Posts Tagged ‘tax’
Posted by William Byrnes on February 18, 2011
A recent Tax Court case demonstrates the severe tax consequences for an employee when a welfare-benefit plan ceases to qualify under section 419A of the Tax Code. Section 419A governs “qualified asset accounts,” which are employer provided welfare-benefits plans that set aside funds for (1) disability benefits, (2) medical benefits, (3) severance benefits, or (4) life insurance benefits. In general, contributions by an employer to a welfare-benefit plan are tax deductible by the employer if they are ordinary and necessary business expenses. In the case, part of the funds contributed to the plan were used to buy life insurance coverage for the principal and other employees, with the rest of the funds constituting excess contributions.
Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
Posted in Retirement Planning | Tagged: Employee benefit, Employment, insurance, life insurance, tax, Tax deduction, United States, Welfare | Leave a Comment »
Posted by William Byrnes on February 16, 2011
Why is this Topic Important to Wealth Managers? Discusses the new income reporting threshold for non-profit organizations. Provides details on the new level of reporting required on Form 990 for 501(c) organizations.
Generally the Internal Revenue Code requires the filing of an annual return by exempt organizations. [1] However, there are certain mandatory exceptions to the annual filing requirement for exempt organizations provided by the Code. [2]
Further, the tax law provides that the Secretary of the Treasury, through the Commissioner of the Internal Revenue Service may relieve exempt organizations from the annual filing requirement if the Secretary determines that such filings are not necessary to the efficient administration of the internal revenue laws. [3]
Before, exempt organizations were relieved from the Form 990 (Return of Organization Exempt from Income Tax) filing requirement for organizations described in § 501(c) (other than private foundations) whose annual gross receipts are normally not more than $25,000. [4]
Read the full analysis and on similar issues – AdvisorFYI
Posted in Tax Exempt Orgs | Tagged: 501(c), income tax, Internal Revenue Code, Internal Revenue Service, IRS tax forms, Non-profit organization, tax, Tax exemption | Leave a Comment »
Posted by William Byrnes on February 12, 2011
The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (Tax Relief Act) extended the income tax deduction for state and local sales taxes through December 31, 2011. The deduction expired on January 1, 2009, but Congress amended the provision retroactively, which will allow taxpayers to take the deduction on their 2010 taxes. The deduction, which has been slated to expire a number of times, has been revived by Congress repeatedly since it was introduced but has not yet been made a permanent part of the Code. Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
For previous coverage of the Tax Relief Act of 2010 in Advisor’s Journal, see Obama Tax Compromise Provides 100 Percent Bonus Depreciation of Business Assets Through 2011 (CC 11-01), Obama’s Social Security Tax Holiday: Penny Wise and Pound Foolish? (CC 10-119), Does the New Estate Tax Make the Bypass Trust Obsolete? (CC-10-122), & 2010 Estates: To Elect or Not to Elect (CC 10-124).
For in-depth analysis of income tax deductions, see Advisor’s Main Library: B4—Business Income and Deductions.
We invite your questions and comments by posting them or by calling the Panel of Experts.
Posted in Taxation | Tagged: accounting, Internal Revenue Service, Itemized deduction, January 1 2009, tax, Tax deduction, Unemployment benefits, United States | Leave a Comment »
Posted by William Byrnes on February 11, 2011
Recently, in a series of Announcements the Internal Revenue Service stated that it was developing a schedule requiring certain business taxpayers to report uncertain tax positions on their tax returns.
Now the new requirements have been finalized, businesses and wealth managers have a better idea of the direction of Uncertain Tax Position reporting.
Reported under Schedule UTP for Form 1120 series, the Uncertain Tax Position reporting currently applies to a select number of corporations (however phase-in provisions will change this by 2012 and 2014).
Who must file a Schedule UTP?
The class of organizations that must file is limited (for now). Generally, for 2010 tax year returns most small businesses will not be included in the reporting, but that will probably change. Nevertheless, a corporation must file Schedule UTP with its 2010 income tax return if: To read this article excerpted above, please access AdvisorFYI
Posted in Tax Policy | Tagged: Business, Corporation, Internal Revenue Service, IRS tax forms, tax, Tax return (United States), TurboTax, United States | Leave a Comment »
Posted by William Byrnes on February 10, 2011
A member of the U.S. military who takes a leave of absence from his private sector job in order to go on active duty will often face a pay cut—the differential between his military and private sector pay. Some employers make up this differential by paying employees who are on active duty a partial salary. Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
For previous coverage of the Tax Relief Act of 2010 in Advisor�s Journal, see Obama Tax Compromise Provides 100 Percent Bonus Depreciation of Business Assets Through 2011 (CC 11-01), Obama’s Social Security Tax Holiday: Penny Wise and Pound Foolish? (CC 10-119), Does the New Estate Tax Make the Bypass Trust Obsolete? (CC-10-122), and 2010 Estates: To Elect or Not to Elect (CC 10-124).
Posted in Tax Policy | Tagged: Active duty, Barack Obama, Federal Insurance Contributions Act tax, South Carolina, tax, TurboTax, United States, United States armed forces | Leave a Comment »
Posted by William Byrnes on February 9, 2011
Although trusts can be taxpayers, Sections 671 to 679 of the Internal Revenue Code contain the so-called ‘grantor trust rules’, which treat certain trust settlors (and sometimes persons other than the settlor) as the owner of a portion or all of a trust’s income, deductions and credits for US tax purposes. A trust where the settlor (or other person) is treated as the owner of the trust assets for US tax purposes is referred to as a ‘grantor trust’. The grantor trust rules apply to both foreign and domestic trusts, but in different ways.
Under the grantor trust rules, a US person who transfers property to a foreign trust is generally treated for income tax purposes as the owner of that portion of the trust attributable to the transferred property, even if the trust would not have been a grantor trust had it been domestic.
This is the result for any tax year in which any portion of the foreign trust has a US beneficiary. A foreign trust is treated as having a US beneficiary for a tax year unless (i) under the terms of the trust, no part of the trust’s income or corpus may be paid or accumulated during the tax year to or for the benefit of a US person, and (ii) if the trust is terminated at any time during the tax year, no part of the income or corpus could be paid to or for the benefit of a US person. The Internal Revenue Service (IRS) regulations under Section 679 of the Internal Revenue Code generally treat a foreign trust as having a US beneficiary if any current, future or contingent beneficiary of the trust is a US person. To read this article excerpted above, please access AdvisorFYI.
Posted in Taxation | Tagged: Fiscal year, income tax, Internal Revenue Code, Internal Revenue Service, IRS tax forms, tax, Taxation, United States | Leave a Comment »
Posted by William Byrnes on February 8, 2011
Written by the foremost experts in the field – Professor William H. Byrnes, Esq., LL.M, and Robert Bloink, Esq., LL.M
Understand the Act’s Implications for You and Your Clients
- Analyzes important insurance, estate, gift, and other elements of the Act
- Provides pertinent information on other important 2010 tax developments
- Convenient Q&A format speeds you to the information you need – with answers to over 100 important questions
Summary Table of Contents
- Analysis of the Tax Relief Act of 2010
- Income Tax Provisions
- Estate Tax Provisions
- Generation Skipping Transfer Tax
- Deduction for State and Local Sales Taxes
- Alternative Minimum Tax
- Tax Credits
- Payroll Tax Holiday
- Wage Credit for Employees who are Active Duty Members of the Military
- Charitable Distributions from Retirement Accounts
- Bonus Depreciation and Section 179 Expensing
- Basis Reporting Requirements for Brokers and Mutual Funds
- Regulated Investment Company Modernization Act of 2010
- Health Care Act
- Form 1099 Reporting Requirement for Businesses
- American Jobs and Closing Tax Loopholes Act of 2010
- Requirements for Tax Return Preparers
Price: $12.95 + shipping & handling and applicable sales tax
To order:
With our Custom Imprint program, you can place your company’s logo on the cover of this analysis and you’ll leave a lasting impression. Call 1-800-543-0874 for additional information.
Posted in Uncategorized | Tagged: accounting, Alternative Minimum Tax, IRS tax forms, Section 179 depreciation deduction, Small business, tax, Tax credit, United States | Leave a Comment »
Posted by William Byrnes on February 8, 2011
Recently some wealth managers have established trustee services with regards to retirement accounts. It’s a good fit, generally, when the wealth manager can offer clients information regarding deductible contributions to a retirement account, and further act as a fiduciary vis-à-vis trustee of those funds.
What are the basic requirements in order to act in the capacity as a trustee for IRA and other retirement account purposes?
First, an Individual Retirement Account (IRA) must be a trust created or organized in the United States for the exclusive benefit of an individual or his beneficiaries. Such trust must be maintained at all times as a domestic trust in the United States. The instrument creating the trust must be in writing.
Secondly, the trustee of an IRA trust may be a person other than a bank if the person demonstrates to the satisfaction of the Commissioner of the Internal Revenue Service that the manner in which the person will administer trusts will be consistent with the requirements of the tax code. The person must submit a written application including the information discussed below. Read further at AdvisorFYI
Posted in Pensions, Trusts | Tagged: Individual Retirement Account, Internal Revenue Service, Retirement, Roth IRA, tax, Trust law, Trustee, United States | Leave a Comment »
Posted by William Byrnes on February 5, 2011
Some taxpayers are going to have to wait until mid-to-late February to file their 2010 income tax returns, delaying much needed refunds and potentially clogging up the system for other taxpayers. The IRS is blaming the filing delay on Congress waiting until the end of December to pass the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, H.R. 4853 (Tax Relief Act), which includes a bevy of tax provision extensions, a new two-year estate tax, and a one-year, 2 percent Social Security tax holiday. Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
For previous coverage of the Tax Relief Act of 2010 in Advisor’s Journal, see Obama Tax Compromise Provides 100 Percent Bonus Depreciation of Business Assets Through 2011 (CC 11-01), Obama’s Social Security Tax Holiday: Penny Wise and Pound Foolish? (CC 10-119), Does the New Estate Tax Make the Bypass Trust Obsolete? (CC-10-122), and 2010 Estates: To Elect or Not to Elect (CC 10-124).
Posted in Taxation | Tagged: Congress, Internal Revenue Service, IRS, tax, Tax return (United States), Unemployment benefits, United States, United States Congress | Leave a Comment »
Posted by William Byrnes on February 2, 2011
Child Tax Credit—for taxable years beginning in 2011, the value used in 24(d)(1)(B)(i) to determine the amount of credit under § 24 that may be refundable is $3,000.
Hope Scholarship, American Opportunity, and Lifetime Learning Credits—for taxable years beginning in 2011, the Hope Scholarship Credit under § 25A(b)(1), as increased under § 25A(i) (the American Opportunity Tax Credit), is an amount equal to 100 percent of qualified tuition and related expenses not in excess of $2,000 plus 25 percent of those expenses in excess of $2,000, but not in excess of $4,000. Accordingly, the maximum Hope Scholarship Credit allowable under § 25A(b)(1) for taxable years beginning in 2011 is $2,500.
In addition, for taxable years beginning in 2011, a taxpayer’s modified adjusted gross income in excess of $80,000 ($160,000 for a joint return) is used to determine the reduction under § 25A(d)(2) in the amount of the Hope Scholarship Credit otherwise allowable under § 25A(a)(1). For taxable years beginning in 2011, a taxpayer’s modified adjusted gross income in excess of $51,000 ($102,000 for a joint return) is used to determine the reduction under § 25A(d)(2) in the amount of the Lifetime Learning Credit otherwise allowable under § 25A(a)(2).
Standard Deduction—In general, for taxable years beginning in 2011, the standard deduction amounts under § 63(c)(2) are as follows: To read this article excerpted above, please access AdvisorFYI
Posted in Taxation | Tagged: Adjusted Gross Income, American Opportunity Tax Credit, Hope credit, Hope Scholarship Credit, Lifetime Learning Credit, tax, Tax credit, United States | Leave a Comment »
Posted by William Byrnes on January 31, 2011
Image via Wikipedia
Prior to January 1, 2011, any individual could prepare a tax return or claim for refund for compensation. An individual who prepared and signed a taxpayer’s return or claim for refund as the preparer generally could also represent that taxpayer during an examination of the taxable period covered by that return or claim for refund.
All that has changed ever since the IRS issued regulations which state that after December 31, 2010, in order to prepare a tax return for a fee, or to otherwise represent a taxpayer before the IRS, an individual must obtain a preparer tax identification number (PTIN). …
The Treasury Department and the IRS have decided to adopt the proposed regulations that establish a $50 user fee to apply for or renew a PTIN, which are estimated to recover the full cost to the IRS for administering the PTIN application and renewal program.
Read the full analysis at AdvisorFYI
Posted in Tax Policy | Tagged: Internal Revenue Service, IRS, Social Security number, tax, Tax preparation, Tax refund, Tax returns, United States | 1 Comment »
Posted by William Byrnes on January 29, 2011
President Obama’s tax compromise—the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (Tax Relief Act)—includes a provision that permits qualified charitable distributions to be made directly from an individual retirement account.
Generally, to make a charitable contribution from an IRA, the account owner has to take a distribution from the account, pay any tax due on the contribution, and then make the charitable contribution. An account owner can also name a charity as a beneficiary of the retirement account. Direct qualified charitable distributions take out the middle step, keeping the distribution out of the taxpayer’s taxable income … Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
For previous coverage of individual retirement accounts in Advisor’s Journal, see Maximize IRA Stretch with Individual Inherited IRA Accounts (CC 10-69) and The Automatic IRA Act of 2010: Boon for Advisors? (CC 10-56).
For in-depth analysis of individual retirement accounts, see Advisor’s Main Library: IRAs and SEPs.
We invite your questions and comments by posting them in our blog AdvisorFYI or by calling the Panel of Experts.
Posted in Taxation | Tagged: Barack Obama, Boon, Individual Retirement Account, Internal Revenue Service, Retirement, Roth IRA, tax, Unemployment benefits | Leave a Comment »
Posted by William Byrnes on January 27, 2011
Although some items purchased by a business can be written off 100% for income tax purposes in the year of purchase, many types of property are not eligible to be deducted fully in the year they are purchased. The tax deduction for purchase of a piece of depreciable property is spread out over the life of the property.
Each year during the depreciation period the business is allowed to take a tax deduction for some portion of the purchase price of the property. The Tax Relief Act includes a provision allowing 100% bonus depreciation for some business assets. It also extends for an additional year the 50% bonus depreciation provisions previously scheduled to expire at the end of 2011. Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
Posted in Taxation | Tagged: accounting, Business, Depreciation, Section 179 depreciation deduction, tax, Tax deduction, United States, Write-off | Leave a Comment »
Posted by William Byrnes on January 25, 2011
Although overshadowed by the fight over the Obama tax agreement, mutual fund legislation passed the House on December 15. The Registered investment Company Modernization Act of 2010 (RICM Act), H.R. 4337, was originally passed by the House on September 28, but the Senate amended the bill, forcing a second vote in the House. The President signed it into law December 22 – Public Law 111-325.
Tax Code provisions governing mutual funds have not had a substantial update since 1986, with some components of the Code relating to mutual funds sitting untouched for sixty or more years. The tax and regulatory landscape has changed significantly in the intervening years, which has left the tax rules for mutual funds sorely in need of updating.
The RICM Act brings the Tax Code’s treatment of mutual funds and other registered investment companies (RICs) up to date by introducing the following provisions to the Tax Code, among others: Read this complete article at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
For previous coverage of mutual fund investment in Adviso’rs Journal, see Can Term Life Coupled with a Mutual Fund Investment Replace a Variable Universal Life Policy? (CC 10-77).
Posted in Tax Policy | Tagged: Business, Business and Economy, Financial services, Funds, Investing, Investment, Mutual fund, tax | Leave a Comment »
Posted by William Byrnes on January 24, 2011
Did Congress finally settle the estate tax confusion when it passed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (Tax Relief Act) on December 16? Although the estate tax treatment of estates of decedents dying in 2011 and 2012 is crystal clear, most of our clients will outlive the current estate tax regime, and we will be stuck in the same spot we were for the last half of 2010, wondering what the next year holds.
And what about the estates of decedents dying in 2010? Under the Tax Relief Act, estates of decedents dying in 2010 have a choice. They can elect to have the estate subjected to an estate tax regime with an exclusion amount of $5,000,000 (unified credit of $1,730,000) and an estate tax rate of 35 percent. Beneficiaries of these estates will receive the benefit of the stepped-up basis rules applicable prior to 2010. Read this complete article at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
For previous coverage of Obama’s tax agreement, including its estate tax provisions, in Advisor’s Journal, see Obama Tax Agreement Faces Stiff Resistance in Congress (CC 10-112) and Obama Tax Agreement Passed by House (CC 10-117).
For in-depth analysis of the estate tax, see Estate, Gift and GST Taxes.
Posted in Estate Tax | Tagged: Congress, Estate tax in the United States, gift tax, Goods and Services Tax (Canada), Inheritance tax, Stepped-up basis, tax, United States Congress | Leave a Comment »
Posted by William Byrnes on January 19, 2011
Life insurance policies are granted preferred tax treatment, with death benefits distributable tax-free to beneficiaries, but some distributions from a life insurance policy are subject to income tax. For instance, although inside buildup of policy value occurs tax-free, when that value is tapped through policy withdrawals, the policy owner may be taxed on the distribution. Current income taxation can also result when a policy is cancelled or otherwise terminated when a policy loan is outstanding, as illustrated by a recent Tax Court case.
For previous coverage of life insurance developments in Advisor’s Journal, see Life Insurance: Iron-Clad Asset Protection or Chink in the Armor? (CC 10-114) and IRS Blesses Life Insurance Policy Held by Profit-Sharing Plan (CC 10-96). Read this complete article at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
For in-depth analysis of policy loans and withdrawals, see Advisor’s Main Library: Section 19.1 G—Tax Treatment Of Policy Loan Interest and Section 19.1 C—Taxation of Amounts Payable During Life.
Posted in Insurance, Taxation | Tagged: insurance, Insurance policy, Internal Revenue Service, life insurance, Policy, tax, term life insurance, United States | Leave a Comment »
Posted by William Byrnes on January 18, 2011
Written by the foremost experts in the field, Robert Bloink, Esq., LL.M and Professor William H. Byrnes, Esq., LL.M, CWM
Understand the Act’s Implications for You and Your Clients
- Analyzes important insurance, estate, gift, and other elements of the Act
- Provides pertinent information on other important 2010 tax developments
- Convenient Q&A format speeds you to the information you need – with answers to over 100 important questions
Summary Table of Contents
- Analysis of the Tax Relief Act of 2010
- Income Tax Provisions
- Estate Tax Provisions
- Generation Skipping Transfer Tax
- Deduction for State and Local Sales Taxes
- Alternative Minimum Tax
- Tax Credits
- Payroll Tax Holiday
- Wage Credit for Employees who are Active Duty Members of the Military
- Charitable Distributions from Retirement Accounts
- Bonus Depreciation and Section 179 Expensing
- Basis Reporting Requirements for Brokers and Mutual Funds
- Regulated Investment Company Modernization Act of 2010
- Health Care Act
- Form 1099 Reporting Requirement for Businesses
- American Jobs and Closing Tax Loopholes Act of 2010
- Requirements for Tax Return Preparers
Product Information:
Softcover/64 pages total; 42 pages of questions and answers
Publication Date: January 2011
Publication Number: 1350011
Price: $12.95 + shipping & handling and applicable sales tax
To order:
With our Custom Imprint program, you can place your company’s logo on the cover of this analysis and you’ll leave a lasting impression. Call 1-800-543-0874 for additional information.
Posted in Taxation | Tagged: accounting, Alternative Minimum Tax, income tax, IRS tax forms, Section 179 depreciation deduction, tax, Taxation, United States | Leave a Comment »
Posted by William Byrnes on January 18, 2011
The recent Obama Tax Cuts reinstated the estate and generation skipping transfer taxes effective for decedents dying and transfers made after December 31, 2009. As was discussed earlier this week, the estate tax applicable exclusion amount is $5 million for decedents dying in calendar years after 2011, and the maximum estate tax rate is 35 percent. Furthermore, the generation skipping transfer tax exemption for decedents dying or gifts made after December 31, 2009, is equal to the applicable exclusion amount for estate tax purposes ($5 million for 2010).
For a general background on the Generation Skipping Transfer Tax, see our November 1st Blogticle entitled: Life Insurance and the Generation—Skipping Transfer Tax
Although technically the generation skipping transfer tax is applicable for 2010, the generation skipping transfer tax rate for transfers made during 2010 is zero percent. After this year, the generation skipping transfer tax rate equals the highest estate and gift tax rate in effect for such year (35 percent in 2011 and 2012), notwithstanding the exclusion amounts.
Moreover, under the new law, a recipient of property acquired from a decedent who dies after December 31, 2009, generally will receive fair market value basis (i.e., “step up” in basis). [1]
To read this article excerpted above, please access http://www.advisorfyi.com/2010/12/obama-tax-cuts-analysis-estate-and-generation-skipping-transfer-tax/
Posted in Estate Tax | Tagged: Death, Estate tax in the United States, Generation-skipping transfer tax, gift tax, Inheritance tax, Internal Revenue Service, tax, United States | Leave a Comment »
Posted by William Byrnes on January 17, 2011
President Obama’s tax compromise introduces a new estate tax concept for 2011 and 2012, the deceased spouse unused exclusion amount (DSUEA). Essentially, the DSUEA allows a surviving spouse to utilize the unused exclusion amount of the first spouse to die. The new law raises an important planning question: Is the bypass (credit shelter) trust obsolete as an estate planning device? Also: Do existing bypass trusts need to be amended in light of the new law?
In general, under the new estate tax, an estate’s exclusion amount, referred to as its applicable exclusion amount, is the sum of two components: the basic exclusion amount and the DSUEA. The basic exclusion amount for estates of decedents dying in 2011 and 2012 is $5 million. The second part of the equation, the DSUEA, is the amount of the first-to-die spouse’s exclusion amount that is not used by the that spouse’s estate. Note that a surviving spouse’s DSUEA is equal to the unused exclusion amount of the surviving spouse’s last deceased spouse. Read this complete article at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
For previous coverage of Obama’s tax agreement, including its estate tax provisions, in Advisor’s Journal, see Obama Tax Agreement Faces Stiff Resistance in Congress (CC 10-112) and Obama Tax Agreement Passed by House (CC 10-117).
For in-depth analysis of the estate tax, see Advisor’s Main Library: Estate, Gift and GST Taxes.
Posted in Estate Tax | Tagged: Death, estate planning, gift tax, Inheritance tax, law, tax, United States Congress, Widow | Leave a Comment »
Posted by William Byrnes on January 15, 2011
“For more than three decades, the individual income tax has consisted of two parallel tax systems: the regular tax and an alternative tax that was originally intended to impose taxes on high-income individuals who have no liability under the regular income tax.” [1]
Current law imposes an alternative minimum tax (AMT) only on individuals. “The stated purpose of the alternative minimum tax (AMT) is to keep taxpayers with high incomes from paying little or no income tax by taking advantage of various preferences in the tax code.” [2]
The parallel tax structure to the regular income tax law requires individuals “to recalculate their taxes under alternative rules that include certain forms of income exempt from regular tax and that do not allow specific exemptions, deductions, and other preferences.” [3]
Generally, the AMT is an amount that is the excess of the “tentative minimum tax” over the regular income tax.
Tentative minimum tax is equal to the sum of (1) 26 percent of so much of the taxable excess as does not exceed $175,000 ($87,500 in the case of a married individual filing a separate return) and (2) 28 percent of the remaining taxable excess, which is essentially an individual’s taxable income adjusted to take into account certain specified preferences and adjustments (also known as alternative minimum taxable income (“AMTI”)) minus the exemption amount. To read this article excerpted above, please access http://www.advisorfyi.com/2010/12/obama-tax-cuts-alternative-minimum-tax-exemption-extensions/
Posted in Taxation | Tagged: Alternative Minimum Tax, AMT, Incentive stock option, Income, income tax, Itemized deduction, tax, Taxable income | Leave a Comment »
Posted by William Byrnes on January 14, 2011
Image via Wikipedia
In 2001, the Economic Growth and Tax Relief Reconciliation Act first created a new 10-percent regular income tax bracket for a portion of taxable income that was previously taxed at 15 percent. That law also reduced the other regular income tax rates. The otherwise applicable regular income tax rates of 28 percent, 31 percent, 36 percent and 39.6 percent were reduced to 25 percent, 28 percent, 33 percent, and 35 percent, respectively.
Under Section 101 of the new Tax Relief, Unemployment Insurance Reauthorization, And Job Creation Act of 2010, the law creates an extension of the taxable income brackets created almost a decade ago.
Generally, a taxpayer determines his or her tax liability by applying the tax rate schedules (or the tax tables) to his or her taxable income. The rate schedules are broken into several ranges of income, known as income brackets, and the marginal tax rate increases as a taxpayer’s income increases. Separate rate schedules apply based on an individual’s filing status.
Below are the new tax rate tables for those filing as single taxpayers, married filing jointly, as well as head of household.
To read this article excerpted above, please access http://www.advisorfyi.com/2010/12/new-tax-brackets-under-the-obama-tax-cuts/
Posted in Taxation | Tagged: income tax, Inflation, Rate schedule (federal income tax), tax, Tax bracket, Tax rate, Taxable income, United States | Leave a Comment »
Posted by William Byrnes on January 11, 2011
Why is this Topic Important to Wealth Managers? Presents discussion on the effect of the Obama Tax Cuts on the Estate Planning industry in general. Also presents analysis regarding the estate tax burden on taxpayers.
The quintessential planning tool that many wealth managers relied on could easily become a thing of the past. In other words, the Obama Tax cuts are creating concern for some wealth managers who sold life insurance to cover the tax of an estate at the death of the decedent. Sections 301-304 of the new law reinstated the estate tax, but nevertheless, created large exclusions, essentially removing the need for many to cover the estate tax burden with the purchase of life insurance.
Specifically, the applicable estate tax exclusion amount is $5 million under the law (and is indexed for inflation) for decedents dying in calendar years starting in 2011. Married individuals’ will see a total exclusion of $10 million. Furthermore, the new law reinstates the maximum estate tax rate of 35 percent. To read this article excerpted above, access www.AdvisorFYI.com
Posted in Estate Tax | Tagged: Death, estate planning, Estate tax in the United States, Inheritance tax, law, life insurance, Republican, tax | Leave a Comment »
Posted by William Byrnes on January 10, 2011
This 10 week live online video-conference course on Brazil will be taught in English (but all attendants may use Portuguese to ask and respond to questions) by several renown Brazilian specialists who have extensive out-of-country experience, working as international counsel for large multinational companies, big 4 firms, and government.
Please contact Associate Dean Prof. William Byrnes if you are interested in enrolling in this executive education course. wbyrnes@tjsl.edu or skype: professorbyrnes All lectures are recorded for playback during the ten weeks. Lexis access is included.
Tax System:
- Overview – Main taxes;
- Corporate Taxation: Corporate Income tax and Social Contribution;
- Simplified tax regime;
- Accounting Rules (IFRS and SPED);
- Investment incentives;
- Developing a Tax Strategy in Brazil;
- Tax avoidance versus Tax Evasion
General Overview of Brazilian Indirect Taxes
- VAT;
- Other Indirect Taxes;
Foreign Investments:
- Brazilian Central Bank (Regulations, Registrations and forms);
- Dividends, Royalties, Loans, etc;
- Capital Gains;
- Foreign Trade Rules (Import and Export transactions);
Mergers & Acquisitions;
- Corporate aspects;
- Tax implications;
Financial System:
- Organization,
- Newcomers,
- Competition,
Foreign Companies:
- Tax credit
- Withholding Tax;
- Financing issues;
- Permanent Establishment;
- Low-tax Jurisdictions (Tax Haven Countries);
- Tax treaties
Transfer Pricing
Industrial Property Rights
Posted in Courses | Tagged: Brazil, Corporate tax, Intellectual property, tax, Tax avoidance and tax evasion, Tax treaty, United States, Withholding tax | 1 Comment »
Posted by William Byrnes on January 5, 2011
An estate has asked the U.S. Supreme Court to consider whether the GST tax “grandfathering exemption” is ambiguous. Two circuit courts of appeal have held that the statute is ambiguous while another two circuits hold that it is plain and unambiguous.
The Supreme Court is being asked to settle the split between the circuits.
The Generation Skipping Trusts
A generation skipping trust is a trust designed to shift property from one generation to another without passing the property through an intervening generation—e.g. a trust that transfers property from grandparents to their grandchildren. Generally the “child beneficiaries” (children of the grantor) take only an income interest in the trust with grandchildren taking a remainder interest in the trust. When the child beneficiaries die, trust assets will be transferred to the grandchildren. Assuming the child beneficiaries took only an income interest in the trust and did not hold any incidents of ownership in the trust, the trust will not be included in the children’s estates when they die.
So, for example, if Grandfather funds a trust will for $5 million, naming his three adult children as income beneficiaries and his grandchildren as remainder beneficiaries, the trust is a generation skipping trust. Read this complete article at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
For in-depth analysis of the generation skipping transfer tax, see Advisor’s Main Library: Section 2.1 A—Generation Skipping Transfers Explained
We invite your questions and comments by posting them below or by calling the Panel of Experts.
Posted in Estate Tax | Tagged: Beneficiary, Family, Generation-skipping transfer tax, gift tax, Supreme Court of the United States, tax, Trust law, U.S. Supreme Court | Leave a Comment »
Posted by William Byrnes on January 3, 2011
Why is this Topic Important to Wealth Managers? Discusses and examines some long-term implications on the economy, through a macroeconomic perspective, of the Bush Tax Cuts. Examines financial data spanning over a decade to help wealth managers converse on current economic topics.
A recent report examined certain major economic indicators in relation to the Bush tax cuts. These indicators, in total, showed a negative overall effect that the Bush tax cuts had on the economy. The below chart presents common economic gauges before and after the tax cuts (which first occurred in 2001 and 2002).
To read this article excerpted above, please access www.AdvisorFYI.com
Posted in Tax Policy, Uncategorized | Tagged: economic growth, tax, Tax cut, tax policy | Leave a Comment »
Posted by William Byrnes on December 30, 2010
Why is this Topic Important to Wealth Managers? Provides analysis for those wealth managers who may be considering a Roth IRA conversion for their clients. Discusses potential benefits and detriments as well as comparative analysis.
There is a lot of talk of Roth IRA roll-overs this year as 1) the AGI limit on conversions has been lifted, and 2) for conversions in 2010, the tax owed is required as income not in 2010, but rather half in 2011 and half in 2012. And the tax rates will remain stable and low for both these years – signed into law as part of the Obama Tax Cut Compromise (See rates for 2011 and 2012 here).
On its face, many wealth managers have good reason to consider the conversion for their clients this year. But the question becomes, does it make sense, economically?
The crux of the problem lies in the early withdrawal penalties on the IRA, which is 10% if the account owner takes a distribution before age 59 1/2 or past allowable annual distribution limits before age 70 1/2.
Let’s take a look at two examples of situations where conversions may be considered this year (thus one day left….) To read this article excerpted above, please access www.AdvisorFX.com
Posted in Retirement Planning | Tagged: Adjusted Gross Income, AGI, Individual Retirement Account, Retirement, Roth IRA, tax, Tax rate, Traditional IRA | Leave a Comment »
Posted by William Byrnes on December 29, 2010
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Why is this Topic Important to Wealth Managers? We examine the IRS requirements set out in its Publication 587 for determining when a “part” of a home is used and whether that use qualifies as “exclusively and regularly as your principal place of business”.
Yesterday we opened the discussion by what authority of the Code a taxpayer may be allowed to deduct a business expense for use of part of his home in the pursuit of a trade or business. Today we turn to the following questions: What type of residence qualifies for this deduction? And the requirements for determining when a “part” of a home is used and whether that use qualifies as “exclusively and regularly as your principal place of business”.
What type of residence qualifies for this deduction? Many taxpayers narrowly consider that the “home office” deduction only applies for the traditional house with the white picket fence. But the Code’s section does not use the word “home”. Yesterday we noted that Congress chose the phrase “dwelling unit”. So what is a dwelling unit? The Section toward its end contains this definition: “The term ”dwelling unit” includes a house, apartment, condominium, mobile home, boat, or similar property ….” Thus, taxpayers who are homeowners, condo-owners, renters of apartments, even a boat owner or renter, may potentially leverage this deduction.
What constitutes a “portion” of the dwelling unit? To read this article excerpted above, please access www.AdvisorFX.com
Posted in Taxation | Tagged: Business, Earned Income Tax Credit, Internal Revenue Service, Itemized deduction, tax, Tax credit, Tax deduction, TurboTax | Leave a Comment »
Posted by William Byrnes on December 28, 2010
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Why is this Topic Important to Wealth Managers? Americans are increasingly using their personal residence as their office. This trend has picked up much steam since the financial crisis began. Businesses cut costs during this period by not just allowing, but requiring, employees to telecommute. In fact, government, including the IRS, has also jumped on the bandwagon.
Yesterday we opened the discussion of when may a taxpayer be allowed to deduct a business expense from his gross income. That article noted that Congress grants the authority to the Treasury department to write corresponding “Regulations” to address the administration and enforcement surrounding the ability of taxpayers to take such deductions allowed by the Code. Treasury, being the Internal Revenue Service in this case, promulgated such regulations for Section 162 to guide taxpayers through its morass, and provide some example scenarios and the IRS’ application of the Code to those scenarios.
By example, Treasury’s Regulation for Section 162 states that: “Among the items included in business expenses are management expenses, commissions …, labor, supplies, incidental repairs, operating expenses of automobiles used in the trade or business, traveling expenses while away from home solely in the pursuit of a trade or business …, advertising and other selling expenses, together with insurance premiums against fire, storm, theft, accident, or other similar losses in the case of a business, and rental for the use of business property.”
Home Office Deduction
To read this article excerpted above, please access www.AdvisorFX.com
Posted in Taxation | Tagged: Business, Expense, Home Office, insurance, Internal Revenue Code, Internal Revenue Service, tax, Tax deduction | Leave a Comment »
Posted by William Byrnes on December 27, 2010
Why is this Topic Important to Wealth Managers? As the end of the calendar and personal tax year approaches, Advanced Market Intelligence will focus on end-of-the-tax-year issues that every wealth manager may relay as helpful information to his and her clients.
“How are business expenses reported for income tax purposes?” may initially seem like an easy question for many wealth managers. But normally, the easiness of answering this question is a result of referring to an information pamphlet by a service provider or perhaps a newspaper article. Unfortunately, these public sources of information are not always accurate. Also, because they are trying to present very complex information in understandable terms, these types of sources gloss over finer, yet very important elements, that if known, would impact a decision.
Seldom does the wealth manager take the initiative to undertake his own initial research of the actual rules and how the rules may be applied. Advanced Market Intelligence has been committed to empowering the wealth manager with the necessary information to efficiently find the important rules and provide examples of how the rules are applied to various example scenarios. Thus, let us first turn to the legislative rule applying to business expenses.
The Internal Revenue Code (the “Code”), legislated by Congress, establishes rules regarding ‘if and when’ a taxpayer may choose to deduct certain expenses from income. Congress grants the authority to the Treasury department to write corresponding “Regulations” to address the administration and enforcement surrounding the ability of taxpayers to take such deductions allowed by the Code. Business expenses are one type of such expense Congress has established for a taxpayer to reduce his gross income.
The Code section establishing the ability of a taxpayer to deduct a business expense is Section 162. The first part of the first paragraph of Section 162 reads:
(a) In general
There shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including— …
To read this article excerpted above, please access www.AdvisorFX.com
Read the key information you need to know and relate to your client at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber):
Tax Facts 7537. How are business expenses reported for income tax purposes?
Main Library – Section 19. Income Taxes B4—Business Income And Deductions
Posted in Taxation | Tagged: Business, Expense, Fiscal year, income tax, Internal Revenue Code, tax, Tax deduction | Leave a Comment »
Posted by William Byrnes on December 24, 2010
Section 601 of The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (HR. 4853) provides for employee tax and self-employment tax rate reductions.
The Social Security tax is divided by the employee and employer share. [1] For self-employed individuals, a separate but comparable tax applies to covered wages. [2]
For employees, generally, the term covered wages in this context means, all remuneration for employment, including the cash value of all remuneration (including benefits) paid in any medium other than cash. [3]
Social Security is generally taxed at 6.20% and Medicare (Hospital Insurance) 1.45%. [4] Social Security taxes are composed of (1) the old age & survivors insurance (5.30%) and (2) disability insurance (0.90%) (together known as “OASDI”) tax equal to 6.2 percent of covered wages up to the taxable wage base ($106,800 in 2010 and again in 2011); and (2) the Medicare hospital insurance (“HI”) tax amount equal to 1.45 percent of covered wages. [5]
See the full article at AdvisorFYI
Posted in Taxation | Tagged: Employment, Federal Insurance Contributions Act tax, Medicare, Self-employment, Social Security, tax, Unemployment benefits, Wage | Leave a Comment »
Posted by William Byrnes on December 23, 2010
Why is this Topic Important to Wealth Managers? Discusses gifts and the general income tax implications gifts have to those who are the beneficiaries. Also discusses gifts as they relate to estate taxes.
As Christmas and Holiday time approaches, some clients who may be expecting large sums from Santa or other sources as gifts, may be interested to know the tax laws on gifts generally; today’s blogiticle present’s our “re-gifting” of an old idea, Section 102 of the Internal Revenue Code.
For those who haven’t had an opportunity to read the Code lately, (some estimate the Code and Regulations are close to 80,000 pages) there are still a few “friendly” sections that remain which serve as a reminder of a time gone by. Side Note: These authors have not yet evaluated the shortest Code section in terms of actual words, but if we were to, our guess is that Section 102 would be in the running at 212 words.
Section 102(a) reads: “Gross income does not include the value of property acquired by gift, bequest, devise, or inheritance.” It is worth noting, if we go back to Section 61, and the starting point for gross income, that Section 61(a) states: “Except as otherwise provided in this subtitle gross income means all income from whatever source derived…” The “[e]xcept as otherwise provided” is applicable here to amounts received as a gift, bequest, devise, or inheritance, which are specifically excluded from gross income. In other words, a taxpayer can give another taxpayer a gift of $1,000,000 and the latter will not recognize a penny of income for tax purposes, so long as it is really a gift, bequest, devise or inheritance. To read this article excerpted above, please access www.AdvisorFX.com
For further discussion on the gift tax generally see, AdvisorFX: Nature and Background of the Federal Gift Tax (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
Posted in Estate Tax | Tagged: gift tax, Gross income, Income, Internal Revenue Code, Internal Revenue Service, Itemized deduction, tax, Taxation | Leave a Comment »
Posted by William Byrnes on December 22, 2010
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Why is this Topic Important to Wealth Managers? Discusses charitable contributions for individuals. May assist wealth managers plan client contributions made to charities this year.
Generally a deduction is allowed to “individuals, corporations and certain trusts for charitable contributions made to qualified organizations, subject to percentage limitations and substantiation requirements.”
The law allows for such charitable contributions as itemized deductions, as “an incentive to encourage charitable contributions”, to certain charitable organizations.
Assuming all other factors equal, “it is usually better for the donor to make a charitable gift during life than at death, because the gift can generate an income tax charitable deduction for the donor.”
How much is the deduction?
The charitable contribution income tax deduction for an individual taxpayer can be classified as not to exceed 50 percent or not to exceed 30 percent of the taxpayer’s adjusted gross income (AGI), depending on the donee charity.
For a discussion of Adjusted Gross Income or AGI, see AdvisorFX—Deductions in Determining Adjusted Gross Income and Taxable Income (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
To read this article excerpted above, please access www.AdvisorFYI.com
Posted in Taxation | Tagged: Adjusted Gross Income, Charitable contribution, Charitable organization, Itemized deduction, Standard deduction, tax, Tax deduction | Leave a Comment »
Posted by William Byrnes on December 21, 2010
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This 10 week live video conference course on Brazil will be taught in English (but all attendants may use Portuguese to ask and respond to questions) by several renown Brazilian specialists who have extensive out-of-country experience, working as international counsel for large multinational companies, big 4 firms, and government, by concentrate on the Brazilian corporate structures, tax & financial systems, regulations and compliance, focusing on the practical aspects of doing business in Brazil. We will also discuss the impact of the recent changes in tax/corporate laws and regulations.
Please contact Associate Dean Prof. William Byrnes if you are interested in enrolling in this executive education course. wbyrnes@tjsl.edu (or my gmail williambyrnes@gmail.com) or skype: professorbyrnes or telephone + 1 619 374 6955
Tax System:
- Overview – Main taxes;
- Corporate Taxation: Corporate Income tax and Social Contribution;
- Simplified tax regime;
- Accounting Rules (IFRS and SPED);
- Investment incentives;
- Developing a Tax Strategy in Brazil;
- Tax avoidance versus Tax Evasion
General Overview of Brazilian Indirect Taxes
- VAT;
- Other Indirect Taxes;
Foreign Investments:
- Brazilian Central Bank (Regulations, Registrations and forms);
- Dividends, Royalties, Loans, etc;
- Capital Gains;
- Foreign Trade Rules (Import and Export transactions);
Mergers & Acquisitions;
- Corporate aspects;
- Tax implications;
Financial System:
- Organization,
- Newcomers,
- Competition,
Foreign Companies:
- Tax credit
- Withholding Tax;
- Financing issues;
- Permanent Establishment;
- Low-tax Jurisdictions (Tax Haven Countries);
- Tax treaties
Transfer Pricing
Industrial Property Rights
Posted in Courses | Tagged: Brazil, Corporate tax, income tax, tax, Tax rate, Taxation, United States | 2 Comments »
Posted by William Byrnes on December 21, 2010
Why is this Topic Important to Wealth Managers? Yesterday we presented an overview of the Obama Tax Cut provisions that are relevant to wealth managers. Today we begin by taking a closer look at some of the details of those provisions and how they relate to wealth managers and their clients.
Section 102 of The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (HR. 4853)provides for an extension of the regular and minimum tax rates for qualified dividend income and capital gains as were in effect before 2011. The extension will continue for an additional two years.
To understand the impact of this provision of the new bill, it will serve the reader to understand what the regular and minimum tax rates in relation to qualified dividend income as well as capital gains means. Read this complete article at AdvisorFYI
Posted in Taxation | Tagged: Alternative Minimum Tax, Capital gain, income tax, Qualified dividend, Social Security, tax, Tax cut, Tax rate | Leave a Comment »
Posted by William Byrnes on December 20, 2010
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On Friday, President Obama signed into legislation, what is quickly becoming known as the Obama Tax Cuts, which extend tax breaks initially created by the George Bush Administration about a decade ago. For the previous discussions and various versions of this “long and winding road” of the passage of this new tax law – see Tax Deal Reached
The new tax law “The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (HR. 4853)” provides an extension for two years (unless otherwise noted), of generally the following (not all inclusive):
The full free article and links to all the relevant legislation and Congressional explanations of the legislation may be read at http://www.advisorFYI.com
Posted in Taxation | Tagged: income tax, tax, Tax cut, Tax law, tax relief, Unemployment benefits | Leave a Comment »
Posted by William Byrnes on December 13, 2010
Why is this Topic Important to Wealth Managers? Many US expats who do not work for a US headquartered company are failing to report pensions they are accruing from the companies they are working for overseas. These clients may incur large reporting penalties.
Submission by Thomas Carden, IRS Enrolled Agent
Many expats that do not work for a US based company are failing to report pensions they are accruing from the overseas companies they are working for. They often disregard the pension because they incorrectly assume that it is not taxable in the US.
However, the vast majority of foreign pension plans are not considered to be qualified by the IRS. Consequently, these foreign pension plans do not enjoy any tax mitigation – the plans are taxable.
The IRS has very rigorous regulations for plan reporting and for the criteria to be a qualified plan, and thus foreign employers rarely seek such plan qualification. Compounding the problem is that most financial professionals are rarely asking their clients with foreign employers “Do you have a foreign pension that contributions are being made to?”
Because of this mistaken belief that such foreign pension plans are to be treated like those in the US, many expats are incorrectly reporting their income net of any pension contributions.
Before FATCA (the Foreign Account Tax Compliance Act of 2010) the pension contributions were generally not being reported to the IRS, thus they were incorrectly escaping taxation on US returns. The goal of FATCA is to substantially capture information on the number of these accounts and many other foreign account types turning that information over to the IRS. The act puts onerous penalties on financial institutions that do not report accounts that are in the names of US citizens and other US taxable persons.
Any foreign institution that does not agree will be subject to a thirty percent withholding rate on payments made to it. Because of the penalties and the general move toward cross border reporting in financial transactions, the IRS will be receiving a large amount of information on these previously unreported accounts. The act also requires individuals to disclose any foreign accounts with a balance that exceeds $50,000. Failure to do so may result in an initial fine of $10,000 plus additional penalties.
The good news is that the acts reporting requirements are set to begin on January 2nd of 2012. Thus, expats have time to address the issue of unreported foreign pensions. The problem for expats with these unreported accounts is that the contributions are counted as taxable income in the US for the year they were made to the pension. If the IRS receives information about such an account, it is highly probable that it will send a “deficiency letter” stating that tax is due on the unreported amount. At worst, finding an unreported account may trigger an arduous audit.
The solution for the problem is for expats with any unreported pension accounts to amend the returns and restate the income received, for any years that contributions were made to the accounts. Such disclosures for past non-reporting should probably be handled by a expert in this area to avoid any unnecessary penalties.
Submission by Thomas Carden, a IRS Enrolled Agent and Expatriate Tax Specialist with 15 years of Tax and Financial Services Experience. He is currently enrolled in the Diamond Program at Thomas Jefferson School of Law while also studying to sit for the ATT tax designation in the UK. You may contact him via his email – tmcarden@yahoo.com.
Posted in Taxation | Tagged: Financial services, Individual Retirement Account, Internal Revenue Service, Pension, tax, Tax avoidance and tax evasion | Leave a Comment »
Posted by William Byrnes on December 7, 2010
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Although IRS-approved retirement plans are intended to allow plan participants to sock away cash for retirement, some emergencies will permit a participant to withdraw plan funds prior to retirement—and there may be options to reduce or eliminate any tax due on the withdrawal.
Serving as a great reminder of the general principals of emergency distributions, the IRS recently ruled whether a qualified plan was permitted to make “unforeseeable emergency distributions” in three fact scenarios. In the first, the plan participant wanted to take an emergency distribution to repair water damage to his home. In the second situation, the participant requested an emergency distribution to pay his nondependent son’s funeral expenses. In the third situation, the participant requested an emergency distribution to pay “accumulated credit card debt.” Read this complete article at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
Posted in Taxation | Tagged: Business, Credit card debt, Individual Retirement Account, Internal Revenue Service, Pension, Retirement, Roth IRA, tax | Leave a Comment »
Posted by William Byrnes on November 24, 2010
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The Federal Government has estimated that the “United States loses an estimated $345 billion in tax revenues each year as a result of offshore tax abuses primarily from the use of concealed and undeclared accounts held by U.S. taxpayers or their controlled foreign entities.” [1]
In consideration of the goal of eliminating this gap, “it is not surprising that the government recently ratcheted up its pressure on taxpayers who structured their activities, in many cases, with the active help and assistance of promoters and facilitators to avoid reporting their taxable income on their tax returns or hide these offshore accounts from the government.” [2] This increased “pressure” came in the form of the HIRE Act passed in the first quarter of 2010. [3] As was discussed earlier this week,[4] the new law provides for reporting requirements by foreign financial institutions with U.S. accountholders about the status, specifically identity and balance, of their account. [5] Read the entire article at AdvisorFYI.
Posted in Compliance, Reporting | Tagged: Employment, Federal government of the United States, Hiring Incentives to Restore Employment Act, Internal Revenue Service, Offshore bank, Social Security, tax, United States | Leave a Comment »
Posted by William Byrnes on November 23, 2010
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During the first quarter of 2010, President Obama signed into law H.R. 2847, the Hiring Incentives to Restore Employment Act. “The act provides incentives for job creation, but in order to pay for the incentives, the act also contains significant changes that will affect foreign financial institutions that choose to do business with U.S. persons.” [1] Half of the “U.S. Congressional Record that contains the act” is “dedicated to foreign account tax compliance.” [2]
Therefore, “although the act is commonly referred to as the HIRE Act for its focus on job creation, one of its main purposes is to target tax dodgers’ use of foreign accounts.” [3] The act is basically a model of the 2009 Foreign Account Tax Compliance Act (FATCA) which was introduced by the Senate. “The act incorporates substantially all of FATCA, with one important exception: FATCA would have imposed reporting requirements on material advisors, including attorneys, accountants, and other professionals, who advise on acquisitions or formations of foreign entities.” [4]
Read the entire article at AdvisorFYI.
Posted in Uncategorized | Tagged: Barack Obama, Congressional Record, Employment, Financial institution, Hiring Incentives to Restore Employment Act, Incentive, tax, United States | Leave a Comment »
Posted by William Byrnes on November 18, 2010
Why is this Topic Important to Wealth Managers? Provides information on one additional planning tool that many wealth managers find useful for affluent clients who own a small business. Gives an overview of the nonqualified plans as well as proving a common use of life insurance to fund plan obligations well into the future.
Simply a nonqualified pension plan is a retirement plan that does not meet the requirements under the tax code and federal employment law to be considered qualified, and therefore the nonqualified plan is treated differently for tax purposes. [1]
What are some of the advantages of using a nonqualified plan over a qualified retirement plan? [2]
- Flexibility and selectivity—because the plan is not subject to requirements under the qualified plan rules, employers have much more control in terms of who may be included and the varying terms of each individual participant.
- Vesting and contingencies—nonqualified plans allow for the employer to exclude all amounts not met by vesting conditions or contingencies that the employee must achieve to obtain the benefit. Say for example, that the retirement funds become available to the employee after 10 years of faithful service to the company. If the employee does not work for 10 years, no benefits have thus accrued and the employee has no benefit under the plan.
- Cost savings through minimal reporting requirements—since nonqualified plans do not usually fall within major regulatory scope of qualified plans, the cost to administer these plans is generally less than some alternatives.
How are nonqualified plans treated for tax purposes? Read the entire blogticle at AdvisorFYI.
Posted in Insurance, Pensions | Tagged: Business, Employment, Financial services, Human Resources, life insurance, Pension, tax, United States | Leave a Comment »
Posted by William Byrnes on November 15, 2010
Why is this Topic Important to Wealth Managers? Provides details about one concept that wealth managers often overlook, the generation skipping transfer tax. Also presents general concept themes and examples to show effective uses of life insurance and trust in consideration of the tax.
In general, the generation-skipping transfer tax is levied on the value of life insurance that is transferred during the grantors lifetime or at death, to a skip person. [1] The GST is levied in addition to estate and gift taxes. [2]
The generation-skipping transfer (GST) tax “scheduled to resume in 2011 at a rate of 55%, with a $1 million exemption. The rate was 45% in 2009, with a $3.5 million exemption.” [3] For more information about the expiring tax cuts and new tax rates, see our blogticle: AdvisorFYI: Estate and Gift Taxes, Tax Cuts and More.
“Certain direct gifts that qualify for the gift tax exclusion may also qualify for an annual exclusion that can be applied against the GST tax.” [4] Many wealth managers encourage clients to take full advantage of the annual exclusion to avoid GST tax considerations at some later point. However, “the expiration of the GST tax has complicated matters for wealthy individuals hoping to make 2010 gifts in trust that skip generations.” [5] The use of trusts in consideration of the GST tax is discussed below. For examples of insurance uses with trusts generally, see our previous blogticle: Trusts that Purchase Life Insurance; Known Formally as the “Irrevocable Life Insurance Trust
Please link to AdvisorFYI for the entire blogticle.
Posted in Estate Tax | Tagged: Generation-skipping transfer tax, gift tax, Goods and Services Tax (Canada), GST, Internal Revenue Service, life insurance, tax, Tax cut | Leave a Comment »
Posted by William Byrnes on November 13, 2010
The estate tax is scheduled to explode in 2011. Analysts have assumed for years that Congress would act to fix the estate tax before it expired in 2010 and reverted to its pre-2001 levels in 2011, but it is looking more and more likely that the current Congress will hand the problem off to the next Congress on January 11, 2011. Although movement during the lame duck session is possible, it is not likely to generate any positive action on the estate tax.
Whether Congress acts on the estate tax or not, 2011 will likely bring drastic changes to the estate tax, requiring your clients to do significant tinkering on their estate plans. In the interim, estate planning professionals will continue to use disclaimer planning as a stop gap measure to deal with 2010′ s estate tax uncertainty. For instance, rather than split an estate’s assets between credit shelter and marital deduction trusts—which is unnecessary when there is no estate tax—all of the assets are devised to the spouse or the marital deduction trust. The surviving spouse can then disclaim up to the tax-free amount— … Read this complete article at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
For previous coverage of the estate tax conundrum in Advisor�s Journal, see Estate Tax Chaos (CC 10-02).
For in-depth analysis of the federal estate tax, see Advisor�s Main Library: Section 2 A—Overview Of The Federal Estate Tax And Its Calculation.
Posted in Estate Tax | Tagged: estate planning, Internal Revenue Service, Lame duck session (United States), law, Marital deduction, tax, United States, Widow | Leave a Comment »
Posted by William Byrnes on November 12, 2010
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Charitable contributions offer an opportunity to do good in the community while reaping tax benefits, but the tax benefit of a charitable contribution can be jeopardized by poor planning. Especially challenging can be the structuring of contributions by complex trusts as illustrated by the recently released IRS ruling, ILM 201042023.
There, a trust’s charitable contribution deduction was limited to the trust’s basis in the property; a deduction was not permitted for unrealized appreciation of the donated property. Read this complete article at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
For previous coverage of the benefits of charitable giving, see Use Charitable Giving to Enhance Family Business Succession Planning (CC 10-76).
For in-depth analysis of the use of charitable giving in estate planning, see Advisor’s Main Library: F�Estate Planning Through Charitable Contributions.
Posted in Taxation, Wealth Management | Tagged: Charitable contribution, Charitable organization, Donation, estate planning, Internal Revenue Service, tax, Tax deduction, Trust law | Leave a Comment »
Posted by William Byrnes on November 11, 2010
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The Health Care Act includes many provisions that are not directly related to health care but which are intended to fund the colossal government expenditure necessitated by the Act. One of the most burdensome changes imposed by the Health Care Act is the massive expansion of the payees and payment types that require a 1099. The new requirements will trigger a flood of paperwork for everyone involved, including payors, payees, and the IRS.
The new information reporting requirement will kick in on January 1, 2012. But the IRS will not be releasing guidance on the changes right away, so the time for taxpayers to implement the new requirements may run short. The comment period preceding the IRS’s release of proposed regulations passed at the end of September, so we can expect proposed regulations in the coming months. Advisor’s Journal will keep you informed as the IRS implements these new rules. Read this complete article at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
For previous coverage of the Health Care Act in Advisor’s Journal, see Changes Affecting Individuals in the 2010 Health Reform Law (CC 10-15), Changes Affecting Business in the 2010 Health Reform Law (CC 10-16), and Changes Affecting Large Employers in the 2010 Health Reform Law (CC 10-17).
Posted in Taxation | Tagged: Employment, Health care, Health care reform, Internal Revenue Service, Patient Protection and Affordable Care Act, Politics, tax, United States | Leave a Comment »
Posted by William Byrnes on October 29, 2010
A rush of IRS challenges to transactions that provide your clients with a significant tax benefit may be on its way. The IRS has new options for denying tax deductions and other tax benefits when it— at its discretion—believes that a transaction has been entered into solely for a tax reduction and not a valid business purpose.
This IRS`s “new” tool is the recently-codified economic substance doctrine, which was signed into law earlier this month by President Obama as part of the Health Care and Education Affordability Reconciliation Act of 2010. The IRS says that the act codifies only existing case law, but in practice, it gives the service the power to supplant a taxpayer`s business judgment with the service`s judgment of whether a transaction has profit potential, the end result being a denial of the tax benefit of transactions that the IRS judges not to have an economic purpose other than the reduction of taxes.
Read this complete article at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
We look forward to your comments on AdvisorFYI.
Posted in Taxation | Tagged: Barack Obama, Business, Economic substance, Internal Revenue Service, IRS, Obama, tax, United States | Leave a Comment »
Posted by William Byrnes on October 27, 2010
A disclaimer in the estate planning context is a voluntary refusal to accept a gift from a will. A properly structured disclaimer can be a great tax planning technique, allowing the person making the disclaimer to pass a gift on to the next person in line—for instance, someone in the next generation—without being subject to the gift tax. But a disclaimer should not be made lightly because a disclaimer that is not “qualified” for tax purposes can create serious gift tax consequences for the person making the disclaimer.
The danger of an improperly made disclaimer was clearly illustrated in a recent U.S. District Court, Estate of Tatum v. U.S. There, Son disclaimed his interest in the residue of his father`s estate. But because Son`s disclaimer was not a qualified disclaimer, Son was treated as if he received the gift and then made a taxable gift to his children, resulting in a gift tax bill for Son and his wife of over $1,600,000.
Read this complete article at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
For in-depth analysis of qualified disclaimers, see the AUS Main Libraries Section 7 B1—What Transactions Constitute Taxable Gifts
Posted in Taxation | Tagged: estate planning, Estate tax in the United States, Gift, gift tax, Internal Revenue Service, law, tax, United States | Leave a Comment »
Posted by William Byrnes on October 20, 2010
Why is this Topic Important to Wealth Managers? Provides general taxation of life insurance contracts owned by a third party transferee, including the payment of death benefits as well as sale or exchange gain treatment.
Today’s blogticle will discuss taxation of life insurance contracts from the purchaser’s prospective.
As discussed yesterday, an insurance contract that carries a built-up cash value can be loaned against, collected by the beneficiary, surrendered or sold to a third party. This blogticle deals in particular with payment of the face value to the third party caused by the death of the insured as well as another sale or exchange of the contract by the third party.
What are the tax implications if the third party collects the death benefits? What are the tax implications if the policy is sold to a third party?
As a starting point, gross income includes all income from whatever source derived including (but not limited to) income from life insurance contracts (unless otherwise excluded by law). Gross income specifically excludes amounts received (whether in a single sum or otherwise) under a life insurance contract, if such amounts are paid by reason of the death of the insured. For the complete article see AdvisorFYI….
Posted in Insurance, Taxation, Uncategorized | Tagged: Agents and Marketers, Business, Cash value, Contract, Financial services, insurance, Insurance policy, tax | Leave a Comment »
Posted by William Byrnes on October 19, 2010
Why is this Topic Important to Wealth Managers? Provides general taxation of life insurance contracts that are surrendered, sold or exchanged. Gives examples that are easy to follow and provides an educational foundation for real-world gain determinations.
This is a two-part series in relation to the taxation of life insurance contracts once it is surrendered, sold or exchanged to a third party. The first blogticle will examine the issue from the seller or insured’s perspective, and tomorrow’s blogticle will discuss the matter from the purchaser’s prospective.
An insurance contract that carries a built-up cash value can be loaned against, collected by the beneficiary, surrendered, or sold to a third party. This blogticle deals in particular with the sale or exchange of the contract, i.e., surrendered or sold.
What are the tax implications if the life policy is surrendered?
As a starting point, gross income includes all income from whatever source derived including (but not limited to) income from life insurance contracts (unless the income is otherwise excluded by law). [1]
In general, a life insurance contract that is not collected as an annuity is included in gross income in the amount received over the total premiums or consideration paid. [2] “The surrender of a life insurance contract does not, however, produce a capital gain.” [3] The amount collected over basis is therefore ordinary income.
To read the remainder of this article please see AdvisorFYI.
Posted in Insurance, Taxation | Tagged: Business, Cash value, Contract, Financial services, insurance, Insurance policy, tax, United States | Leave a Comment »
Posted by William Byrnes on October 18, 2010
Why is this Topic Important to Wealth Managers? Discuses one alternative investment wealth managers are continuing to explore in consideration of uncertain tax law changes. Provides general background as well as analysis and comparison to show the benefits available through the purchase of tax-exempt bonds.
Interest received from bonds is generally taxed at ordinary income rates. This includes both government and corporate bonds unless otherwise excluded by the tax code. Dividends though are taxed at capital gains rates, which for the meanwhile can provide significant tax benefits. See our previous AdvisorFYI blogticle of September 13th Bush Tax Cuts Set to Expire.
However, some state and local municipal bonds often called “muni” bonds, produce tax—exempt interest income under Internal Revenue Code § 103. The general obligation interest on state or local bonds fall into this category as distinguished from private activity bonds.
A detailed discussion of private activity bonds in comparison to general obligation bonds can be found at AdvisorFX Tax Facts: Q 1123. Is interest on obligations issued by state and local governments taxable? (sign up for a free trial subscription if you are not a subscriber).
To read the remainder of this blogticle that deals with general obligation bonds, and offers a comparison between tax-exempt and taxable income bonds with illustrated rates of return, please see AdvisorFYI –
Posted in Tax Exempt Orgs, Tax Policy, Taxation | Tagged: Bonds, Business, Corporate bond, Internal Revenue Code, Municipal bond, Rate of return, tax, Tax exemption | Leave a Comment »
Posted by William Byrnes on October 14, 2010
By Associate Dean William H. Byrnes, IV and Professor Hannah Bible of the of the International Tax and Financial Services Graduate Program of Thomas Jefferson School of Law
I. CAN I GET A 1099 WITH THAT?
On January 1, 2012 Mr. Irk pulls up to his local McDonalds drive thru in his new hydro car, being the general public conscious man he is.
Id like a Big Mac, a small order of fries, and a signed 1099 Form on the side please. With speaker hiss overshadowing, a voice responds, OK thats a Big Mac, a small fry, and a fried small apple pie. No, Mr. Irk responds, a signed 1099 form. Again barely understandable over the hiss of the speaker, eh, so you want four fried small apple pies? Mr. Irk, living up to his namesake, responds no no, not four, form.
Sir, I aint got no idea what you talkin bout. Clearly the local McDonalds counsel did not advise his client on the most recent changes in tax law.
Unless the Treasury takes great prerogative and creativity in the writing of regulations applicable to the recent Amendments set out in I.R.C. 6041, throughout 2011 attorneys and consultants should be preparing clients on how to comply with the new reporting requirements.
Starting in 2012 all gross proceeds, in addition to the previously required gains, profits, and income currently required to be reported, will need to be reported to the Internal Revenue Service (IRS) on Form 1099-MISC (or an applicable 1099 form within the 1099 series) from any amount received in consideration of …. Thus, starting January 1, sales of tangible goods will now require reporting by the purchaser.
Please read this 10 page detailed analysis of how to advise your clients and practice advice at Mertens Developments & Highlights via your Westlaw subscription (<– click there) or order via Thomson-West (<– click there).
Posted in Taxation | Tagged: 1099, Big Mac, Business, Internal Revenue Service, IRS tax forms, McDonalds, Politics, tax, United States, W9 | Leave a Comment »
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