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Why You Still Need a Credit Shelter Trust

Author: Keith Huggett

Even though portability now allows married couples to use up both spouses’ estate tax exemptions without having to make lifetime asset transfers or set up trusts, this “easier” path isn’t necessarily the better path. For couples with large estates, making lifetime asset transfers and setting up trusts can provide benefits that exemption portability doesn’t offer.

With portability, if one spouse dies and part (or all) of his or her estate tax exemption is unused at death, the estate can elect to permit the surviving spouse to use the deceased spouse’s remaining estate tax exemption. But making the portability election doesn’t protect future growth on assets from estate tax like applying the exemption to a credit shelter trust does.

Also, the portability provision doesn’t apply to the GST tax exemption, and some states don’t recognize exemption portability. Credit shelter trusts offer GST and state estate tax planning opportunities, as well as creditor and remarriage protection.

If you’d like to learn more about credit shelter trusts or other estate planning strategies for your situation, please contact us.

Is Your IRA Up-to-Date

Author: Keith Huggett 

A potential downside of tax-deferred saving through a traditional retirement plan is that you’ll have to pay taxes when you make withdrawals at retirement. Roth plans, on the other hand, allow tax-free distributions; the tradeoff is that contributions to these plans don’t reduce your current-year taxable income.

Unfortunately, modified adjusted gross income (MAGI)-based phaseouts may reduce or eliminate your ability to contribute:

• For married taxpayers filing jointly, the 2015 phaseout range is $183,000–$193,000.
• For single and head-of-household taxpayers, the 2015 phaseout range is $116,000–$131,000.

You can make a partial contribution if your MAGI falls within the applicable range, but no contribution if it exceeds the top of the range.

If the income-based phaseout prevents you from making Roth IRA contributions and you don’t already have a traditional IRA, a “back door” IRA might be right for you. How does it work? You set up a traditional account and make a nondeductible contribution to it. You then wait until the transaction clears and convert the traditional account to a Roth account. The only tax due will be on any growth in the account between the time you made the contribution and the date of conversion.

Why the Details Matter...

Author: Keith Huggett

If you don’t pay attention to the details, the tax consequences of a sale may be different from what you expect. For example, if you bought the same security at different times and prices and want to sell high-tax-basis shares to reduce gain or increase a loss to offset other gains, be sure to specifically identify which block of shares is being sold.

And when it gets close to year end, keep in mind that the trade date, not the settlement date, of publicly traded securities determines the year in which you recognize the gain or loss.

Finally, consider the transaction costs, such as broker fees. While of course such costs aren’t taxes, like taxes they can have a significant impact on your net returns, especially over time, because they also reduce the amount of money you have available to invest.

If you have questions about the potential tax impact of an investment sale you’re considering — or all of the details you should keep in mind to minimize it — please contact us.

4 Ways to Infuse your Office with Energy

Author: Keith Huggett

June can be a tough month when it comes to motivation and energy levels for many people. So it’s not surprising that employees may seem a little less productive at this time of year. Fortunately, the following four tips can help you put the spring back in your team’s step—and boost the productivity of your business.

Keep Sharing Your Vision

People want to have a goal to which they can aspire—and a shared vision of where your business is going can be a strong motivational force. By sharing your vision and reminding your team periodically about the important role they play in it, you can energize your workforce.

 Stop Hovering

If you tend to micromanage, try stepping back and letting your employees’ creativity and morale soar. Unless you have new team members who really do need handholding, your employees will feel much more empowered if you simply let them do what you hired them to do.

 Offer Ongoing Education

When it comes to energizing your team, providing periodic learning opportunities is key. Giving employees the chance to sharpen their skills will not only improve your business, but your willingness to invest resources in staff development will also elevate your employees’ enthusiasm for doing their best work.

 Spread the Love

Encouragement is a powerful elixir for increasing employee engagement. Everyone wants to be recognized and appreciated for the work they do. Be sure to recognize people on your team, even informally, as often as possible.

 Don’t let the pre-summer doldrums dampen the spirits or productivity of your team. Try implementing these tips to energize your employees—and your business.

 

Be Aware of the Tax Consequences

Author: Keith Huggett

If you allow employees to telecommute, be sure to consider the potential tax implications. Hiring someone in another state, for example, might create sufficient nexus to expose your company to that state’s income, sales and use, franchise, withholding, or unemployment taxes.

And the employee might be subject to double taxation if both states attempt to tax his or her income — the recent Supreme Court ruling in Comptroller of the State of Maryland v. Wynne addressed a similar issue, although in that case the taxpayers weren’t telecommuters but owners of an S corporation that earned income in other states.

The rules vary by state and also by type of tax — and become even more complicated for international telecommuters. So it’s a good idea to review the rules before you approve a cross-border telecommuting arrangement. If you’re considering hiring employees to telecommute from outside your state, we can help you assess the potential tax impact. Contact us with your questions.

Learn the Difference NOW!

Author: Keith Huggett

Income and losses from investment real estate or rental property are passive by definition — unless you’re a real estate professional. Why is this important? Passive income may be subject to the 3.8% net investment income tax (NIIT), and passive losses are deductible only against passive income, with the excess being carried forward.

To qualify as a real estate professional, you must annually perform:

• More than 50% of your personal services in real property trades or businesses in which you materially participate, and
• More than 750 hours of service in these businesses during the year.

Each year stands on its own, and there are other nuances. If you’re concerned you’ll fail either test and be subject to the 3.8% NIIT or stuck with passive losses, consider increasing your hours so you’ll meet the test. (Special rules for spouses may help.) Also be aware that the IRS has successfully challenged claims of real estate professional status in instances where the taxpayer didn’t keep adequate records of time spent.

If you’re not sure whether you qualify as a real estate professional, please contact us. We can help you make this determination and guide you on how to properly document your hours.

Keep Safe with These Summer Travel Tips

Author: Jenny Shilling

If you’re planning to travel this summer, you have likely already spent time planning your trip—but have you spent time thinking ahead about how to reduce the chances of a mishap while you’re traveling? While no one wants to ruin their vacation worrying excessively, it is wise to take a few preventative steps to ensure that your time away is not marred by an easily preventable mishap. Check out these tips to keep you safe during your summer travel:

1.    Know the places you should avoid. Spend some time before you leave on your trip to learn as much as you can about the place you are going and any areas or activities that may be unsafe so you can avoid them.
 
2.    Pack for function, not flash. It is best to avoid bringing anything that’s flashy or expensive (such as jewelry and cameras) on vacation to avoid being targeted by thieves. Instead of carrying large quantities of cash, use ATM’s (in well-lit public areas) to replenish if you need to. If you take credit cards, take only the ones you plan to use and make photocopies of the front and back of them to leave with someone at home. This will make it much easier to cancel your cards if they are lost or stolen while you are away.
 
3.    Post your plans and pictures after your vacation. While it’s tempting to post about your vacation plans prior to your departure and share pictures from your trip in real time on social media, for safety’s sake, you should wait until you are home to do so. To avoid giving thieves clues that your home would be an easy target for a break-in.
 
4.    Pack for emergency preparedness. Unfortunately, illness and injury do not take vacations—so you should be prepared for them, just in case. Consider whether you need any additional medical insurance while you are away and bring clearly labeled pain and fever relievers and any prescription medications you may need in your purse or carry-on luggage. It’s also a good idea to bring the name and number of your family physician and a travel-size first aid kit with you.
 
5.    Have fun, but stay alert. While you definitely want to enjoy your trip, keeping alert and being aware of your surroundings will help you avoid unsafe situations. When traveling with children, discuss with them what to do if they get separated from you while away from home.

For many of us, a vacation or even a business trip, offers the perfect opportunity to relax and enjoy time away from the regular routine. By exercising common sense and using the tips above, you’ll reduce your risk of any safety mishaps while you are away.  Be sure to keep track of your business travel for tax purposes.  Please contact us if you have questions about work related travel and how you can save money later on.