Major Family Gifting Faces Headwind if Obama’s Budget Proposal Passes
On February 13th, the Obama Administration released its fiscal year 2013 budget, including various estate tax proposals that, starting in 2013, would result in:
- Reducing the lifetime gift exemption back to $1M (the 2009 level)
- Reducing the overall estate tax exemption to $3.5M (the 2009 level)
- Increasing the top estate tax rate back to 45% (the 2009 level)
- Making the trust assets in the IDGTs (Intentionally Defective Grantor Trusts) includible in the grantor’s estate
- Modifying the rules on valuation discounts
- Requiring a minimum 10-year term on GRATs (Grantor Retained Annuity Trusts)
- Making permanent the portability (carryover) of unused estate tax exemption amounts between spouses.
- Limiting the duration of the GST exemption to 90 years
Among the Administration’s various proposals on estate tax law changes, the most damaging one is the proposed reduction of the Continue reading »
Need cash? Don’t borrow from the IRS!
Many businesses and individuals are experiencing cash flow difficulties in today’s economy. To ease the cash crunch, it may be tempting to delay payment of taxes in the hope that finances will improve soon. Unlike other creditors, the IRS moves relatively slowly, lulling the taxpayer into complacency. During this time, interest and penalties accrue which, in some situations, can even exceed the original tax due. When the IRS decides to act, they often file liens, levies, and other garnishments that can cause significant and sometimes permanent economic damage. In addition to these civil penalties and collection actions, the IRS can pursue criminal charges. The failure to truthfully account for or turn over taxes is a felony, with the potential of up to five years of jail time. This applies to all taxes under the Internal Revenue Code – income tax, payroll tax, gift tax, and excise tax, to name a few. Continue reading »
Opportunity for Maryland Taxpayers: Get Credit for Taxes Paid to Other States!
Maryland taxpayers who were not permitted to claim a credit for personal income taxes paid to other states against their local income tax (i.e., City, County or Town) may still claim such a credit on a timely filed protective claim for refund for a tax year with respect to which such opportunity is still available.
Last year, the Howard County Circuit Court ruled that Maryland’s current application of the credit for taxes paid to other states is unconstitutional in so far as the credit is not allowed to offset the Maryland local personal income tax. That decision is still working its way through the appeal process and is unlikely to get to a final determination anytime soon. Nonetheless, the decision presents an opportunity for Maryland taxpayers to amend prior years’ tax returns and claim credits Continue reading »
The Total Cost of Healthcare?
Starting in tax year 2012, the “aggregate cost” of employer-sponsored health plans is required to be reported in Box 12 (Code DD) of Form W-2. This amount includes the costs paid by both the employer and employee, regardless of whether those contributions were pre-tax or after-tax. This provision, IRC §6051(a)(14), applies to employers with 250 or more employees starting in 2012 and Continue reading »
Have Foreign Bank Accounts or Other Assets? The IRS Wants to Know!
The IRS recently released a new tax form (Form 8938) that may need to be filed with your tax return this year if you have an ownership in certain “foreign financial assets.” Foreign financial assets include: foreign bank accounts; foreign broker accounts; investments in foreign bonds or securities; ownership interests in a foreign trust; certain foreign pension payments; and investments in any foreign entity which may hold such assets as real estate, a trade business, etc.
The reporting rules and filing thresholds are complex, but if the value of your foreign financial assets was in excess of $50,000 (or $100,000 if married filing jointly) at the end of 2011 or exceeded $75,000 ($150,000 if married filing jointly) at any time during 2011, and you are a United States citizen or resident alien, you are required to file the new form. These dollar thresholds are four times higher for taxpayers who lived abroad during 2011.
The penalty for failure to provide the required information with your tax returns is $10,000 unless your failure to file is due to reasonable cause. Continue reading »
2010 Year in Residential Real Estate
2010 was quite an up and down year for residential real estate. Home Sales were spurred on in the first half of the year by the homebuyer tax credit but through October, most hope for a 2011 trough in housing prices seems to have been pushed out to 2012. A glut of foreclosures still have not been released on the market and while housing starts are down, overall inventories remain very high. Most experts are predicting additional price declines between 6% – 9% for 2011. Interest rate predictions for 2011 have been somewhat mixed. Some believe rates will remain below 5% while the others believe rates will be over 5% by the end of 2011. The homebuyinginstitute.com summarizes various predictions from economists and real estate companies on a continually updating list. Continue reading »
Using Personal Guaranty Companies to Limit Exposure
If you are a real estate developer with personal guarantees, there may be better ways to secure financing while protecting your personal assets. It is common that banks require developers to personally guarantee loans in order to provide financing. This demonstrates the commitment of the developer to the project, provides the bank with leverage in negotiating a workout of there is a default and limits the possibility the developer will walk away from the project. It is not common for developers with multiple developments to often have multiple personal guarantees. When considering estate and succession planning, it can be difficult to assess the risk of these personal guarantees.
IRS Audits of 403(b) Plans
What triggers an audit? Plans are typically selected from filed returns such as Form 5500s, but for plans that don’t have to file returns, the IRS downloads data from W-2 employer’s report and look for things such as exceeding contribution limits. However, the agency often randomly selects plans among different types of sponsors and different industries. Daniel S. Gardner, Senior Employee Plan Specialist for Tax Exempt and Government Entities, Internal Revenue Service, described what the IRS is looking for – and has found – when auditing 403(b) plans. Continue reading »
Tax Relief Act Passes Congress, Signed by the President
On Wednesday, Dec. 15th, the Senate passed the “Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010” (“2010 Tax Relief Act” or “Act”) and the House of Representatives passed it the next evening. Continue reading »
President Obama Announces Framework for Bipartisan Agreement on Extension of Tax Cuts
President Obama announced on Monday, December 6th that he had reached a framework agreement with Republican leaders in Congress regarding the extension of the individual income tax cuts. Recent media reports indicate that White House officials will try to persuade Democrats to support the framework agreement, but due to resistance from his party, President Obama may need to rely heavily on Republican support to move the proposal through Congress.
