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Tax Tip of the Week | No. 460 | The Biggest Estate Plan Mistake – It’s Not What You Think May 16, 2018

Posted by bradstreetblogger in : General, Tax Planning Tips, Tax Tip, Taxes, Uncategorized , add a comment

Tax Tip of the Week | May 16, 2018 | No. 460 | The Biggest Estate Plan Mistake – It’s Not What You Think

Only about half of the adults aged 50 to 64 surveyed say they have a will that outlines how their monies and estate assets are to be divided following death. Only about two-thirds of those adults 65 and over say they have such paperwork. If you don’t have a valid will at death your assets will pass by what is known as “intestate succession” to your heirs according to state law. All fifty states have these statutes in place. So in summary, if you don’t have a will, the state will make one for you.

Ever hide some money and forget where you hid it? I have. It is such a pleasant surprise when I stumble across it. Presuming I ever do. Sure many people have wills drawn-up and some elaborate estate planning performed. However, if you are the only one who knows its whereabouts, is someone ever going to find it following your demise? Some people put these documents in a safe deposit box but never tell anyone where the key is. Or, your attorney has your will and estate planning in their vault. But, does anyone have a clue who your attorney is? If no one knows where your will is, then for all intents and purposes you do not have one; other than the one the state is going to do for you. I would be surprised if you like how the state distributes your assets.

Some financial persons advise putting together a two page or so letter along with a list as a hand-out for at least your immediate family and then review and discuss it with them. The letter will outline how the estate plan works and where your necessary documents are located. At the end of the day, your survivors will be more grateful than you know.

Credit given to Glen Ruffenach of the Wall Street Journal for some ideas, concepts and excerpts. (Monday, February 5, 2018)

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We may be reached in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our website.

This week’s author – Mark Bradstreet, CPA

–until next week.

Tax Tip of the Week | No. 459 | The New Tax Law and Your Charitable Deductions May 9, 2018

Posted by bradstreetblogger in : Deductions, General, tax changes, Tax Planning Tips, Tax Tip, Taxes, Uncategorized , add a comment

Tax Tip of the Week | May 9, 2018 | No. 459 | The New Tax Law and Your Charitable Deductions

Granted, for many people, the tax savings is not the number one driver for making charitable contributions, “but rather it’s your desire to impact the lives of others that motivates you to give.” However, having said that, it is always nice for Uncle Sam to give you an even bigger bang for the buck by granting you a tax deduction for your contributions. The resulting tax savings, effectively, helps you fund the contribution.

Much press has been devoted to the new tax law and its impact on your itemized tax deductions. Your charitable contributions are but one of your itemized deductions. And, to be able to “itemize”, you must exceed the standard deduction. Which is all well and fine but the new law increased the amount of the standard deduction. As a result, fewer people will be itemizing since the standard deduction will result in a greater benefit. If you use the standard deduction you will not receive any tax benefit for your charitable contributions. Currently about 30% of the United States itemizes when filing their taxes. Only about half of those will continue to itemize under the new tax law.

The Dayton Foundation, along with other organizations, has what is known as a Donor-Advised Fund or Charitable Checking Account (CCA). The idea behind these are to create the ability to “bundle your charitable giving by making large gifts into your fund or account in one year then dispersing grants to charity over a multi- year period. This allows you to take advantage of the charitable deduction in the year you itemize while taking the standard deductions in other years when you may not meet the threshold.” Please note that the “bundling” technique is not necessary if you have enough to itemize.

Other new changes include “an increase on the limitation of cash gifts to a charity from 50% of adjusted gross income to 60% as well as a doubling of the estate tax threshold.  One thing that hasn’t changed, however, is the IRA Charitable Rollover provision. Donors ages 70-1/2 or older should consider this tax-wise option first when making a charitable gift. These individuals can donate up to $100,000 annually from their IRA to any 501(c)(3) charitable organization without treating the distribution as taxable income.” In my opinion, this IRA Charitable Rollover provision is one of the more under-utilized provisions in the tax law.

Many other charitable and estate planning opportunities other than the ones above exist. Be sure to work hand in hand with your financial planner and your CPA to optimize the tax savings for yourself and to maximize the dollars that flow to the charitable organizations that you support.

Credit to Joseph Baldasare, MS, CFRE, Chief Development Officer of the Dayton Foundation for some ideas, concepts and excerpts from his article, How the New Tax legislation Could Affect your Charitable Deductions.

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We may be reached in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our website.

This week’s author – Mark Bradstreet, CPA

–until next week.

Tax Tip of the Week | No. 458 | Beware of the New Cap on Business Losses May 2, 2018

Posted by bradstreetblogger in : Deductions, General, tax changes, Tax Planning Tips, Tax Preparation, Tax Tip, Taxes, Uncategorized , add a comment

Tax Tip of the Week | May 2, 2018 | No. 458 | Beware of the New Cap on Business Losses

Making money in the business world is not easy. Not many business owners would contest that statement. In spite of the best-laid plans and intentions, business losses can and do occur. I suspicion the IRS and/or Congress became concerned that someone might “create” a business loss only for tax saving purposes using some of the newly enacted faster write-offs for certain fixed assets. For that reason, I believe the IRS and/or Congress developed some of their own self-serving parameters to limit what they deemed as potential abuse. Thusly, the cap on “excess” business losses was apparently born.

This new tax law provision seems to have flown in under the radar. For the most part the press has chosen to write about other more popular topics. This limitation on “excess” business losses applies to individuals. However, remember that the income taxes on profits for many “flow-through” businesses are paid by the individuals on their own individual income tax returns. This new loss provision has been nicknamed the “anti-tax-shelter” measure. In certain instances, it treats taxpayers as though their business losses were from a tax shelter. This loss limitation was created to limit the ability of taxpayers (other than C Corporations) to use business losses to offset other sources of income, such as investment income. Limitations on business losses are not new. The ones already in place include passive activity loss limitations (PAL) and the at-risk basis limitations. Both of these are complicated and may have far-reaching consequences. The new loss limitation adds yet another hurdle to a loss deduction in addition to the ones already in place.

“Excess business loss” is essentially defined as the excess of aggregate business deductions over the taxpayer’s aggregate business income as defined in Internal Revenue Code Section 461(l), plus a floor amount. For 2018, the floor is $500,000 for married filing jointly taxpayers and $250,000 for all other taxpayers. The “excess business loss” that exists for the tax year is disallowed and becomes a net operating loss that will be carried forward for possible use in the future.

Thusly, the new law limits a taxpayer’s net business loss deduction to the threshold amount in the tax year incurred. The limitation also forces taxpayers to wait at least one year before these losses may be used. (Ouch!) In some instances one could draw some parallels between this business loss limitation and the Alternative Minimum Tax (AMT) – both are sneaky behind the curtain calculations that may result in an unpleasant tax surprise.

For illustration purposes:

A married taxpayer filing jointly has investment income from various sources of $875,000. She also has aggregate business losses of $1.2 million. The taxpayer’s excess business loss is $700,000 ($1.2 million aggregate loss – $500,000 threshold). This excess business loss may not be deducted in the year created. It will instead be treated as part of a net operating loss carryforward to later years. As a result, the taxpayer’s gross income for 2018 is $375,000 ($875,000 investment income – $500,000 limited business loss.)

This illustration demonstrates how the new law could limit a taxpayer’s ability to offset his other income with his business losses and result in a tax liability. Under prior law, the taxpayer’s business losses would have been deducted in full. For taxpayers that anticipate aggregate business losses above the threshold amount, they may need to engage in further tax planning.

As with other aspects of the new tax law, we await further IRS guidance and explanations about some of the technical aspects of this provision. We also are aware that further guidance may never be received.

Credit given for some ideas, concepts and excerpts from Tax Reform – The New Overall Loss Limitation February 20, 2018 – Aimee Reaving

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We may be reached in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our website.

This week’s author – Mark Bradstreet, CPA

–until next week.