Tuesday, March 08, 2011

Alternative Minimum Tax Facts

Six Facts the IRS Wants You to Know about the Alternative Minimum Tax

The Alternative Minimum Tax attempts to ensure that anyone who benefits from certain tax advantages pays at least a minimum amount of tax. The AMT provides an alternative set of rules for calculating your income tax. In general, these rules should determine the minimum amount of tax that someone with your income should be required to pay. If your regular tax falls below this minimum, you have to make up the difference by paying alternative minimum tax.

Here are six facts the Internal Revenue Service wants you to know about the AMT and changes for 2010.

1. Tax laws provide tax benefits for certain kinds of income and allow special deductions and credits for certain expenses. These benefits can drastically reduce some taxpayers’ tax obligations. Congress created the AMT in 1969, targeting higher-income taxpayers who could claim so many deductions they owed little or no income tax.

2. Because the AMT is not indexed for inflation, a growing number of middle-income taxpayers are discovering they are subject to the AMT.

3. You may have to pay the AMT if your taxable income for regular tax purposes plus any adjustments and preference items that apply to you are more than the AMT exemption amount.

4. The AMT exemption amounts are set by law for each filing status.

5. For tax year 2010, Congress raised the AMT exemption amounts to the following levels:

• $72,450 for a married couple filing a joint return and qualifying widows and widowers;

• $47,450 for singles and heads of household;

• $36,225 for a married person filing separately.

6. The minimum AMT exemption amount for a child whose unearned income is taxed at the parents' tax rate has increased to $6,700 for 2010.

Use the IRS AMT Assistant to determine whether you may be subject to the AMT. Taxpayers can find more information about the Alternative Minimum Tax and how it impacts them by accessing IRS Form 6251, Alternative Minimum Tax —Individuals, and its instructions at http://www.irs.gov or by calling 800-TAX-FORM (800-829-3676).

Wednesday, February 09, 2011

Posting Some Humorous Sayings I Came Across

These are just some fun sayings for a quick smile. Sometimes we just need that!

○ Do not argue with an idiot. He will drag you down to his level and beat you with experience.

○ Going to church doesn't make you a Christian any more than standing in a garage makes you a car.

○ "Knowledge" is knowing a tomato is a fruit - whereas "Wisdom" is not putting it in a fruit salad.

○ Evening news is where they begin with "Good Evening" - and then proceed to tell you why it isn't.

○ To steal ideas from one person is plagiarism. To steal from many is research.

○ A bus station is where a bus stops. A train station is where a train stops. My desk is a work station.

○ How is it one careless match can start a forest fire, but it takes a whole box to start a campfire?

○ Dolphins are so smart, that within a few weeks of captivity they can train people to stand on the edge of the pool and throw them fish.

○ I thought I wanted a career; turns out I just wanted a paycheck.

○ I saw a well endowed woman wearing a sweat shirt with the word "Guess" printed on it. So I said "implants?"

○ Why is it that someone will believe you when you say there are four billion stars in the sky - but must touch the wall when you say the paint is wet?

○ Behind every successful man is his woman. Behind the fall of a successful man is usually another woman.

○ You do not need a parachute to sky dive. You only need a parachute to sky dive again.

○ A clear conscience is usually the sign of a bad memory.

○ Some people cause happiness wherever they go - while others cause happiness whenever they go.

○ I always take life with a grain of salt . . . plus a slice of lemon and a shot of tequila.

○ A bus is a vehicle that seems to move twice as fast when you are trying to catch it - than when you are actually riding in it.

Wednesday, December 22, 2010

New 2011 Estate Tax Law Summary

Here's a good summary of the new laws concerning the estate tax and planning opportunities over the next couple of years.

By Julius Giarmarco December 21, 2010

On December 17, 2010, President Obama signed into law H.R. 4853, The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. This two-year tax extenders bill makes significant changes to the gift, estate and generation skipping transfer tax (GST).

Exemption and rate

For 2011 and 2012, H.R. 4853 sets the gift, estate and GST exemption at $5 million per person and $10 million per couple, with a tax rate of 35 percent. Thus, the estate, gift and GST exemptions are unified again for two years. The $5 million exemption amount is indexed for inflation beginning in 2012. But remember that these changes are for only two years. On January 1, 2013, unless Congress acts again, the gift, estate and GST tax exemption will be $1 million (adjusted for inflation) with a top tax rate of 55 percent.

Optional retroactivity for 2010 decedents

Estates of persons who died in 2010 will have the option of electing no estate tax with a modified carryover basis — i.e., a limited step-up in basis of $1.3 million, plus $3 million for property passing to a spouse — or a $5 million exemption with a complete step-up in basis. Any election would be revocable only with the consent of the IRS.

Gifts and generation skipping transfers

For 2010, the gift tax exemption remains at $1 million with a tax rate of 35 percent, and the GST exemption is $5 million with a 0 percent GST tax rate. For 2011 and 2012, the gift and GST tax exemption is $5 million per person and $10 million per couple, with a top rate of 35 percent. Since it's possible that in 2013, the estate, gift and GST exemptions might drop to $1 million (as adjusted for inflation) with a top rate of 55 percent, persons with large estates should consider using their $5 million gift and GST tax exemptions in 2011 or 2012.

H.R. 4853 clarifies that direct skips to trusts for grandchildren in 2010 will not result in the GST tax applying when distributions are made from the trust to the grandchild in later years. Therefore, it is possible (before year end) for a grandparent to transfer significant funds in trust for grandchildren, pay only a 35 percent gift tax and defer any estate tax until the grandchild's death. In any other year, the grandparent would have to pay GST tax of 35 percent in addition to the 35 percent gift tax. On the gift tax return reporting the 2010 transfer, the grandparent must opt out of the automatic GST allocation rules.

1) the deceased spouse's unused exemption is not indexed for inflation;
2) the unused exemption from the first deceased spouse will be lost if the surviving spouse remarries and survives his/her next spouse;
3) the growth in the assets in the credit shelter trust are removed from the surviving spouse's estate;
4) there is no portability of the GST exemption; and
5) the credit shelter trust allows the deceased spouse to make certain that the assets in the credit shelter trust are managed and distributed according to his/her wishes (and not those of the surviving spouse).

Portability of estate tax exemptions between spouses

For persons dying in 2011 or 2012, the executor of the estate may transfer any unused estate tax exemption to a surviving spouse — on a timely filed estate tax return. However, to prohibit "serial" marriages, only the most recent deceased spouse's unused exemption may be transferred by the surviving spouse.

Despite the relative simplicity of portability, there are several reasons for still using credit shelter trusts at the first spouse's death, including:

1) the deceased spouse's unused exemption is not indexed for inflation;
2) the unused exemption from the first deceased spouse will be lost if the surviving spouse remarries and survives his/her next spouse;
3) the growth in the assets in the credit shelter trust are removed from the surviving spouse's estate;
4) there is no portability of the GST exemption; and
5) the credit shelter trust allows the deceased spouse to make certain that the assets in the credit shelter trust are managed and distributed according to his/her wishes (and not those of the surviving spouse).

Planning opportunities

The ability to gift $5 million — $10 million for a married couple — without having to pay a gift tax will allow high-net-worth individuals to put a huge dent in their estate tax bill. For example, a gift of $10 million by a married grantor to an intentionally defective irrevocable trust (IDIT) will permit a sale of $90 million dollars of assets to the IDIT at current historically low interest rates. Further estate tax reduction occurs because the grantor is now paying income taxes on the income generated by the entire $100 million in the IDIT.

Moreover, if the assets gifted and sold to the IDIT can be discounted — for lack of control and lack of marketability — the value that can be transferred via the IDIT is further expanded. Finally, further leverage of the gift and GST tax exemption can be accomplished by having the IDIT use a portion of its cash flow to purchase life insurance on the life of the grantor or the joint lives of the grantor and his/her spouse.

With every new tax law comes challenges and opportunities. The 2010 Tax Act offers plenty of both.

Paula Straub

Tuesday, December 07, 2010

Looks Like We Are Getting A Reprieve

Looks like we will get a reprieve from capital gains tax increases for the next couple of years.

Why this couldn't have been decided months ago I have no idea. Makes no sense to raise taxes until we get this economy back on track.

Here are some of the highlights- but nothing has been passed just yet. I believe it will happen very soon.

Individual tax rates: The agreement would extend the Bush-era tax rates for two years for all taxpayers. Current rates would remain in place, with a top rate of 35%.

Capital gains: Current rates would be extended, and the top rate on long-term capital gains would remain at its historic low of 15% for two years. The rate applies to gains on assets held longer than a year.

Dividends: Current rates would be extended, and the top rate for qualified dividends—those on most stocks held longer than two months—would remain 15% for two years.
Payroll tax: The agreement calls for a two-percentage-point cut in the employee's portion of payroll (FICA) taxes, just for 2011. The change would make the tax 4.2% instead of 6.2% on the first $106,800 of wages per worker, according to the nonpartisan Tax Policy Center. No phase-in or phase-out or other limit was specified by the White House document, so the maximum a working couple could pocket is $4,272—$2,136 per individual wage-earner.

Alternative minimum tax: A two-year "patch," for 2010 and 2011, would keep the AMT exemption at or near current levels. Without the patch, 21 million additional taxpayers would owe AMT for 2010.

Estate and gift tax: No language on the estate or gift tax appeared in the document released by the White House, but a source familiar with the framework said it includes an estate-tax provision for 2011 and 2012 that has a top rate of 35% and an exemption of $5 million per individual.

Stay tuned for more info over the next week or two.

Paula Straub

Tuesday, November 30, 2010

Still Waiting for Capital Gains Changes for 2011

Well, it's almost December and we still are waiting to find out what is going to happen to the capital gains tax rates and Estate Tax rate for next year.

I really thought earlier in the year we would get notification that the estate tax rates reverted back to 2009 but no such luck.

It's great if you are rich and die with cash type assets to pass on estate tax free to your heirs in 2010 but you have a whole other ball of wax to deal with if you are rich in stocks and real estate which have capital gains tax consequences.

I have been lax in posting because Congress is waiting until the last possible minute to inform us of what to expect in the New Year.

I am rooting for the Bush tax cuts to be extended for at least two years to let things with this economy settle down and give us the ability to plan accordingly.

I do believe in the next 30 days we will find some common ground so until then, I wait with everyone else with fingers crossed.

The good news is that I am seeing some capital freeing up for business purchases. I hope this is a trend that will continue for real estate because it's been a long time coming!

Paula Straub

Wednesday, September 22, 2010

Nightmares for Heirs of Descedents from 2010

This year's estate planning rules are really messing a lot of family's up. There is still the question if the unusual rules for 2010 only will remain in effect or if legislators will do something before the end of the year and make it retroactive to Jan 1, 2010. This is causing a lot of lawyers to freeze estates of those who have passed away this year because they don't want to do something that can't be reversed. The following is an exerpt from a Financial Advisor article that shows that even the IRS has not issued the forms required to file an estate tax return. You would think someone whould have been all over this by now but it is just one more way our government is dropping the ball. They should be ashamed.

"The prospect of a retroactive estate tax also plays into how quickly people are collecting on bequests. The worry is that lawmakers could levy such a tax, going back to the start of the year. In that case, a beneficiary who had already taken an inheritance tax-free might owe tax after all.

This possibility grows slimmer each day, but worries about it carry enough weight to have prompted some advisers to freeze wills until the end of the year.

Lauren Y. Detzel, chairman of the estate and succession-planning department at Dean, Mead, Egerton, Bloodworth, Capouano & Bozarth in Orlando, Fla., said a big concern are new income-tax rules to figure the value of inherited items. The task is to find the cost basis of an item for tax purposes, used to figure capital gains once the item is ultimately sold.

Under usual rules, the basis for heirs is what the asset was worth when the person died. For items inherited this year, though, heirs must "carry over" the basis, valuing the asset at its original cost.

When the estate tax lapsed, a new requirement was made for estates with non-cash assets over $1.3 million to notify the Internal Revenue Service of basis adjustments. The statute lists information that must be contained in the report but also refers to IRS regulations that haven't yet been issued.

Duncan E. Osborne, a partner at Osborne, Helman, Knebel & Deleery, said the newly required tax return hasn't even been issued yet. With the possibility the law may change and no clear knowledge of what tax filings need to be done, it is very difficult for attorneys to close an estate, he said.

The Deferred Sales TrustTM may solve some of these issues. If you have a large amount of property in your estate you wish to pass to heirs on a tax preferred basis go to Deferred Sales TrustTM Info and find out what you need to do to prepare.

Tuesday, September 07, 2010

Reminder about 2010 Estate Tax/Capital Gains Tax Rule Changes

As you probably know, there is no estate tax due for people who die in 2010. All year, we have been expecting the estate tax laws to be updated (and possibly imposed retroactively to January 1, 2010) but that has not happened. Further, it now appears that there will be no changes for 2010 and that people who die this year will not owe any estate taxes (or more accurately, their estate won't owe any estate taxes.)

However, that doesn't mean that large estates get a "free pass" this year. Things might even be more complicated. That is because a "carryover basis" rule is in effect this year. In previous years, people inheriting property enjoyed a "step up" in basis. That is, the basis of the property they inherited was generally the value of the property when the previous owner died. In 2010 however, people inheriting property also inherit the decedent's tax basis. This means that if you are inheriting property this year, you have to hope the decedent kept very detailed records.

The executor administering the estate can, however, increase the basis of the assets by $1.3M plus any expiring loss carryforwards and the amount by which any asset is worth less than its original cost. The practical implication of this $1.3M is that any estate with untaxed appreciation of up to $1.3M will escape tax free. However, the executor is responsible for designating those assets that will receive the $1.3M. If he or she doesn't pick the assets you inherited, you could find yourself owing taxes upon the sale of the inherited property. However, the good news is that the gains will be taxed at capital gains tax rates.

It is important to note that assets that pass to a surviving spouse are entitled to another $3M in untaxed apprection so it is still possible to shelter as much as $4.3M in appreciation. If you are the executor of an estate for someone who died in 2010, be sure to seek the assistance of a CPA because the rules can be very complicated and you don't want to make a costly error. And if you inherit assets from someone who died in 2010 be sure you know the basis of the asset and if you might owe capital gains taxes be careful to time the sale to minimize any taxes.

The Deferred Sales Trust can really help in this planning process. Go to http://www.mydstplan.com/savegainstax for more info