Articles Posted in Tax Planning

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The Internal Revenue Service is postponing the date for filing gift tax and generation-skipping transfer tax returns and making payments until July 15, 2020, because of the novel coronavirus pandemic.

The IRS has expanded the list of deadline extensions for federal taxes and tax returns to include gift and generation-skipping transfer (GST) tax returns. An earlier notice had applied only to federal income tax returns and payments (including self-employment tax payments) due April 15, 2020, for 2019 tax years, and to estimated income tax payments due April 15, 2020, for 2020 tax years.

Notice 2020-20 updates earlier guidance to include the gift and GST deadline extensions.

Group of peopleSigned into law on Friday, March 27, the CARES (Coronavirus Aid, Relief, and Economic Security) Act is the biggest economic stimulus package in U.S. history. Below are essential highlights for individuals and small businesses.

Individuals

One-time direct deposits of up to $1,200 for individual taxpayers with incomes up to $75,000 and $2,400 for joint filers with incomes up to $150,000. An additional $500 for each eligible child can also

6a019b003fe4d5970b025d9b3eaf45200c-300x200The U.S. Small Business Administration (SBA) is offering up to $2 million in Economic Injury Disaster Loans for small businesses impacted by the coronavirus, in addition to a resource page detailing eligibility and how to apply.

It’s estimated that some 30 million US small businesses may fall victim to the coronavirus through closures, cancellations and other revenue losses. With no clear end in sight, the Small Business Administration (SBA) is offering eligible businesses low-interest disaster relief loans to cover operating expenses.

These loans may be used to pay fixed debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact. The interest rate is 3.75% for small businesses. The interest rate for non-profits is 2.75%. In order to keep payments affordable, they are offering long-term repayments, up to a maximum of 30 years. Terms are determined on a case-by-case basis, based upon each borrower’s ability to repay.

6a019b003fe4d5970b0240a518c8f8200b-300x200“Treasury Secretary Steven Mnuchin announced Friday, March 20th,  that the administration has moved the IRS deadline for filing taxes from April 15 to July 15 due to the disruption caused by the coronavirus.”

There has been some confusion about the income tax filing / tax payment deadline extensions. However, on Friday, March 20th, Americans received much needed clarity that both the filing and the payment deadlines have been extended from April 15 to July 15 giving all taxpayers and businesses additional time to file and make payments without interest or penalties.

This allows taxpayers and businesses some time to breathe in such a strange and unknowing time.  If you are expecting a refund, however, the Treasury Department encourages you go ahead and file as soon as possible – the sooner you file, the sooner you will get your refund.

12.30.19It’s a problem that most people wish they had: a sudden influx of money, sometimes a lot of money. It can be overwhelming, and the most important thing to do is—nothing, at first.

The first thing to do when you are newly flush with money, is take a few deep breaths. Then take a long, clear look at your financial status, advises WMUR.com’s recent article, “Handling unexpected wealth.”

Depending on how much you have received, you could be in a very different place financially. You should take an in-depth look at your net worth and cash flow.

12.2.19Benefits for Social Security survivor children’s benefits are generally made out to a parent or guardian. They are taxable income, but most children do not have enough income to owe taxes on the benefits.

According to a recent article “Are Social Security survivor benefits for children considered taxable income?” from Investopedia, the only way the benefits would be taxed if half of the child's benefits in a year, plus other income earned by the child in that year, reached the level that required a tax return to be filed and for taxes to be paid.

If half of the annual benefits plus the child's other income is greater than a base amount set by the IRS, then a portion of the benefits is taxable.

10.21.19There are many inheritance scenarios, where people hope that a simple solution will save them time and money. Unfortunately, that’s not always the way estate or tax laws work.

A woman received joint ownership of her father’s house about a decade ago. Her father is still living there, and so is her sister. The woman doesn’t pay for any of the expenses; she and her father take care of their own costs. The sisters plan on selling the home, after their father passes. The woman wonders if she can simply give her sister her half of the home and avoid paying any taxes.

This situation is expanded upon in recent nj.com article, “My sister and I own my father’s home. How can I avoid taxes?” The article notes that a sibling may give her half of a home owned in joint ownership to a sibling, but there may still be some tax consequences.

8.2.19Target date funds are growing in popularity, in part because they don’t require investors to do anything in the way of fund management. Are they right for you? That depends.

Like any investment, there are pros and cons to using target date funds for retirement savings. The concept is easy to grasp—just pick the year you want to retire and select that fund that’s closest to that year. Say you’re 50 and you want to retire in 2034. You’d pick the 2035 fund. The fund is actively managed and rebalanced to adjust risks, as you get closer to retirement, explains Kiplinger in the article “Is a Target Date Fund Right for You?”

Target date funds are a good option for investors who aren’t intimately involved with their investments and who wouldn’t rebalance their investments on their own. These funds are also good for DIY investors because they’re a more comprehensive strategy than selecting funds based on past performance—which is the method often used by do-it-yourselfers. However, past performance doesn’t always indicate future growth.

7.12.19Almost every type of income comes with a tax consequence. Capital gains and dividends are both income but they are treated differently when it comes to taxes.

Understanding the difference between capital gains and dividend income can have an impact on portfolios and tax planning. That includes the difference in how these two incomes are taxed, says Investopedia in the article, “Capital Gains vs. Dividend Income: What's the Difference?”

Capital is the initial sum invested. A capital gain is a profit you get when an investment is sold for a higher price than the original purchase price. An investor doesn’t realize a capital gain until an investment is sold for a profit.

3.20.19You may know that there are tax traps when IRA withdrawals or rollovers are done incorrectly. However, did you know that an investment portfolio could contain a tax trap that could ruin your IRA status?

The most frequently occurring IRA tax trap comes from tax bills through the Unrelated Business Taxable Income (UBTI). Sources of business income from stocks, bonds and funds like interest income, capital gains and dividends are exempt from UBTI and a related tax, the Related Business Income Tax.

Fox Business’s recent article, “Your IRA and taxes: Don't get a surprise tax bill” explains that IRAs that operate a business, have certain types of rental income, or receive income through certain partnerships will be taxed, when the total UBTI exceeds $1,000. This is to prevent tax-exempt entities from gaining an unfair advantage on regularly taxed business entities.

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