Mega Millions Winnings – Imagine the Possibilities!

Currently there is a lot of focus on the Mega Millions that has a jackpot of $1.6 billion (and climbing) and many discussions are being had detailing what one would do if they won. Imagine the possibilities!  Some of the considerations include making gifts and loans to friends and family members.

Although chances of winning are 1 in 302.5 million, if you do win and you are in a position to consider making gifts or loans to friends and family members, there are a few key points to remember to minimize any gift tax consequences. As highlighted in an earlier article, we each have the ability to gift during our lifetimes without incurring gift tax. The current exemption is $11.18 million per person above which a 40% flat tax is imposed. In order to utilize that exemption, a gift tax return is required.

Furthermore, each of us has the ability to gift up to $15,000 per person to an unlimited number of people each year. If you are married, a married couple can gift up to $30,000 per person each year. These annual gifts do not count against the lifetime exemption, and are therefore a separate method in which gifting can be made.

IRS regulations also permit you to pay the tuition expenses for a full-time or part-time student directly to the “qualifying educational organization” without having to claim an exemption from gift tax or incurring gift tax. Tuition expenses do not include books, supplies, dorm fees, board or other such expenses that are not direct tuition expenses.

In addition, you can pay for “qualifying medical expenses” that include expenses for diagnosis, cure, treatment, prevention as well as amounts paid for medical insurance. This exemption does not include any expenses that were reimbursed ultimately by medical insurance. Again, such expenses can be paid directly and you would not have to claim your lifetime exemption or incur gift tax.

And what about making loans to friends and family? Be sure that any loan you make is not deemed to be a gift. That is, the loan should impose interest at current fair market values. Applicable Federal Rates (AFR) for October range from 2.55% for short term loans (up to 3 years) to 2.99% for long term loans (over 9 years). Loans can be structured in myriad different ways.

Also, don’t forget about cash gifts to charity.  The charitable deduction on your income tax returns was increased under last year’s tax reform act to 60% of your adjusted gross income for 2018, up from 50% of your AGI.   The charities of your choice would also help facilitate a lifetime gift and/or planned gift depending your wishes.

So, while you are thinking about what you would do if you won a million dollars or more in the lottery, be sure to keep in mind a few gift or loan options that are available to you and good luck! #megamillions #winningthelottery #lottery #gifttax #estateplanning #taxplanning #planyourjourney

A New Year Means New Exemption Levels

Welcome to the New Year!  As with any new year, there are usually changes to a variety of important numbers for estate planning and elder law purposes.  This year the applicable exclusion amount from Federal estate tax is set at $11.18 million per person thanks to tax reformThe lifetime exclusion from gift tax is also $11.18 million per person and the exemption from generation skipping transfer tax is $11.18 million.  The annual exclusion from gift tax will be at least $14,000.

For local jurisdictions that have estate tax, the District of Columbia increased its estate tax exemption from $1,000,000 to $2,000,000 last year and this year has increased the threshold further to match the Federal exemption.  Maryland’s exemption from estate tax has increased to $4,000,000.  Virginia continues to have no state level estate or inheritance tax.

In the elder law field, the Medicaid spousal impoverishment numbers were released increasing the minimum community spouse resource allowance (CSRA) to $24,720 and the maximum CSRA to $123,600.  The maximum monthly maintenance needs allowance is now $3,090.00 while the minimum remains at $2,030.00.  The minimum home equity limit is now $572,000 and the maximum is $858,000, but be aware that local jurisdictions may apply these limits differently.

If you have questions regarding the new limits and how they may impact your estate planning, your should consult your professional advisor.  #estateplanning #taxplanning #elderlaw #taxreform #HappyNewYear @bgnthebgn

#GivingTuesday – Considerations for Year-End Charitable Giving

As the year draws to an end, many of you look to make your charitable donations or are advising individuals regarding their charitable donations.  Of course, there are a variety of ways in which one can make such a charitable gift.  The IRS recently published IR 2017-191, which is part of a series of articles providing taxpayers with relevant information so they can be ready for the next tax season.  In this recent article, the IRS reminded taxpayers of certain aspects of charitable giving in an effort to help taxpayers avoid problems come tax time.  I have summarized these helpful tips below. 

For starters, individuals can only receive a tax deduction if the charity to which they donate is an ‘eligible organization.’  The IRS has a website, Select Check, that is a searchable online database of ‘eligible organizations’ that can be used to verify the status of an organization.

Next, charitable donations can only be deducted if the taxpayer itemizes their deductions.  For some this can be a hassle because that means maintaining accurate records and receipts.  If the gift is larger than $250 to the charity, then a written acknowledgement is required.  The IRS has provided Publication 526 on charitable contributions to help explain what records are necessary.   

Additionally, if an individual is looking to donate tangible personal property like clothing or household items, those items have to be in ‘good used or better’ condition.  Household goods include furniture, furnishings, electronics, appliances and linens.  The taxpayer must obtain a detailed receipt in which the donated items are described for donations worth $250 or more.  Items in which a deduction of more than $500 is claimed usually have to include a qualified appraisal. 

Another factor to keep in mind is if the taxpayer receives any ‘benefit’ in the form of merchandise, meals, tickets or other items.  The value of such ‘benefit’ will reduce the available deduction amount.  For example, a contributor membership to the Kennedy Center is valued at $120, but only $80 of that amount is eligible to be deducted.

One alternative to keeping lots of records and receipts from every organization is the creation of a donor advised fund.  An individual can make a single larger contribution to his or her donor advised fund and from that donor advised fund make specific charitable donations.  There are a variety of terms and conditions to follow, but the single contribution means that is what is reported on one’s tax returns.   Here is just one person’s rationale behind the creation of a donor advised fund that also allowed her to get more involved with her community. 

Ultimately, any gift is welcomed by the charity and you should feel free to reach out to the charity or your professional advisor if you have questions or need assistance in making year-end charitable donations.  #GivingTuesday @CFNOVA @bgnthebgn #donoradvisedfunds #taxplanning #charitablegiving

Tax Update – 2018 Estate and Gift Tax Exemptions and More…

The IRS recently announced the estate and gift exemption levels for 2018 and they continue to increase as per legislation passed in January 2013.  The applicable exclusion amount from Federal estate tax will increase to $5.6 million per person allowing a married couple to shelter $11.2 million from Federal estate tax, the rate for which is currently set at 40%.  The lifetime exemption from gift tax remains coupled with the exemption from Federal estate tax, and therefore, this exemption will also increase to $5.6 million per person.  The annual gift exclusion amount will also increase for the first time since 2013 and will be $15,000 per person.  Virginia continues to not impose a state level estate tax.  Maryland’s exemption from estate tax will increase to $4 million while the District of Columbia’s now $2 million exemption will rise to meet the Federal exemption beginning in 2018 so long as there is a revenue surplus. 

Additionally, in the last article, the fate of the proposed valuation discounting regulations was still up in the air.  However, Treasury issued a second report to the President in which those regulations were withdrawn.  Therefore, the availability of valuation discounting on certain transfers of interests held in closely held or family owned businesses remains available and is currently no longer under threat.

For seniors and those with disabilities, a cost-of-living adjustment (COLA) for Social Security and Social Security Income (“SSI”) will increase monthly benefits by 2.0%.  In addition, the cap on the amount of earnings subject to payroll tax will increase to $128,700.  Finally, the tax brackets, standard deductions, Pease and PEP limitations, kiddie tax and other credit and deduction levels for 2018 were announced. Many are watching the tax reform debate to see if any of these numbers will change, so stay tuned… #taxreform #estateplanning #estatetax #taxplanning #taxtime #COLA2018 @bgnthebgn

Valuation Discounting Regulations Await Final IRS & Treasury Report

A year ago Treasury proposed new regulations to Section 2704 of the Internal Revenue Code that would significantly reduce or eliminate the ability to use valuation discounting in certain transactions where business interests are transferred.  The proposed regulations would mean that the parties to those types of transactions could incur estate or gift tax.  Towards the end of last year, a public hearing on the regulations was held in which many expressed concerns about how these proposed regulations would impact small businesses and the like.  However, at the time the future of the regulations was unknown given the change of administration, 

Earlier this year, the President issued Executive Order 13789 in which the President instructed Treasury to review all “significant tax regulations” and identify those regulations that (a) impose an undue financial burden, (b) add undue complexity to our tax laws, and (c) exceed statutory authority of the IRS.  Treasury issued Notice 2017-38 in which the proposed regulations to Section 2704 were identified as meeting these criteria.  A comment period followed the issuance of the Order and has now closed.  During the comment period, a study was submitted by The S Corporation Association that showed the detrimental impact of such regulations should they be finalized.  A final report is due to the President within the next month that is to suggest possible reforms to the identified regulations ranging from modification to the regulations to a full appeal.  Until the future is certain, valuation discounting remains available.  #valuationdiscounts #2704regulations #businessvaluations #estateplanning #businessplanning @bgnthebgn

IRS Issues Tips for Refunds

Earlier this month the IRS issued IR-2017-16 to provide taxpayers with information regarding refunds.  In particular, the IRS was interested in debunking a few myths that may be circulating out on the internet about refunds.  First, the IRS has indicated that the statement “all refunds are delayed” is false.  More than 90% of refunds are issued within the normal timeframe, which is less than 21 days.  However, some refunds may be delayed including for those taxpayers claiming the earned income tax credit (EITC) or the additional child tax credit (ACTC).  Delays for refunds on those returns are until mid-February.  Other refunds may be held because of increased security to reduce and prevent identity theft and refund fraud.  

Second, the IRS has indicated that either calling the IRS or the individual’s tax advisor is not the best way to determine the status of a refund.  Instead, taxpayers should go online to “Where’s My Refund?” or use the IRS2Go mobile app.  The IRS will update the status of refunds once a day, which is typically done overnight.

Next, the IRS stated that ordering a tax transcript will not help taxpayers determine the statue of a refund.  The tax transcript may not contain any relevant information as to the amount or timing of a refund.  Additionally, the IRS reminded taxpayers who have claimed either EITC or ACTC that the projected deposit dates will not be available under after February 15th.  So, even if a taxpayer claiming those credits checks online for the status of his or her refund, no information will be available until later in February.  The IRS published “What to Expect for Refunds in 2017” for additional information.

Finally, for those claiming either EITC or ACTC, the entire refund, not just the portion associated with the credits, will be delayed until after February 15th as dictated by law.  Again, the IRS directs taxpayers online to “Where’s My Refund?” or the IRS2Go mobile app for status updates on a refund.  #taxseasonishere #taxplanning #whereismyrefund @bgnthebgn 

Update from the Virginia Tax Department

(h/t to my colleague, David A. Lawrence, Esq. who recently attended the Annual Virginia Tax Roundtable and provided the summary below.  The Roundtable hears from the Virginia Tax Commissioner, his staff, the Virginia Attorney General’s staff, local Commissioners of Revenue and a U.S. Tax Court Judge about current issues and ways to improve tax administration in Virginia.)

Identity Theft – Refund Fraud Dramatically Rising
Identity theft and refund fraud continue to rise dramatically in Virginia & other states. Over $54 million in 2015 & 2016 of refund fraud was caught in Virginia before the state issued the fraudulent refund checks. It’s taking a significant amount of Tax Department resources and time to review more refund returns, collaborate with other states & the IRS, and match data before letting refund checks go out. It sounds like people should continue to try to file their returns as early as possible before others attempt to file fraudulent claims, using information they can find out about you. It seems that federal agency employees who are slow to get their W-2s are at a greater risk for fraud claims.

Staffing Changes & Budget Cuts continue at State & Local Tax Levels
For several years in a row, many long-time employees of state & local tax offices continue to retire. The government is trying to replace the loss of institutional memory with newbies and technology. But continued budget cuts are hitting technology upgrades & the ability to make some new hires.

Tax Appeals
Appeals of tax cases – particularly income tax – continue to increase 3 years in a row, while sales tax decisions are down significantly in Virginia. But with strained staff, it’s taking a lot longer for appeals to be completed. If a taxpayer doesn’t fully document the appeal, then the Tax Commissioner is dismissing the appeal – so don’t be sloppy out there. Local tax appeals continue to drop – it appears the Tax Department doesn’t like dealing with local tax appeals & the localities don’t like being told they’re wrong by the Tax Department.

Updating Tax Regs; Little Tax Legislation
The Tax Department is in the process of updating its Regulations, especially any which are over 4 years old. Based on the few inquiries from the General Assembly, there doesn’t appear to be a lot of new tax legislation expected this coming legislative session.

Local Taxes Being Pursued
Local tax offices are getting much more active in capturing tax revenue, and using more technology to find taxpayer nexus and tax it. Restaurants are big targets for meals & sales taxes; as well as their owners & managers who are pursued on a responsible officer type of liability. Large businesses, especially multi-state ones, are filing 1-3 years back refund claims. Localities are complaining that those claims are hitting the locality’s budget, and thus are fighting the refunds, making the taxpayers work at those claims. Local tax collectors are documenting their defense, expecting tax appeals. So the taxpayers had better document their claims and arguments as well.

US Tax Court Practice Tips
Beginning in 2017, the Tax Court will have electronic filing.  Other practical suggestions were offered involving pretrial memoranda, stipulating facts, objections to IRS experts and post-trial briefs. 

As tax season is upon us, if you have questions regarding your taxes, please feel free to reach out to your professional advisor.  #taxplanning #estateplanning #taxseasonishere @bgnthebgn

Five New Year’s Resolutions for Your Estate Plan

Happy New Year!  Very often the New Year brings all sorts of ‘changes’ for individuals, particularly after having spent any time with family members and friends over the holiday season.  Here is a quick list of five resolutions to consider for your estate plan.

  1. Is it time to update your plan?  If a plan is in place, when was the last time you reviewed it? Is it simply a binder of documents you received several year ago when you finished the estate planning process and you haven’t looked at since?  Have circumstances changed that are not captured in the documents?  Who are the fiduciaries (i.e., executor, trustee, healthcare power of attorney, financial power of attorney, guardian, etc.) listed?  Are the fiduciaries still capable of serving?  Does the plan do what you want it to do?  There have been a lot of changes to estate tax laws in recent years, is your plan from before 2013?  In some cases, does ‘updating’ your plan, actually mean finishing the process?  Or does it mean starting the process so that your theoretical plan is memorialized? 
  2.  Are there beneficiary designations?  When was the last time you checked beneficiary designations on life insurance, retirement accounts (i.e., 401(k), IRAs, 403(b), 457, etc.) and annuities?  What about any payable on death (POD) or transfer on death (TOD) designations you have on bank accounts or brokerage accounts…do those designations reflect your wishes?  For government employees, are beneficiary designations up-to-date on your Federal, state or local benefits? 
  3. Families come in all shapes and sizes -Family Fiduciaries.  Are you named as a fiduciary in any family member’s or friend’s plan?  Have you touched base with that person recently to see how they are doing both health-wise and financially?  Do you understand what your role is as the fiduciary?  Do you know the family member’s or friend’s goals and objectives?  Are you able to still serve, that is, are you distracted by a health event or financial crisis and perhaps you should not take the role?  Have you considered options for a care manager if you are caring for an elderly family member or friend? How about looking at assisted living or skilled nursing or home health aides, if the circumstances warrant such considerations? 
  4. Are you charitably inclined?  Do you have a charitable giving plan for this year? For future years? For at your death?  Have you researched your options including direct giving, donor advised funds, private foundations and/or charitable trusts?  Is there a planned gift that you would like to consider?  Is now the time to investigate annual giving? 
  5. Succession planning occurs at many levels.  Who will be in charge of any business whether it is a limited liability company, partnership or corporation?  Are shareholders’ agreements and operating agreements up-to-date?  And beyond a business interest, who will be in charge of your pets?  Are there monies set aside for their care?  What about digital assets?  Have you ensured a smooth transition of online accounts to a successor?  What about your tangible personal property?  Is there an inventory? Appraisals? Designated recipients?

True, there are a lot of questions and not a lot of answers here, but that is the planning process.  One has to begin with the questions to reach the answers.  Working with a professional advisor can both provide you with the guidance needed to navigate these questions and ensure that you complete the process.  #planyourjourney #lifeplanning #legacyplanning #estateplanning @bgnthebgn

A New Year Means New Exemptions from Estate Tax

Welcome to the New Year!  As with any new year, there are usually changes to a variety of important numbers for estate planning and elder law purposes.  This year the applicable exclusion amount from Federal estate tax is set at $5.49 million per person.  The lifetime exclusion from gift tax is also $5.49 million per person and the exemption from generation skipping transfer tax is $5.49 million.  The annual exclusion from gift tax remains at $14,000.  The annual exclusion for gifts to non-U.S. citizen spouses increased to $149,000.

For local jurisdictions that have estate tax, the District of Columbia increased its estate tax exemption from $1,000,000 to $2,000,000.  Maryland’s exemption from estate tax has increased to $3,000,000.  Virginia continues to have no state level estate or inheritance tax.

In the elder law field, the Medicaid spousal impoverishment numbers were released increasing the minimum community spouse resource allowance (CSRA) to $24,180 and the maximum CSRA to $120,900.  The maximum monthly maintenance needs allowance is now $3,022.50 while the minimum remains at $2,002.50.  The minimum home equity limit is now $560,000 and the maximum is $840,000, but be aware that local jurisdictions may apply these limits differently. 

If you have questions regarding the new limits and how they may impact your estate planning, your should consult your professional advisor.  #estateplanning #taxplanning #elderlaw @bgnthebgn

The Future of Valuation Discounting…

Earlier this month, a long awaited hearing was held on the proposed regulations that would reduce the availability of valuation discounting when transferring closely held business interests.  Close to forty individuals testified at the IRS hearing and all but one individual opposed the proposed regulations.  Among several of the reasons why critics opposed the regulations included the following: (a) the potential for a ‘deemed put right’; (b) the creation of a three-year look back period; (c) the forced use of the ‘investment value’ standard for determining fair market value versus the ‘willing buyer – willing seller’ standard; and (d) the use of family attribution rules that could extend the reach of the proposed regulations.  An attorney-advisor from the Treasury Office of Tax Legislative Council tried to assuage some of the concerns and even commented that it would be surprising if the regulations were finalized given the new administration. 

What does the hearing mean for planning?  It means that planning is still very much up in the air.  For some, there has been a push to complete transactions by the end of year before the regulations are finalized.  For others, any potential transactions are now on hold.  Either way, the issue is not dead, but may be tabled until the next election and individuals and their advisors would be wise to monitor the situation to avoid getting caught without having planned. #valuationdiscounts #2704regulations #businessvaluations #estateplanning #businessplanning @bgnthebgn