This news just in. I am now offering Deferred Sales Trusts to Minimize Capital Gains Tax Savings. Just one more great tool in the belt.
I will be posting more on this option, but one of the strengths is that Private Letter Rulings have been favorably issued on this strategy. This is always a comfort for those who wonder if the IRS will challenge in later years.
You can get an illustration for your situation on my special web page which is
http://www.mydstplan.com/savegainstax
Paula Straub
http://www.savegains.com
(760)917-0858
Friday, July 30, 2010
Thursday, July 08, 2010
News on Future Capital Gains Tax Possibilities
Found this on the Washington Wire Today. Who knows exactly what is coming down the pike!
By John D. McKinnon
Treasury Secretary Tim Geithner offered a glimmer of hope to investors who are facing huge tax increases on capital gains and dividends next January.
In a CNBC interview late Wednesday, Geithner said the Obama administration still hopes to hold the top tax rate on both capital gains and dividends to 20% next year – the level the White House has been proposing since taking office.
Of course, a 20% rate would represent a big increase over the current 15%. But it’s a lot better than the 39.6% top rate for dividends that congressional Democrats have signaled they were planning next year for higher earners.
“This is good news for people who worry about dividends, because it reinforces the administration’s commitment to 20%,” said Clint Stretch of Deloitte Tax LLP.
The tax changes are happening as the Bush-era tax cuts expire at the end of this year.
Congress currently is planning to extend most of the Bush breaks – particularly those for middle-income earners – for some period, perhaps only a year or two. But budget rules that lawmakers passed earlier this year anticipated the Bush-era breaks for higher income earners would expire immediately. That would mean the tax on dividends for higher earners would return to the pre-Bush ordinary income rate. That rate is expected to rise to 39.6% next year.
However, there are growing worries among Democrats that their plans to allow taxes to rise substantially for higher earners will create drag on the recovery, and particularly on financial markets. That appears to be opening the possibility that some of their severest tax increases will be put off, at least for a bit longer.
“There’s…real concern about what would happen in the markets” if dividend rates went as high as 39.6%,” Stretch said. Given the fragile state of the economy, lawmakers “are not in the mood to experiment with the markets.”
Ironically, another factor working in favor of higher earners is the growing public concern over deficits. That’s leading Democrats to consider the short-term extension of the Bush-era breaks for the middle class, instead of the permanent extension that everyone was discussing a year ago. If the middle-class breaks are extended for only a year or two, that could make room for higher earners to catch a few breaks, too.
By John D. McKinnon
Treasury Secretary Tim Geithner offered a glimmer of hope to investors who are facing huge tax increases on capital gains and dividends next January.
In a CNBC interview late Wednesday, Geithner said the Obama administration still hopes to hold the top tax rate on both capital gains and dividends to 20% next year – the level the White House has been proposing since taking office.
Of course, a 20% rate would represent a big increase over the current 15%. But it’s a lot better than the 39.6% top rate for dividends that congressional Democrats have signaled they were planning next year for higher earners.
“This is good news for people who worry about dividends, because it reinforces the administration’s commitment to 20%,” said Clint Stretch of Deloitte Tax LLP.
The tax changes are happening as the Bush-era tax cuts expire at the end of this year.
Congress currently is planning to extend most of the Bush breaks – particularly those for middle-income earners – for some period, perhaps only a year or two. But budget rules that lawmakers passed earlier this year anticipated the Bush-era breaks for higher income earners would expire immediately. That would mean the tax on dividends for higher earners would return to the pre-Bush ordinary income rate. That rate is expected to rise to 39.6% next year.
However, there are growing worries among Democrats that their plans to allow taxes to rise substantially for higher earners will create drag on the recovery, and particularly on financial markets. That appears to be opening the possibility that some of their severest tax increases will be put off, at least for a bit longer.
“There’s…real concern about what would happen in the markets” if dividend rates went as high as 39.6%,” Stretch said. Given the fragile state of the economy, lawmakers “are not in the mood to experiment with the markets.”
Ironically, another factor working in favor of higher earners is the growing public concern over deficits. That’s leading Democrats to consider the short-term extension of the Bush-era breaks for the middle class, instead of the permanent extension that everyone was discussing a year ago. If the middle-class breaks are extended for only a year or two, that could make room for higher earners to catch a few breaks, too.
Fear of Death is Now Not Biggest Fear
For older Americans surveyed by Allianz Life Insurance Co., death is not such a big deal. Not, that is, when it compares to the spectre of a dwindling bank account. In a poll of people between the ages of 44 and 75, 61% said that running out money was their biggest fear. The remaining 39% thought death was scarier.
With a couple of banking crises under our belts, we've become almost entirely focused on the monetary aspect of advanced age. The context is important. The poll of 3,257 people, released last month, found that a whopping 92% of respondents agreed that "the United States is facing a crisis in its retirement system," the AARP wrote about the report.
It's so well-known that the U.S. won't have enough to fund Social Security in the next several decades that most younger people are throwing up their hands in disgust and counting, instead, on their own ability to save, as well as family and community support. The younger cohort among the old folks, who may after all be farther from retirement than they'd like, have really nail-biting fears: 56% are concerned they won't be able to cover their basic living expenses once they reach retirement age.
A movement known as the "Radical Homemakers" argues that building a community safety net is so important, many of us would be better off quitting our jobs and focusing on creating a grassroots old-age support system -- building up assets of family, friendship and community ties instead of a 401(k). In addition, they advise that people build the skills to live on less -- the sorts of skills probably keenly honed in the parents of the 44- to 75-year olds that Allianz surveyed. After all, more than half of those surveyed said their net worth has tanked since the economic crisis began and many of them have already been forced to cut back.
So why is the financial crisis, and our greatly diminishing faith in financial institutions, such a big deal? Even in the golden age of lifetime employment and secure pension funds, we never placed so much of our hopes and dreams in corporations and the. Instead, we found our emotional security through religion or family or both. We might be wise to return to such comforts. While our banks may be "too big to fail," they surely do fail us, all the time; and our Social Security system's most commonly-used descriptor is "imploding." Little associations fail us too, but their impacts are more personal and don't require a deficit-doubling government bailout.
It's hard to face retirement in an age where even taxes seem uncertain and death is the only constant. It's assured, so why be afraid? Far more terrifying is the stuff leading up to it. Perhaps we would do better to spend more time focusing on our intangible assets; without a dollar-value market to go bust, they're a lot less stressful.
With a couple of banking crises under our belts, we've become almost entirely focused on the monetary aspect of advanced age. The context is important. The poll of 3,257 people, released last month, found that a whopping 92% of respondents agreed that "the United States is facing a crisis in its retirement system," the AARP wrote about the report.
It's so well-known that the U.S. won't have enough to fund Social Security in the next several decades that most younger people are throwing up their hands in disgust and counting, instead, on their own ability to save, as well as family and community support. The younger cohort among the old folks, who may after all be farther from retirement than they'd like, have really nail-biting fears: 56% are concerned they won't be able to cover their basic living expenses once they reach retirement age.
A movement known as the "Radical Homemakers" argues that building a community safety net is so important, many of us would be better off quitting our jobs and focusing on creating a grassroots old-age support system -- building up assets of family, friendship and community ties instead of a 401(k). In addition, they advise that people build the skills to live on less -- the sorts of skills probably keenly honed in the parents of the 44- to 75-year olds that Allianz surveyed. After all, more than half of those surveyed said their net worth has tanked since the economic crisis began and many of them have already been forced to cut back.
So why is the financial crisis, and our greatly diminishing faith in financial institutions, such a big deal? Even in the golden age of lifetime employment and secure pension funds, we never placed so much of our hopes and dreams in corporations and the. Instead, we found our emotional security through religion or family or both. We might be wise to return to such comforts. While our banks may be "too big to fail," they surely do fail us, all the time; and our Social Security system's most commonly-used descriptor is "imploding." Little associations fail us too, but their impacts are more personal and don't require a deficit-doubling government bailout.
It's hard to face retirement in an age where even taxes seem uncertain and death is the only constant. It's assured, so why be afraid? Far more terrifying is the stuff leading up to it. Perhaps we would do better to spend more time focusing on our intangible assets; without a dollar-value market to go bust, they're a lot less stressful.
Thursday, July 01, 2010
Reviewing CRTs and other Charitable Options
It's been quite a while since my last post and I've promised myself to do better from here on in. With all the "social media" sometimes the tasks get a bit overwhelming.
I want to do a series of posts on Charitable Remainder Trusts. This first installment is why one might decide to set one up. The second, why one might choose to sell their interest, and the third how that sale might be possible.
Why People Create CRTs
There are four main reasons
1. to diversify a highly appreciated asset, while deferring tax on the sale into the future
2. to generate a stream of income for life (or for a set term)
3. to generate an up-front income tax deduction
4. to benefit charity in the future, usually upon the death of the last grantor
Reasons 1 and 2 are closely related, because almost everyone who creates a CRT does so because they expect that the value of the resulting cash flow or income stream will be greater than the amount they could have realized from the sale of the asset. This may or may not be the case after the CRT is set up and is influenced by investment returns, tax rates, and life spans.
Reason 3 is also important. A person receives a tax deduction in the year they fund the CRT. Even if they subsequently sell their income interest, they keep the original tax deduction.
Reason 4 is actually usually quite low on the list. People who generally have high charitable motivation will often opt for a more direct means of donation and support. They may donate the entire asset to a charity and avoid tax on the sale of the asset and not require cash flow. These are people who have more than enough to live on and just want to help a particular cause. Think Bill Gates and Warren Buffet.
Whatever the reason the CRT is created, it may later turn out to be lacking on some level and the grantor may want to sell their remainder interests. The next post will give examples of what may motivate someone to sell.
Paula Straub
760-917-0858
I want to do a series of posts on Charitable Remainder Trusts. This first installment is why one might decide to set one up. The second, why one might choose to sell their interest, and the third how that sale might be possible.
Why People Create CRTs
There are four main reasons
1. to diversify a highly appreciated asset, while deferring tax on the sale into the future
2. to generate a stream of income for life (or for a set term)
3. to generate an up-front income tax deduction
4. to benefit charity in the future, usually upon the death of the last grantor
Reasons 1 and 2 are closely related, because almost everyone who creates a CRT does so because they expect that the value of the resulting cash flow or income stream will be greater than the amount they could have realized from the sale of the asset. This may or may not be the case after the CRT is set up and is influenced by investment returns, tax rates, and life spans.
Reason 3 is also important. A person receives a tax deduction in the year they fund the CRT. Even if they subsequently sell their income interest, they keep the original tax deduction.
Reason 4 is actually usually quite low on the list. People who generally have high charitable motivation will often opt for a more direct means of donation and support. They may donate the entire asset to a charity and avoid tax on the sale of the asset and not require cash flow. These are people who have more than enough to live on and just want to help a particular cause. Think Bill Gates and Warren Buffet.
Whatever the reason the CRT is created, it may later turn out to be lacking on some level and the grantor may want to sell their remainder interests. The next post will give examples of what may motivate someone to sell.
Paula Straub
760-917-0858
Monday, April 12, 2010
Tax Time Again, Bah humbug
It's that time of year again and I don't mind saying I hate it!
I've spent the last few days buried in paperwork to get my taxes filed on time. I tend to wait till the last moment because I really hate the work involved each year.
We need a simplified tax code!
Congress still has not changed the new policy for estate taxes this year and many of my clients are sweating that most of their assets are in real estate and stocks and if they were to pass away thier families would be subject to estate tax because of the non-step up in basis currently in force.
Not to mention I got my new health care rates and they went up by 16% and the benefites are decreased! These insurance companies are out of control and it seems they can run rampant until at least 2014 when the new law takes effect.
If I sound a little cranky it's because I am. This too shall pass.
Paula Straub
I've spent the last few days buried in paperwork to get my taxes filed on time. I tend to wait till the last moment because I really hate the work involved each year.
We need a simplified tax code!
Congress still has not changed the new policy for estate taxes this year and many of my clients are sweating that most of their assets are in real estate and stocks and if they were to pass away thier families would be subject to estate tax because of the non-step up in basis currently in force.
Not to mention I got my new health care rates and they went up by 16% and the benefites are decreased! These insurance companies are out of control and it seems they can run rampant until at least 2014 when the new law takes effect.
If I sound a little cranky it's because I am. This too shall pass.
Paula Straub
Thursday, April 01, 2010
Is Your Power of Attorney Powerless or Powerful?
I can't stress enough, how everyone no matter what age, should have a power of attorney in place.
This should be a durable power of attorney that covers not only your health decisions but also your financial decisions should you not be able to make them for yourself.
This can happen from a stroke, an accident, dementia, or a debilitating medical condition. Sure, it happens more often among the elderly, but can happen at any age without notice.
Many people think that as soon as you sign one you turn over decisions to someone else, but unless it is an immediate power of attorney this is not the case.
You don't need an attorney to create one, but it doesn't hurt if your situation is at all complicated. Since this is an important document, you want it to be state compliant and not have any "got-yas" you may not be aware of.
Many generated even by attorneys may have language that will come back and haunt you. It may limit what your agent can do by too much and tie their hands. Each situation is unique and should be well thought out.
It should be your wishes carried out and not those of a judge who has never met or spoken with you. This is the only choice when a power of attorney is not in place before a situation occurs when you are not able to speak for yourself.
I'm not an attorney, but I can review your documents and look for common language that may not be in your best interest. Then an attorney can modify the document to work for you and not against you.
Whether you are 20 or 90 this is one of the most important documents you will ever need.
Paula Straub
760-917-0858
This should be a durable power of attorney that covers not only your health decisions but also your financial decisions should you not be able to make them for yourself.
This can happen from a stroke, an accident, dementia, or a debilitating medical condition. Sure, it happens more often among the elderly, but can happen at any age without notice.
Many people think that as soon as you sign one you turn over decisions to someone else, but unless it is an immediate power of attorney this is not the case.
You don't need an attorney to create one, but it doesn't hurt if your situation is at all complicated. Since this is an important document, you want it to be state compliant and not have any "got-yas" you may not be aware of.
Many generated even by attorneys may have language that will come back and haunt you. It may limit what your agent can do by too much and tie their hands. Each situation is unique and should be well thought out.
It should be your wishes carried out and not those of a judge who has never met or spoken with you. This is the only choice when a power of attorney is not in place before a situation occurs when you are not able to speak for yourself.
I'm not an attorney, but I can review your documents and look for common language that may not be in your best interest. Then an attorney can modify the document to work for you and not against you.
Whether you are 20 or 90 this is one of the most important documents you will ever need.
Paula Straub
760-917-0858
Thursday, March 04, 2010
Capital Gains Tips from the IRS
It's that time of year again so here are some capital gains tips right from the IRS.
A tax tip from IRS.gov
Have you heard of capital gains and losses? If not, you may want to read up on them because they might have an impact on your tax return. The IRS wants you to know these ten facts about gains and losses and how they could affect your tax situation.
1) Almost everything you own and use for personal purposes, pleasure or investment is a capital asset.
2) When you sell a capital asset, the difference between the amount you sell it for and your basis -- which is usually what you paid for it -- is a capital gain or a capital loss.
3) You must report all capital gains.
4) You may deduct capital losses only on investment property, not on property held for personal use.
5) Capital gains and losses are classified as long-term or short-term, depending on how long you hold the property before you sell it. If you hold it more than one year, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term.
6) If you have long-term gains in excess of your long-term losses, you have a net capital gain to the extent your net long-term capital gain is more than your net short-term capital loss, if any.
7) The tax rates that apply to net capital gain are generally lower than the tax rates that apply to other income. For 2009, the maximum capital gains rate for most people is 15%. For lower-income individuals, the rate may be 0% on some or all of the net capital gain. Special types of net capital gain can be taxed at 25% or 28%.
8) If your capital losses exceed your capital gains, the excess can be deducted on your tax return and used to reduce other income, such as wages, up to an annual limit of $3,000, or $1,500 if you are married filing separately.
9) If your total net capital loss is more than the yearly limit on capital loss deductions, you can carry over the unused part to the next year and treat it as if you incurred it in that next year.
10) Capital gains and losses are reported on Schedule D, Capital Gains and Losses, and then transferred to line 13 of Form 1040.
For more information about reporting capital gains and losses, see the Schedule D instructions, Publication 550, Investment Income and Expenses or Publication 17, Your Federal Income Tax. All forms and publications are available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
A tax tip from IRS.gov
Have you heard of capital gains and losses? If not, you may want to read up on them because they might have an impact on your tax return. The IRS wants you to know these ten facts about gains and losses and how they could affect your tax situation.
1) Almost everything you own and use for personal purposes, pleasure or investment is a capital asset.
2) When you sell a capital asset, the difference between the amount you sell it for and your basis -- which is usually what you paid for it -- is a capital gain or a capital loss.
3) You must report all capital gains.
4) You may deduct capital losses only on investment property, not on property held for personal use.
5) Capital gains and losses are classified as long-term or short-term, depending on how long you hold the property before you sell it. If you hold it more than one year, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term.
6) If you have long-term gains in excess of your long-term losses, you have a net capital gain to the extent your net long-term capital gain is more than your net short-term capital loss, if any.
7) The tax rates that apply to net capital gain are generally lower than the tax rates that apply to other income. For 2009, the maximum capital gains rate for most people is 15%. For lower-income individuals, the rate may be 0% on some or all of the net capital gain. Special types of net capital gain can be taxed at 25% or 28%.
8) If your capital losses exceed your capital gains, the excess can be deducted on your tax return and used to reduce other income, such as wages, up to an annual limit of $3,000, or $1,500 if you are married filing separately.
9) If your total net capital loss is more than the yearly limit on capital loss deductions, you can carry over the unused part to the next year and treat it as if you incurred it in that next year.
10) Capital gains and losses are reported on Schedule D, Capital Gains and Losses, and then transferred to line 13 of Form 1040.
For more information about reporting capital gains and losses, see the Schedule D instructions, Publication 550, Investment Income and Expenses or Publication 17, Your Federal Income Tax. All forms and publications are available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
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