief

The IRS announced that it is waiving the estimated tax penalty for many taxpayers whose 2018 federal income tax withholding and estimated tax payments fell short of their total tax liability for the year. This waiver covers taxpayers whose total withholding and estimated tax payments are equal to or greater than 80 percent of their taxes owed, rather than the usual statutory percentage threshold of 90 percent. This relief expanded that initially offered by IRS; the earlier relief pertained to taxpayers who had paid 85 percent of their taxes owed. The relief was prompted by changes in the Tax Cuts and Jobs Act (TCJA; P.L. 115-97, 12/22/2017), some of the which might impact withholding (e.g., the repeal of the personal exemptions and many itemized deductions and the capping the state and local income tax deduction at $10,000). A Government Accountability Office (GAO) report estimated that nearly 30 million taxpayers could be underwithheld in 2018. IRS also provided procedures for requesting the waiver and procedures under which taxpayers who have already paid underpayment penalties but who now qualify for relief may request a refund.

For more information, view this Forbes article “IRS Expands Tax Underpayment Penalty Relief.” Then give us a call to discuss its potential impact.

Employer Identification Number (EIN)

As part of its ongoing security review, the IRS announced that, starting May 13, only individuals with tax identification numbers may request an Employer Identification Number (EIN) as the “responsible party” on the application. Individuals named as responsible party must have either a Social Security number (SSN) or an individual taxpayer identification number (ITIN). Under Code Sec. 6109(a)(1), persons are required to include taxpayer identifying numbers on returns, statements, or other documents filed with the IRS. One of the principal types of taxpayer identifying numbers is an EIN. IRS generally assigns an EIN for use by employers, sole proprietors, corporations, partnerships, nonprofit associations, trusts, estates, government agencies, certain individuals, and other business entities for tax filing and reporting purposes. A person required to furnish an EIN must apply for one with the IRS on a Form SS-4 (Application for Employer Identification Number). The new change will prohibit entities from using their own EINs to obtain additional EINs. The requirement will apply to both the paper Form SS-4 and online EIN application.

For more information, view the IRS site here; then contact us about its impact on you and your business.

Electric Car Credit Declines

IRS announced that, during the fourth quarter of 2018, General Motors (GM) reached a total of more than 200,000 sales of vehicles eligible for the plug-in electric drive motor vehicle credit under Code Sec. 30D(a). Accordingly, the credit for all new qualified plug-in electric drive motor vehicles sold by GM will begin to phase out Apr. 1, 2019. Qualifying vehicles from GM purchased for use or lease are eligible for a $7,500 credit if acquired before Apr. 1, 2019. Beginning Apr. 1, 2019, the credit will be $3,750 for GM’s eligible vehicles. Beginning Oct. 1, 2019, the credit will be reduced to $1,875. After Mar. 31, 2019, no credit will be available.

For more information, see IRS announces phase-out of credit for GM plug-in electric drive motor vehicles.

Deduction for Back Alimony

The Tax Court held that an ex-husband’s payment of alimony arrearages resulted from a contempt order by a Family Court was not a “money judgment”, and so qualified as deductible alimony. With respect to divorce instruments executed before Jan. 1, 2019, amounts received as alimony or separate maintenance payments are taxable to the recipient and deductible by the payor in the year paid. An alimony payment is one that meets the certain specific requirements, such as it must be made under a divorce or separation instrument and the payor’s obligation to make the payment must end at the death of the payee spouse. On the other hand, a money judgment is a document issued by a court stating that the creditor (or other plaintiff) has won a lawsuit and is entitled to a certain amount of money. A NY court found a taxpayer to be in contempt due to his failure to make his alimony payments and sentenced him to 150 days in jail unless he paid $225,000 to his former spouse. The taxpayer paid the $225,000 at issue and claimed an alimony deduction. The Tax Court found that the court’s order was not a money judgment, but rather a contempt order to achieve the payment of alimony arrearages which retained their character as alimony.

For more information, see the IRS’s tax treatment of alimony webpage. Then, contact us with questions about how this change may impact your taxes.

Qualified Business Income Deduction: Final Regulations

The IRS issued final Code Sec. 199A regulations for determining the amount of the deduction of up to 20% of income from a domestic business operated as a sole proprietorship or through a partnership, S corporation, trust, or estate (the qualified business income deduction). The regulations cover a wide range of topics and discuss the operational rules, including definitions, computational rules, special rules, and reporting requirements; the determination of W-2 wages and unadjusted basis immediately after acquisition of qualified property; the computation of qualified business income, qualified real estate investment trust (REIT) dividends, and qualified publicly traded partnership income; the optional aggregation of trades or businesses; the treatment of specified services trades or businesses and the trade or business of being an employee; and the rules for relevant passthrough entities, publicly traded partnerships, beneficiaries, trusts, and estates.

For more information, see IRS issues final Sec. 199A qualified business income deduction regs; Final Sec. 199A qualified business income deduction regs: Qualified business income; and Final Sec. 199A regs explain specified service trade/business and trade/business of being an employee.

Qualified Business Income Deduction: Calculating W-2 Wages

IRS provided three methods for calculating W-2 wages under Code Sec. 199A, the qualified business income deduction, for purposes of the deduction limitation based on W-2 wages and for purposes of the deduction reduction for certain specified agricultural and horticultural cooperative patrons. Under Code Sec. 199A, W-2 wages include:

  • The total amount of wages as defined in Code Sec. 3401(a) (dealing with income tax withholding);
  • The total amount of elective deferrals (within the meaning of Code Sec. 402(g)(3));
  • Compensation deferred under Code Sec. 457; and
  • The amount of designated Roth contributions.

For any taxable year, a taxpayer must calculate W-2 wages for purposes of Code Sec. 199A using one of the three methods provided by IRS. The first method (the unmodified Box method) allows for a simplified calculation, while the second and third methods (the modified Box 1 method and the tracking wages method) provide greater accuracy. The Box numbers referenced under each method refers to those on the Forms W-2 (Wage and Tax Statement).

For more information, see Rev Proc provides methods for calculating W-2 wages for Sec. 199A purposes.

Qualified Business Income Deduction: Rental Real Estate Safe Harbor

The IRS provided a safe harbor under which a rental real estate enterprise will be treated as a trade or business for purposes of the qualified business income deduction under Code Sec. 199A. That Code provision provides a deduction to non-corporate taxpayers of up to 20% of the taxpayer’s qualified business income from each of the taxpayer’s qualified trades or businesses, including those operated through a partnership, S corporation, or sole proprietorship, as well as a deduction of up to 20% of aggregate qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership income. Solely for this purpose, a rental real estate enterprise will be treated as a trade or business if:

  • Separate books and records are maintained to reflect income and expenses for each rental real estate enterprise;
  • For tax years beginning prior to Jan. 1, 2023, 250 or more hours of rental services were performed per year with respect to the rental enterprise; and
  • The taxpayer maintains contemporaneous records on the hours of all services performed; a description of all services performed; the dates on which such services were performed; and who performed the services. (This contemporaneous records requirement doesn’t apply to tax years beginning before Jan. 1, 2019).

For more information, see this Forbes article Understanding the 199A Deduction After the New IRS Final Regulations.

Options for Those Unable to Pay the Taxman

The April 15th deadline for filing 2018 income tax returns (for most taxpayers, at least; April 17 for Maine, Massachusetts and the District of Columbia) has recently passed. The IRS advised taxpayers who don’t have cash to pay the balance due on their returns, that taxpayers can avoid penalties but not interest if they can get an extension of time to pay from the IRS. However, such extensions merely postpone the day of reckoning for the period of the extension (generally, six months). The IRS outlined other ways in which financially distressed clients may be able to defer paying their income taxes, including installment agreements (a short-term 120-day payment plan and a long-term payment plan) and an offer in compromise with the IRS.

For more information, see the IRS’ information for tax payment options.





Do I need a tax extension?

4 04 2019

I’ve heard people talk about getting a tax extension, but I’m unsure why. What are the benefits? And, will I be audited if I do extend?

Here are the frequently asked questions about filing a tax extension and its answers.

Tax extension FAQ cover

Click to enlarge.

What does filing an extension do?

  • An extension is a form filed with the IRS to request additional time to file your federal tax return. The extension period is six months, which extends the due date for submitting your final returns from April 15 to Oct. 15.** In some states, filing an extension with the IRS will automatically extend the time to complete a state income tax return.
  • Filing an extension grants you additional time to submit your complete and accurate return, but you still need to estimate whether you will owe any taxes and pay that estimated balance by April 15.**
  • Extending your return allows you and your CPA more time to prepare your tax return to ensure filing of an accurate tax return. In many cases, you may still be waiting for additional information (e.g., Schedule K-1, corrected 1099s, etc.) to complete your return.

Why does my CPA suggest we extend my tax return?

  • If your CPA has recommended that you file an extension, it may be due to many reasons, such as:
  • The volume of data or complexity of certain transactions (e.g., sale of a rental property) on your return requires additional time.
  • The amount of time remaining in filing season is limited for the CPA to complete client returns by April 15** due to late arriving information.
  • Many CPAs have a “cutoff” or deadline for clients submitting their tax information so they can plan their workload to ensure all client returns and extensions are completed by April 15.**
  • Your CPA may suggest filing an extension if there are aspects of your return affected by pending guidance due to tax reform.

Am I more likely to be audited if I extend?

Extending will NOT increase your likelihood of being audited by the IRS. It is better to file an extension rather than to file a return that is incomplete or that you have not had time to review carefully before signing.

What are the primary benefits of extending my tax return?

  • It provides for additional time to file returns without penalty when you are waiting for missing information or tax documents (such as corrected 1099s). Just remember that an extension provides additional time to file, but not additional time to pay. Penalties may be assessed if sufficient payment is not remitted with the extension.
  • You may qualify for additional retirement planning opportunities or additional time to fund certain types of retirement plans (e.g., SEP IRA).
  • It is often less expensive (and easier) to file an extension rather than rushing now, then possibly needing to amend your return later.

Should I do anything differently if I am filing an extension or “going on an extension”?

No, you still should give your CPA whatever information you have as early as possible or as soon as it becomes available.

  • Expect to pay any anticipated taxes owed by April 15.** You still need to submit all available tax information to your CPA promptly so they can determine if you will have a balance due or if you can expect a refund.
  • If you are required to make quarterly estimated tax payments, your first quarter estimated tax payment is due April 15.* Your CPA may recommend that you pay the balance due for last year and your first quarter estimated tax payment for this year with your extension.
  • If you are anticipating a large refund, your CPA will likely try to get your extended return completed as soon as possible once all tax information is available. Your CPA may also want to discuss tax planning opportunities with you so that in future years, you don’t give the IRS an interest-free loan!

Is there anything I can do to avoid filing an extension if I know I am missing some information now?

If you know you will be waiting until the last minute for one or two documents, you may be able to minimize the chance of having to file an extension by providing all other available documents to your CPA as soon as you receive them. By doing so, your CPA can prepare a draft return for you to review and discuss in advance. And they may be able to add the missing piece of data or last-minute information and complete your returns by April 15.**

I heard there were changes to due dates for some tax returns. Will that effect me this year?

The due dates for certain business tax returns were changed for 2017. There have been no changes to the due dates for the 2018 tax year. The earlier due date of March 15 for partnerships/LLCs may increase the likelihood of filing your individual return by the original deadline.

Due dates and extension periods for other returns have been revised and may be discussed with us to determine if you will be affected by the changes. Give us a call at one of our five locations for an appointment.

** The federal filing deadline for 2018 returns will be April 15, 2019.




Are You a Member of the Sandwich Generation?

1 10 2018
woman and girl using tablet computer

Photo by Michael Morse on Pexels.com

If you’re currently taking care of your children and elderly parents, count yourself among those in the “Sandwich Generation.” Although it may be personally gratifying to help your parents, it can be a financial burden and affect your own estate plan. Here are some critical steps to take to better manage the situation.

Identify Key Contacts

Just like you’ve done for yourself, compile the names and addresses of professionals important to your parents’ finances and medical conditions. These may include stockbrokers, financial advisors, attorneys, CPAs, insurance agents, and physicians.

List and Value Their Assets

If you’re going to be able to manage the financial affairs of your parents, having knowledge of their assets is vital. Keep a list of their investment holdings, IRA and retirement plan accounts, and life insurance policies, including current balances and account numbers. Be sure to add in projections for Social Security benefits.

Open the Lines of Communication

Before going any further, have a frank and honest discussion with your elderly relatives, as well as other family members who may be involved, such as your siblings. Make sure you understand your parents’ wishes and explain the objectives you hope to accomplish. Understandably, they may be hesitant or too proud to accept your help initially.

Execute the Proper Documents

Assuming you can agree on how to move forward, develop a plan incorporating several legal documents. If your parents have already created one or more of these documents, they may need to be revised or coordinated with new ones. Some elements commonly included in an estate plan are:

Wills. Your parents’ will control the disposition of their possessions, such as cars, and tie up other loose ends. (Of course, jointly owned property with rights of survivorship automatically pass to the survivor.) Notably, a will also establishes the executor of your parents’ estates. If you’re the one providing financial assistance, you may be the optimal choice.

Living trusts. A living trust can supplement a will by providing for the disposition of selected assets. Unlike a will, a living trust doesn’t have to go through probate; so, it might save time and money while avoiding public disclosure.

Powers of attorney for health and finances. These documents authorize someone to legally act on behalf of another person. With a durable power of attorney, the most common version, the authorization continues after the person is disabled. This enables you to better handle your parents’ affairs.

Living wills or advance medical directives. These documents provide guidance for end-of-life decisions. Make sure that your parents’ physicians have copies; so, they can act according to their wishes.

Beneficiary designations. Undoubtedly, your parents have completed beneficiary designations for retirement plans, IRAs and life insurance policies. These designations supersede references in a will, so it’s important to keep them up to date.

Spread the Wealth

If you decide the best approach for helping your parents is to give them monetary gifts, it’s relatively easy to avoid gift tax liability. Under the annual gift tax exclusion, you can give each recipient up to $15,000 (for 2018) without paying any gift tax. Plus, payments to medical providers aren’t considered gifts; so, you may make such payments on your parents’ behalf without using any of your annual exclusion or lifetime exemption amount.

Mind your Needs

If you’re part of the Sandwich Generation, you already have a lot on your plate. But don’t overlook your own financial needs. Contact us to discuss the matter further.





Fourth Quarter Tax Calendar

1 10 2018
abundance agriculture close up farming

Photo by Tim Mossholder on Pexels.com

October 15 — Personal federal income tax returns that received an automatic six-month extension must be filed today and any tax, interest and penalties due must be paid.

  • The Financial Crimes Enforcement Network (FinCEN) Report 114, “Report of Foreign Bank and Financial Accounts” (FBAR), must be filed by today, if not filed already, for offshore bank account reporting. (This report received an automatic extension to today if not filed by the original due date of April 17.)
  • If a six-month extension was obtained, calendar-year C corporations should file their 2017 Form 1120 by this date.
  • If the monthly deposit rule applies, employers must deposit the tax for payments in September for Social Security, Medicare, withheld income tax and nonpayroll withholding.

October 31 — The third quarter Form 941 (“Employer’s Quarterly Federal Tax Return”) is due today and any undeposited tax must be deposited. (If your tax liability is less than $2,500, you can pay it in full with a timely filed return.) If you deposited the tax for the quarter in full and on time, you have until November 13 to file the return.

  • If you have employees, a federal unemployment tax (FUTA) deposit is due if the FUTA liability through September exceeds $500.

November 15 — If the monthly deposit rule applies, employers must deposit the tax for payments in October for Social Security, Medicare, withheld income tax, and nonpayroll withholding.

December 17 — Calendar-year corporations must deposit the fourth installment of estimated income tax for 2018.

  • If the monthly deposit rule applies, employers must deposit the tax for payments in November for Social Security, Medicare, withheld income tax, and nonpayroll withholding.




Sales Tax and Remote Sellers

1 10 2018
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The U.S. Supreme Court’s June 21, 2018, ruling in Wayfair concluded that states can impose sales tax-collecting requirements on out-of-state retailers, even those that do NOT have a physical presence in the state.  The court addressed South Dakota’s direct challenge to Quill, the 1992 decision that established the physical presence test for sales and use tax nexus.  That decision predated the surge of online sales, and since then states have been looking to find constitutional ways to collect tax revenue from remote sellers.

It should be noted that physical presence nexus has not gone away.  It still applies regardless of any new thresholds.  What has changed is that physical presence is no longer required for the collection of sales tax as long as certain thresholds are met.

Indiana’s existing “economic nexus” law, effective July 1, 2017, is found at IC 6-2.5-2-1(c), and provides that a retail merchant that does not have a physical presence in Indiana shall collect the gross retail tax on a retail transaction made in Indiana if certain threshold requirements are met.  Because of the ruling in Wayfair, the Indiana Department of Revenue will begin enforcing Indiana’s nexus law on October 1, 2018 on a prospective basis.

Indiana law requires a seller without a physical presence in Indiana to obtain a registered retail merchant’s certificate and to collect and remit applicable sales tax if it meets either or both of the following conditions in the previous calendar year or the current calendar year:

  • Gross revenue from sales into Indiana exceeds $100,000 or
  • There are 200 or more separate transactions into Indiana (probably measured by invoices).

Indiana remote sellers may also be responsible for sales tax collection in other states as well, even though they may have no physical presence in that state. Each state could have different thresholds as well which would need to be researched if this applies to you.

Remote sellers seeking to comply with the laws of multiple states (including Indiana) should register with the Streamlined Sales Tax Registration system.  Remote sellers seeking to comply with only Indiana’s economic nexus law should register through the online portal, INBiz.

The Indiana Department of Revenue will continue to be a resource for both out-of-state and in-state merchants.  In addition, the department will continue to provide further updates online.  Interested parties may subscribe to receive email updates as more information is provided on the website.

You can also call us at 812-663-7567 or 800-676-7567 for assistance.





Time to Plan for the New Tax Reform Law

12 09 2018

The new tax reform law which was enacted on December 22, 2017, and commonly called the “Tax Cuts and Jobs Act” (TCJA), is the biggest federal tax law overhaul in 31 years.  Nearly everything in the TCJA went into effect on January 1, 2018.  It has both good and bad news for taxpayers.

Now, many months later, we are just beginning to get guidance from the IRS regarding various aspects of the new law.  Hopefully this will continue. Some technical corrections from Congress are also needed.

Attached below are highlights of some of the most significant changes affecting individual and businesses taxpayers.  Except where noted, these changes are effective for tax years beginning after December 31, 2017.

Remember that this is just a brief overview of some of the most significant provisions of the TCJA.  There are additional rules and limits that apply as well as additional provisions.

If you have any questions regarding how this new tax law may affect you and/or your business, please do not hesitate to contact us.  Or, better yet, we could prepare a tax projection for you for 2018 using the tax law changes and new tax rates.  This would be an opportunity for you to do some tax planning for 2018 and future years.

It would also be a good time to look into whether federal tax withholdings should be adjusted on your paychecks. There is a Withholding Calculator on the IRS website that can be used to do a “paycheck checkup” to see if too little or too much tax is being withheld from your wages. We can also assist you with that computation. Any changes to be made would require submitting a new Form W-4 to your employer.

We can be reached at 812-663-7567 or 800-676-7567.  We look forward to hearing from you.

 

Highlights of the Tax Cuts and Jobs Act

 

Individuals

  • Drops of individual income tax rates ranging from 0 to 4 percentage points (depending on the bracket) to 10%, 12%, 22%, 24%, 32%, 35% and 37% – through 2025
  • Near doubling the standard deduction to $24,000 (married couples filing jointly), $18,000 (heads of households), and $12,000 (singles and married couples filing separately) – through 2025
  • Elimination of personal exemptions – through 2025
  • Doubling of the child tax credit to $2,000 and other modifications intended to help more taxpayers benefit from the credit – through 2025
  • Elimination of the individual mandate under the Affordable Care Act requiring taxpayers not covered by a qualifying health plan to pay a penalty – effective for months beginning after December 31, 2018
  • Reduction of the adjusted gross income (AGI) threshold for the medical expense deduction to 7.5% for regular and AMT purposes – for 2017 and 2018
  • New $10,000 limit on the deduction for state and local taxes (on a combined basis for property and income taxes; $5,000 for separate filers) – through 2025
  • Reduction of the mortgage debt limit for the home mortgage interest deduction to $750,000 ($375,000 for separate filers), with certain exceptions – through 2025
  • Elimination of the deduction for interest on home equity debt – through 2025
  • Elimination of the personal casualty and theft loss deduction (with an exception for federally declared disasters) – through 2025
  • Elimination of miscellaneous itemized deductions subject to the 2% floor ( such as certain investment expenses, professional fees and unreimbursed employee business expenses) – through 2025
  • Elimination of the AGI-based reduction of certain itemized deductions – through 2025
  • Elimination of the moving expense deduction (with an exception for members of the military in certain circumstances) – through 2025
  • Expansion of tax-free Section 529 plan distributions to include those used to pay qualifying elementary and secondary school expenses, up to $10,000 per student per tax year
  • AMT exemption increase, to $109,400 for joint filers, $70,300 for singles and heads of households, and $54,700 for separate filers – through 2025
  • Doubling of the gift and estate tax exemptions, to $10 million (expected to be $11.2 million for 2018 with inflation indexing) – through 2025
  • For children who have unearned income and are subject to the kiddie tax, they must file their own tax return and income will be taxed at trust rates.

Businesses

  • Replacement of graduated corporate tax rates ranging from15% to 35% with a flat corporate rate of 21%
  • Repeal of the 20% corporate AMT
  • New 20% qualified business income deduction for owners of flow-through entities (such as partnerships, limited liability companies and S corporations) and sole proprietorships – through 2025
  • Doubling of bonus depreciation to 100% and expansion of qualified assets to include used assets – effective for assets acquired and placed in service after September 27, 2017, and before January 1, 2023
  • Doubling of the Section 179 expensing limit to $1 million and an increase of the expensing phaseout threshold to $2.5 million
  • Other enhancements to depreciation-related deductions
  • New disallowance of deductions for net interest expense in excess of 30% of the business’s adjusted taxable income (exceptions apply)
  • New limits on net operating loss (NOL) deductions
  • Elimination of the Section 199 deduction, also commonly referred to as the domestic production activities deduction or manufacturers’ deduction – effective for tax years beginning after December 31, 2017, for noncorporate taxpayers and for tax years beginning after December 31, 2018 for C corporation taxpayers.
  • New rule limiting like-kind exchanges to real property that is not held primarily for sale
  • New tax credit for employer-paid family and medical leave – through 2019
  • New limitations on excessive employee compensation
  • New limitations on deductions for employee fringe benefits, such as entertainment and, in certain circumstances, meals and transportation
  • Taxpayers whose average annual gross receipts for the three prior years are less than $25million may now use the cash method of accounting
  • The uniform capitalization rules of Section 263A for inventory are no longer required for businesses under the $25 million threshold referred to above.




Assessing Your Exposure to the Estate Tax and Gift Tax

29 08 2018

When Congress was debating tax law reform last year, there was talk of repealing the federal estate and gift taxes. As it turned out, rumors of their demise were highly exaggerated. Both still exist and every taxpayer with a high degree of wealth shouldn’t let either take their heirs by surprise.

Exclusions and Exemptions

For 2018, the lifetime gift and estate tax exemption is $11.18 million per taxpayer. (The exemption is annually indexed for inflation.) If your estate doesn’t exceed your available exemption at your death, no federal estate tax will be due.

Any gift tax exemption you use during life does reduce the amount of estate tax exemption available at your death. But not every gift you make will use up part of your lifetime exemption. For example:

  • Gifts to your U.S. citizen spouse are tax-free under the marital deduction, as are transfers at death (bequests).
  • Gifts and bequests to qualified charities aren’t subject to gift and estate taxes.
  • Payments of another person’s health care or tuition expenses aren’t subject to gift tax if paid directly to the provider.
  • Each year you can make gifts up to the annual exclusion amount ($15,000 per recipient for 2018) tax-free without using up any of your lifetime exemption.

It’s important to be aware of these exceptions as you pass along wealth to your loved ones.

A Simple Projection

Here’s a simplified way to help project your estate tax exposure. Take the value of your estate, net of any debts. Also, subtract any assets that will pass to charity on your death.

Then, if you’re married and your spouse is a U.S. citizen, subtract any assets you’ll pass to him or her. (But keep in mind that there could be estate tax exposure on your surviving spouse’s death, depending on the size of his or her estate.) The net number represents your taxable estate.

You can then apply the exemption amount you expect to have available at death. Remember, any gift tax exemption amount you use during your life must be subtracted. But if your spouse predeceases you, then his or her unused estate tax exemption, if any, may be added to yours (provided the applicable requirements are met).

If your taxable estate is equal to or less than your available estate tax exemption, no federal estate tax will be due at your death. But if your taxable estate exceeds this amount, the excess will be subject to federal estate tax.

Be aware that many states impose estate tax at a lower threshold than the federal government does. So, you could have state estate tax exposure even if you don’t need to worry about federal estate tax.

Strategies to Consider

If you’re not sure whether you’re at risk for the estate tax, or if you’d like to learn about gift and estate planning strategies to reduce your potential liability, please contact us.