Tax Bites

Here’s a simplified way to project your estate tax exposure. Take the value of your estate, net of any debts. Also subtract any assets that will pass to charity on your death.

Then, if you’re married and your spouse is a U.S. citizen, subtract any assets you’ll pass to him or her. Those assets qualify for the marital deduction and avoid potential estate tax exposure until the surviving spouse dies. The net number represents your taxable estate.

You can transfer up to your available exemption amount at death free of federal estate taxes. So if your taxable estate is equal to or less than the estate tax exemption (for 2015, $5.43 million) reduced by any gift tax exemption you used during your life, no federal estate tax will be due when you die. But if your taxable estate exceeds this amount, it will be subject to estate tax. Many states, however, now impose estate tax at a lower threshold than the federal government does, so you’ll also need to consider the rules in your state.

If you’re not sure whether you’re at risk for the estate tax or if you’d like to learn about gift and estate planning strategies to reduce your potential liability, please contact us.

With Congress returning from its August recess, this is the question on tax-savvy Americans’ minds. Many valuable tax breaks aren’t permanent, so Congress has to pass legislation extending them to keep them in effect. Unfortunately, Congress often waits until the last minute to do so.

For example, Congress didn’t pass 2014 extenders until December 2014, making the legislation retroactive to January 1, 2014 — but not extending the breaks to 2015. So we’re again in a waiting game to see what will happen with extenders legislation. Some believe Congress will act soon, while others think we’ll again be waiting until December.

Here are several expired breaks that may benefit you or your business if extended:

• The deduction for state and local sales taxes in lieu of state and local income taxes,
• Tax-free IRA distributions to charities,
• 100% bonus depreciation,
• Enhanced Section 179 expensing,
• Accelerated depreciation for qualified leasehold improvement, restaurant and
  retail improvement property,
• The research tax credit,
• The Work Opportunity tax credit, and
• Various energy-related tax incentives.

Please check back with us for the latest information. Keep in mind that quick action after extenders legislation is passed may be required in order to take maximum advantage of the extended breaks.

The tax treatment of investment income varies, and not just based on whether the income is in the form of dividends or interest. Qualified dividends are taxed at the favorable long-term capital gains tax rate (generally 15% or 20%) rather than at the applicable ordinary-income tax rate (which might be as high as 39.6%). Interest income generally is taxed at ordinary-income rates. So stocks that pay qualified dividends may be more attractive tax-wise than other income investments, such as CDs and taxable bonds.

But there are exceptions. For example, some dividends aren’t qualified and therefore are subject to ordinary-income rates, such as certain dividends from:

• Real estate investment trusts (REITs),
• Regulated investment companies (RICs),
• Money market mutual funds, and
• Certain foreign investments.

Also, the tax treatment of bond income varies. For example:

• Interest on U.S. government bonds is taxable on federal returns but exempt on state and local returns.
• Interest on state and local government bonds is excludable on federal returns. If the bonds were issued in your home state, interest also might be excludable on your state return.
• Corporate bond interest is fully taxable for federal and state purposes.

While tax treatment shouldn’t drive investment decisions, it’s one factor to consider — especially when it comes to income investments. For help factoring taxes into your investment strategy, contact us.