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remember digital assests in your estate planning If you die without addressing your digital assets (such as online bank and brokerage accounts) in your estate plan, your loved ones or other representatives may not be able to access them without going to court — or, worse yet, may not even know they exist.

The first step in accounting for digital assets is to conduct an inventory, including any computers, servers or handheld devices where these assets are stored. Next, talk with your estate planning advisor about strategies for ensuring that your representatives have immediate access to these assets in the event something happens to you.

Although you might want to provide in your will for the disposition of certain digital assets, a will isn’t the place to list passwords or other confidential information, because a will is a public document. One solution is writing an informal letter to your executor or personal representative that lists important accounts, website addresses, usernames and passwords. Another option is to establish a master password that gives the representative access to a list of passwords for all your important accounts, either on your computer or through a Web-based “password vault.”

If you have significant digital assets and need help incorporating them into your estate plan, please give us a call.

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Tax Planning written in chalk - Due Date ChangesThe Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 (2015 Surface Transportation Act) changes the filing deadlines of certain returns. For tax years beginning after December 31, 2015, the due date for a partnership to file Form 1065 is changed to the 15th day of the third month after the close of the tax year (March 15 for a calendar-year partnership). The due date for a C corporation to file Form 1120 is also generally changed to the 15th day of the fourth month following the close of the tax year (April 15 for a calendar-year corporation) (with an exemption for a corporation with a fiscal year ending on June 30).

IMPACT

The shift to a March 15 deadline will better enable partners, like current S corporation shareholders, to receive their Schedules K-1 in time to report that information on their Form 1040 before its April 15 due date. Because individuals and partnerships currently share the same due date, many partners do not have the needed information to complete their return by April 15 and are now forced to file for a six-month extension to file their Form 1040s.

The 2015 Surface Transportation Act also changes the filing deadline for regular C corporations from March 15 (or the 15th day of the 3rd month after the end of its tax year) to April 15 (or the 15th day of the 4th month after the end of its tax year). There is an exception. For C corporations with tax years ending on June 30, the filing deadline will remain at September 15 until tax years beginning after December 31, 2025, when it will become October 15.

In addition to changes in the initial filing due dates, an automatic six-month extension will be available for C corporations, except for calendar-year C corporations which have a five-month automatic extension (until September 15) through 2025. The 2015 Surface Transportation Act also instructs the IRS to modify regulations to provide for a variety of extensions-to-file rules, including, among others, a 6-month extension of Form 1065 to September 15 for calendar-year partnerships; and 5½ months ending September 30 for calendar-year trusts filing Form 1041.

The changes to the filing deadlines are generally applicable to returns for tax years beginning after December 31, 2015. For calendar-year taxpayers, that means the new deadlines will first apply to returns filed in 2017.

Many taxpayers and tax professionals have long advocated for these changes to return due dates. These staggered due dates were recommended not only to enable taxpayers to receive Schedule K-1 information in time to meet their initial filing deadlines. They also help even out the workflow faced by tax preparers both in dealing with initial deadlines and with extensions. Further, the revisions are expected to contribute to a reduction in the need for extended and amended individual income tax returns.

Another welcome change relates to the due date for FinCEN Report 114, Report of Foreign Bank and Financial Accounts. The 2015 Surface Transportation Act aligns the FBAR due date with the due date for individual returns, moving it from June 30 to April 15 and allows for a maximum extension of 6-months ending on October 15.

Of course, we will keep you informed of any impending due dates. In the meantime, if you have any questions, please call our office. We are here to help.

 

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Estate Planning Regulations Deceased Spouse Delaware

The IRS has issued final regulations on the applicable estate and gift tax exclusion amount and the portability of a deceased spouse’s unused exclusion amount. As a surviving spouse, this guidance may impact your estate planning opportunities.

In general, the estate tax is imposed on a decedent’s gross estate as increased by the decedents’ taxable lifetime gifts, and reduced by any allowable estate tax deductions, such as the charitable or marital deduction.

In addition, the estate of every decedent is allowed a credit (the "applicable credit amount") in determining the amount of estate tax due. The applicable credit amount effectively acts to exclude a certain amount of property from the estate tax (the “applicable exclusion amount”). With proper planning a married couple could take advantage of the applicable exclusion amount in each of their respective estates.

However, prior to the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (2010 Tax Relief Act) it was possible for a married couple to waste the applicable exclusion amount of the first spouse to die. Consequently, the 2010 Tax Relief Act introduced the concept of “portability” with respect to the unused portion of the applicable exclusion amount of a predeceased spouse, referred to as the deceased spousal unused exclusion (DSUE) amount. The American Taxpayer Relief Act of 2012 then made portability permanent.

For estates of decedents dying after 2010, the applicable exclusion amount is equal to the sum of the basic exclusion amount and any available DSUE amount, if previously elected. The basic exclusion amount is $5 million. The exclusion is adjusted for inflation and has risen to $5.43 million in 2015. A “portability election” passes along a decedent’s unused estate and gift tax exclusion amount to a surviving spouse.

The IRS guidance discusses the following:

  1. the estate and gift tax applicable exclusion amount, in general;
  2. the requirements for electing portability of any DSUE amount to the surviving spouse; and
  3. the applicable rules for the use of the DSUE amount by the surviving spouse.

The estate tax return on which the portability election is made must be filed within the time prescribed by law. In that way, the surviving spouse can take advantage of the DSUE amount.

The IRS guidance explains the requirements for what is considered to be a “complete and properly-prepared return.” If the return is being filed only for the purpose of electing portability, the executor does not have to report the value of certain property qualifying for the marital or charitable deduction. The total value of the gross estate must be estimated based on a determination made with good faith and due diligence regarding the value of all assets includible in the gross estate.

If the executor does not wish to make the portability election, regulations require the executor to make an affirmative statement on the estate tax return indicating this to be the case. When no return is required to be filed for the decedent’s estate, not filing a timely filed return will be considered to be an affirmative statement of the decision not to make a portability election. With certain limited exceptions, only the executor of the estate is allowed to file the estate tax return and make the portability election.

IRS guidance also clarifies the computation of the DSUE amount in certain circumstances and addresses the use of the DSUE amount by the surviving spouse, including: 

  1. the date the DSUE amount may be taken into account by the surviving spouse;
  2. the last deceased spouse limitation on the DSUE amount available to a surviving spouse; and
  3. the DSUE amount available in the case of multiple spouses and previously applied DSUE amount.

The portability election is effective as of the deceased spouse’s date of death. As a result, the surviving spouse may take into account the DSUE amount in determining his or her applicable exclusion amount and applied against gifts made after the date of death of the deceased spouse. The DSUE amount, however, is applied first before the surviving spouse’s own exclusion amount.

The portability election should be reviewed as part of your overall estate planning. We are available to discuss all of your options. Please call our office for an appointment.

 

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On June 25 the Supreme Court issued its ruling in the King v. Burwell case, holding that federal subsidies for health insurance could be provided whether the insurance was purchased through a state exchange or a federal exchange.  Challengers to the ACA subsidies maintained that the law’s language allowed for subsidies only when insurance was purchased through a state exchange and not through a federal exchange.  34 states had not set up an exchange, relying instead on the federal exchange. Subsidies offset the cost of health insurance for low and moderate income people who aren’t covered by an employer’s plan, Medicaid, or Medicare.

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Tax Planning Services

An S corporation is a pass-through entity that is treated very much like a partnership for federal income tax purposes. As a result, all income is passed through to the shareholders and taxed at their individual tax rates. However, unlike a C corporation, an S corporation’s income is taxable to the shareholders when it is earned whether or not the corporation distributes the income. Because an S corporation has a unique tax structure that directly impacts shareholders, it is important to understand the S corporation distribution and loss limitations, as well as how and when items of income and expense are taxed, before developing an overall tax plan.

In addition, some S corporation income and expense items are subject to special rules and separate identification for tax purposes. Examples of separately stated items that could affect a shareholder’s tax liability include charitable contributions, capital gains, Sec. 179 expense deductions, foreign taxes, and net income or loss related to rental real estate activities.

These items, as well as income and losses, are passed through to the shareholder on a pro rata basis, which means that the amount passed through to each shareholder is dependent upon that shareholder’s stock ownership percentage. However, a shareholder’s portion of the losses and deductions may only be used to offset income from other sources to the extent that the total does not exceed the basis of the shareholder’s stock and the basis of any debt owed to the shareholder by the corporation. The S corporation losses and deductions are also subject to the passive-activity rules.

Other key points to consider when developing your comprehensive tax strategy include:

  • the availability of the Code Sec. 179 deduction at the corporate and shareholder level;
  • reporting requirements for the domestic production activities deduction;
  • the tax treatment of fringe benefits;
  • below-market loans between shareholders and S corporations; and
  • IRS scrutiny of distributions to shareholders who have not received compensation.

We can assist you identifying and maximizing potential tax savings no matter your entity type. Please call our office at your earliest convenience to arrange an appointment. 302.225.5000 

 

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Things to do list: Review Business Tax Strategy, Update Succession plan,...

If you own or manage your own business, you are probably busy monitoring operations and dealing with everyday problems. But there are a few things that you should make time to do every year. These are important for your long-term business and personal success.

Review your business tax strategy.

A month or so after you've filed your tax return, make an appointment with your tax advisor. Go over your return together and identify opportunities for tax savings. Question everything, starting with whether you're using the right form of business entity. Ask about recent changes in the tax code and how they might benefit your business. Make your advisor a "partner" in your business strategy.

Update succession planning for your business.

Review your succession planning annually. You should have a specific plan for each key manager position, including yourself. Be prepared for a short-term absence or a permanent vacancy. Your plan might mean promoting from within or recruiting externally. An up-to-date plan can be invaluable if you have an unexpected vacancy.

Review and update your personal estate planning.

If you're a business owner, your company is likely to be a significant part of your estate. A good estate plan is essential if you hope to pass a business on to your heirs. But your company, your personal circumstances, and the tax laws are continually changing. You should meet with your estate planner annually to make sure your plans are current.

Review your business insurance coverage.

Don't just automatically write a check to renew your insurance policies when they come due. Instead, you should sit down with your insurance agent every year. Review your business operations, focusing on any changes. Discuss types of risk that could arise. Ask about new developments in business insurance. Use your agent's expertise to identify risk areas and suggest suitable coverage.

Review your business banking relationships.

Annually, you should go over your cash balances and banking relationships with your controller or CFO. Then both of you should meet with your banker. Ask about new products or services that could help your company. Address any service concerns or problems you might have had. Look for ways to reduce idle cash, boost interest earned, and improve cash flows.

Let us and your attorney assist you with the reviews and planning necessary to your business's long-term success. Give our office a call at 302.225.5000. 

 

 

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Cash laying on Mutual Fund Investment Statement Are mutual funds part of your portfolio? As you begin your mid-summer investment review in preparation for year-end, think about how your funds can affect your federal income taxes.

Here are two things to consider.

Dividend income. The dividends you receive from mutual funds held in nonretirement accounts are included in the calculation of net investment income. When your 2015 modified adjusted gross income exceeds $250,000 ($200,000 when you're single), a portion of your net investment income will be taxed at a rate of 3.8% over and above your ordinary tax liability.

Planning tip. The tax form the mutual fund company sends you at the beginning of 2016 may classify some dividends as "qualified" – meaning they meet the requirements for a lower tax rate. However, you have to own the mutual fund shares for more than 60 days to get the lower rate on your federal return.

Capital gains. Mutual funds generally distribute short-term and long-term capital gains from in-fund sales to shareholders. Even if you reinvest the distributions in additional shares instead of opting for cash, the gain remains taxable to you.
Short-term distributions, for sales of fund investments held one year or less, are taxable at your ordinary income tax rate. The tax rate for long-term capital gains may be as high as 20%, depending on your adjusted gross income.

You might also have a capital gain or loss when you sell shares of a mutual fund. That's true even if you "exchange" one fund for another and receive no proceeds.

Planning tip. You have options for calculating the cost of mutual fund shares you sell during the year. Remember to include reinvested distributions in your basis.

Please call our office for more information. We're happy to help you manage your investments with an eye toward tax savings.

 

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family in an airport, tax vacationDon't ignore your opportunity to save on taxes just because it's summertime. Here are some summertime tips to keep your tax plans going.

If you are a sole proprietor with children, you might consider putting them on the payroll during the summer months. Wages paid to your children under age 18 are not subject to social security and Medicare taxes. What's more, their earnings are not subject to federal unemployment tax until they turn 21.

If employing your children is not an option, you might still be able to score a deduction by sending them to summer camp. Day camp expenses for kids under 13 can provide a tax credit of up to 35%. Just remember, overnight camps do not qualify, and child-care must be necessary to allow the parents to work.

Summer is also a common time for home selling and moving, so be on the lookout for deductions related to these activities. Carefully file away all home sale or purchase papers for next year's tax filing. If your move is job-related, there is the potential for additional deductions if you meet the 50 miles or more test.

Perhaps your sights are set instead on some leisure travel. Tacking on a few fun days before or after a business trip might be a tax (and cost) efficient way to pay for a vacation – if you follow all the rules. Travel that is primarily for charitable work might also qualify you for a tax deduction.

And finally, no matter what your summer plans are, this is always a good time for a general tax check-up to ensure your withholdings and estimated tax payments are on target. For assistance with any of these issues, contact our office at 302.225.5000.

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Kathi Lindsay Jennings, CPAKathi Silicato, CPA Silicato and Lindsay Jennings recently attended the American Institute of CPAs Employee Benefit Plan conference.  During a time of unprecedented change in the world of Employee Benefit Plans (EBP), the three-day conference held in National Harbor, MD, provided an opportunity to hear directly from oversight agencies.

Among the seminar topics presented at this year’s meeting were:

  • DOL Audit Quality Study
  • Planning and Risk Assessment
  • Health Care Reform
  • Health and Welfare Plans
  • Auditing Defined Contribution and
  • Defined Benefit Plans
  • Alternative IRS Corrections
  • Fraud Cases
  • ESOPs
  • Retirement Readiness

“Attending this conference provides an opportunity to exchange knowledge and expertise with other professionals,” says Kathi.  “It is part of Gunnip’s commitment to adhering to the highest quality standards.”  As a member of the AICPA’s Employee Benefit Plan Audit Quality Center, Gunnip voluntarily agrees to the Center's membership requirements, including performing annual internal inspection procedures.

 

 

Red Self-Employeed banner

Owning your own business can be very rewarding, both personally and financially. Being the sole decision-maker for this important undertaking can also be overwhelming. Business owners have many choices to make, and these decisions involve tax consequences that are not always foreseen. We can help you minimize your overall tax burden by identifying and maximizing business deductions, providing guidance on substantiation of expenses, and exploring tax planning alternatives that are uniquely available to the self-employed.

Some frequently overlooked business expenses that you may be able to deduct include moving expenses, costs of travel away from home, entertainment expenses, and expenses related to a home office. Code Sec. 179 expense allowances on the purchase of new equipment can provide a significant deduction. In addition, there are multiple benefits when you employ your spouse, child, or other family member in the business.

There are some risks involved in adopting tax positions related to operating a business as an independent contractor. For example, the distinction between employee and independent contractor is an issue the IRS subjects to special scrutiny. As a self-employed individual, you must comply with these rules for yourself or for any workers that you hire. If you are an employer, you must withhold income and employment taxes from an employee’s income. However, if your workers are independent contractors, you are only required to report payments of $600 or more on a Form 1099-MISC, Miscellaneous Income. Failing to make the right classification, however, could result in additional taxes, interest and penalties.

The IRS offers an amnesty program called the Voluntary Classification Settlement Program (VCSP) to encourage employers to reclassify their workers as employees for employment tax purposes for future tax periods. Under the VCSP, employers are allowed to prospectively treat the workers as employees at a cost that is 10 percent of what is normally owed in a worker misclassification situation.

Complex rules and calculations are involved in many of the planning opportunities that are available to you. We will be happy to review your overall tax scenario in order to maximize your tax savings. Please contact our office at 302.225.5000 your earliest convenience to make an appointment.

 

 

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