September 30, 2011
Some gifts are big, others are small – and the Internal Revenue Service expects you to report them all.
Or do they?
Gift giving can be an important tax planning strategy. This year, a slowing economy might lead you to help family members with upcoming fall college bills or unexpected expenses. Now – before you write the checks – is a great opportunity to get a handle on the rules.
Here are two:
* Tax returns are not always required. The person receiving your gift does not have to file a return, no matter the amount.
More good news: When you give gifts of $13,000 or less to any one person within a calendar year, you don’t have to file a return either. If you’re married, your spouse can also make gifts of $13,000 to the same or different recipients without the need to file a return.
Other non-reportable gifts include amounts you pay for anyone’s tuition or medical bills, as long as you write the checks directly to the school or health care facility. That’s true even if the cost exceeds $13,000.
* When a return is required, you may not owe gift tax. Under present tax law, up to $5 million of gifts made during your lifetime can be shielded from tax. This is in addition to the $13,000 per donee annual exclusion.
Call us about other rules that apply to your situation. We’ll be happy to discuss tax-wise strategies and help you make the most of your gift giving.
September 26, 2011
You only have to examine your paycheck to realize certain income is tax-free. For example, health insurance premiums paid by your employer are generally not includible in your income.
Do you know the tax status of other types of income? Here’s a quiz to test your knowledge.
1. You tell your son he’ll be the sole beneficiary of your estate, and that you’ve decided to give him an advance on his inheritance. You hand him a check for $10,000. He wants to know how much he’ll have to pay in taxes. What do you tell him?
Answer: Gifts, bequests, devises, and inheritances are generally not taxable to the beneficiary. Income produced from those sources is taxable to the beneficiary.
2. You withdraw $20,000 of the contributions you made to your Roth IRA over the past five years, but you’re not of retirement age. Do you have a taxable event?
Answer: Unlike traditional IRAs, distributions from Roths are first allocated to amounts you contributed to the account. To the extent the distribution is a return of your contributions, it’s not included in your income, and you can withdraw it penalty- and tax-free.
3. You purchase a piano at an auction and take it home. While cleaning it, you discover $5,000 inside. Is this money taxable to you?
Answer: Yes. Once it becomes yours, “treasure trove” property is taxable to you at fair market value.
September 23, 2011
Succession planning is very important for a family owned business. Before you sit down with your tax and legal advisors to draw up a succession plan, you should think through three key issues: who do you want to succeed you, when do you want the transition to take place, and how do you want to structure the transition?
* WHO? The question of who will succeed you in the business can be the toughest of all, largely because there is so much emotion involved. Most owners want to pass the business on to the family. But are your children willing to take on the business, and if so, are they capable of running it? Will it cause a family squabble if one or two children want to run the business, but others are not interested? Resolving these issues may take a lot of honest, open discussion with family members to discover their true feelings. If there is not an obvious family successor, other alternatives include selling the business to an outsider, promoting an existing employee to head the business while you retain ownership, or even selling the business to the employees.
* WHEN? When you make the transition depends on a number of factors, such as your age, health, retirement goals, and the readiness of a successor. Consider whether you want to maintain some involvement with the business or make a clean break. Remember, though, you should always have a contingency succession plan in case of sudden death or disability.
* HOW? How you structure the transition depends partly on the answers to the earlier questions and partly on financial considerations. Think through issues such as whether you need retirement income from the business or whether you primarily want to minimize estate taxes. Knowing your goals for the transition will make it much easier to tailor a succession plan that fits your specific situation.
For guidance in your business succession planning, give us a call.
September 19, 2011
The law lets you sell your home tax-free if you meet certain requirements. The home must have been owned and used as your principal residence for at least two of the five years prior to the sale. Couples can enjoy $500,000 of tax-free profits in a home sale, while singles qualify for up to $250,000 of tax-free gain.
To the extent possible, time home sales to meet the requirements in order to enjoy tax-free profits.
September 16, 2011
To take best advantage of the lower long-term capital gains tax rates, investments that produce capital gains should be held in taxable accounts and those that produce interest income should be held in tax-deferred accounts (like your IRA or 401(k) plan). If you put capital gain investments in tax-deferred retirement accounts, you could turn income that would be taxed at lower rates into ordinary income taxed at higher rates.
September 12, 2011
As schools get back in session, it’s a good time to check the education tax breaks for which you might qualify. First, there’s the American Opportunity Tax Credit (formerly called the Hope credit) for a percentage of qualified expenses paid during the first four years of higher education. Second, the Lifetime Learning Credit allows a deduction for a percentage of qualified expenses paid for any year the American Opportunity Credit isn’t claimed, and it even applies to job-related classes. Third, you may qualify for a deduction for interest paid on student loans. Fourth, education savings accounts allow annual nondeductible contributions for children under 18, with tax-free withdrawals for qualifying education expenses. Section 529 plans for college expenses should also be investigated.
September 6, 2011
Important tax deadlines fall on September 15. Check this list to see if any apply to you or your business:
* The third quarter installment of 2011 estimated income tax is due for individuals.
* September 15 is the filing deadline for 2010 tax returns for calendar-year corporations that received an extension of the March 15 filing deadline.
* September 15 is the filing deadline for 2010 partnership tax returns that had an extension of the April 18 filing deadline.
* The third installment of 2011 estimated tax is due for calendar-year trusts and estates.
Contact our office if you need more information or filing assistance.