Here are some of the most significant changes in taxation for 2018 – 2025:
Individual Tax Changes
1. Individual tax rates have been reduced – maximum rate reduced to 37%
2. Miscellaneous itemized deductions – not deductible from 2018-2025!
a. Applies to total of all miscellaneous deductions
b. Includes home office, auto, and similar deductions
3. State and local tax deduction – $10,000 limitation
Some states have enacted (or are preparing to enact) laws that permit taxpayers to make a charitable contribution in lieu of taxes, hoping to get around the $10,000 limit on deducting state and local taxes.
In the case of individuals, the IRS has announced that it will issue regulations which disallow any such payments as charitable contributions. The $10,000 limit will certainly apply to such payments.
The IRS has issued rules that allow business entities that make such payments to deduct them as ordinary and necessary business expenses, but not as charitable contributions. The rule doesn’t spell out what happens to any remaining balance of tax payments made that exceed $10,000, but it appears likely that any such will not be deductible.
When you set up a living (revocable) trust — you (or you and your spouse if married) are the Trustee(s).
In the trust you name Successor Trustees to take over when you are incapacitated or deceased. This raises the important questions:
- Who do you want to make the decision that you are no longer capable of handling your own affairs (and thus the Successor Trustees will take over)?
Do you want one person such as your spouse to make that decision? More than one person? Your spouse and children? Your spouse and doctor? Two doctors? The choice is up to you, but think it through carefully.)
- Your trust will always name a Successor Trustee, but have you considered Co-Trustees or an independent Trustee?
If you own a family business, you are facing one of the most difficult issues in planning your estate. Not the tax issues — those are easy to handle by comparison, but the family dynamics surrounding to whom you are leaving your business.
Often, you — the founder — will have a very different view of the business than do your adult children — the future beneficiaries.
- To you, the business may represent the heart of the family legacy; to your children, it may be unimportant, or even an outmoded and unwanted burden.
- There may be some children involved in the business, and others not involved; how do you ensure that all are treated equally?
- Suppose one or more of the children not involved in the business wants to become involved — or the child or children in wants out?
- Maybe the time has come for the business to transition to professional or employee management — although you just cannot imagine giving up control.
- Perhaps a sale to a competitor or even liquidation is the right move; how will you feel to see your life’s work on the auction block?
These are just a few of the situations that can cause difficulties in arriving at a plan which meets your family’s needs. You can see why the statistics show that only about 30% of family businesses survive through more than one generation, and only about 10-15% make it through the third generation.
Warren Kozak’s April 27, 2018, Wall Street Journal article titled “You Can Limit Death’s Financial Costs, if Not the Emotional Ones” features several excellent points – what the author describes as his own “real rookie mistakes that led to hours of extra work and substantial fees” and which inspired him to write the article to save other people from his mistakes.
Here is just one important issue from his article:
Issue One: When we opened those checking and savings accounts, we never named beneficiaries. I had assumed, incorrectly, that our accounts would simply transfer to the other in case of death. The banker who opened the accounts never suggested otherwise. With a named beneficiary, her accounts would have simply been folded into mine. Instead, I had to hire a lawyer—at $465 an hour—to petition the court to name me as the executor of her estate. I needed this power to transfer her accounts. Filing costs in New York City for the necessary document was $1,286. The running bill for the lawyer stands at $7,402.00, and I expect it to rise. [In California, the costs could be even higher — MM.]
I also needed the documents for the companies that managed her retirement accounts and a mutual fund, because, as at the bank, we never named a beneficiary. By the way, this paperwork also required signature guarantees or a notary seal, which can take up an afternoon.
These are just some of the seemingly “simple” money matters that can cause trouble and expense for your intended beneficiaries if estate planning and documentation is not done correctly.
Have questions on estate planning? Contact Mitchell R Miller.
Although many people in the entertainment industry have formed or converted their loan-outs to S corporations, the Tax Cuts and Jobs Act of 2017 (TCJA) changed some of the tax rules that affect these corporations (and their owners!).
Let’s see how these changes affect the choice of what entity to use when forming a loan-out corporation:
● Using an S corporation (S corp) loan-out may cost you most of your deductions.
S corps are required (and have been for many years) to pass out employee business expenses to their shareholders, and not to deduct such expenses at the corporate level. That means that expenses such as the fees for agents, managers, lawyers, and business managers are not deductible by the corporation. Instead these fees are supposed to be only deductible by you, the shareholder, on your individual return, as miscellaneous itemized deductions on your Schedule A. But, under the TCJA changes, miscellaneous itemized deductions are no longer deductible (at all!). In other words, you will now be taxed on all your income and get none of your deductions.
Before we discuss these errors, though, let’s just review what an “executor” is:
An executor is the person appointed in a will to administer an estate, usually under some degree of court supervision.
A trustee is the person or persons designated in a trust to administer the trust, normally after the person or persons who set up the trust (called the “Grantor,” “Settlor,” or “Trustor”) have died or become incapacitated. This is usually done without any type of court supervision.
Notwithstanding the difference, an executor or a trustee will frequently be dealing with the same issues.
The terms executors and trustees are both used in estate planning. Before looking at the similarities and differences between these two estate plan administrators, let’s review the difference between a will and a living trust:
- A will is a legal document directing the disposition of assets upon a person’s death.
- A living trust is a legal arrangement under which property is transferred to a trustee to administer in accordance with the instructions of the person who sets up the living trust. A trust may continue for a long period of time – both before and after the death of the person whose trust it is.
Executors are named in a will to carry out (execute) your instructions after your death. If you only have a will and don’t have a living trust – the executor of your will is the one who will be responsible for getting your estate through probate.
The 2017 Tax Cuts and Jobs Act provided new benefits to taxpayers to encourage investment in economically disadvantaged areas. The benefits are extensive but they require careful compliance with the regulations governing the new program.
The Opportunity Zone program permits people to invest the proceeds of a recent capital gain in one or more designated “Qualified Opportunity Zones” to defer and reduce that original capital gain.
A. Here’s how it works:
I have worked on several trust disputes that could have been avoided or reduced if the trust creation had been done with more forethought.
First, let me say that these are NOT cases in which I prepared the trusts. These are cases in which trusts were prepared by others and then brought to me after the original trustee was deceased.
What is especially upsetting about the recent trust disputes I have seen is that several of these issues caused huge fights among family members. Surely the deceased relative did not wish to start family feuding.
Remember that creating a trust has as its main purpose preventing or reducing major complications and costs upon your death. Thus, if your trust does not meet the needs of your specific situation, you may not have achieved this.
In spite of the IRS’s information campaign, many people still do not know that the IRS has mounted a huge enforcement effort in the international arena to get people to report foreign accounts and foreign income. And if you have foreign assets, you might be surprised that this enforcement effort could apply to you.
Specifically, the IRS has for all practical purposes eliminated bank secrecy for U.S. citizens and residents, forcing foreign banks to identify all their U.S. account holders. In many cases, foreign banks have simply kicked out all their U.S. depositors. And the penalties for not reporting foreign accounts, income and transactions grow larger every year.
In one recent case, a federal jury held that a man who had failed to report the existence of his foreign account or include the interest from the account in his income was liable for a penalty of 150% of the highest value of the account. That’s right — ONE AND A HALF TIMES THE ENTIRE VALUE OF THE ACCOUNT!
And that’s only the penalty. There’ll be tax, interest on the tax, and interest on the penalty to boot!
What types of foreign items are you required to report?