Tax Planning

What You Need to Know About Capital Gains and Dividend Income

Published on: July 12, 2019 | By McCulloch & Miller, PLLC

Almost 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.

Tax Traps Can Ruin IRA Status

Published on: March 20, 2019 | By McCulloch & Miller, PLLC

You 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.

How Trusts Work in Estate Planning for Regular People

Published on: March 18, 2019 | By McCulloch & Miller, PLLC

You’ve heard the expression “trust fund babies.” However, trusts are not just for the wealthy. They have a number of uses in estate planning and can be helpful at any asset level.

The reality of our own mortality keeps some of us up at night. For others, it’s a disturbing thought that is easily brushed aside. Whichever group you belong to, you need to have an estate plan in place. This is the only way that you can have any say in how your assets are distributed after you pass. Without an estate plan, your family will be subjected to much more stress and financial strain. One part of an estate plan is a trust.

Barron’s recent article, “Why a Trust Is a Great Estate-Planning Tool — Even if You’re Not Rich,” explains that there are many types of trusts, but the most frequently used for these purposes is a revocable living trust. This trust allows you—the grantor—to specify exactly how your estate will be distributed to your beneficiaries when you die, and at the same time avoiding probate and stress for your loved ones.

How to Make Your Charitable Giving Have a Greater Impact

Published on: February 1, 2019 | By McCulloch & Miller, PLLC

Most donations are made in December, and charities of all shapes and sizes make the most of the holiday spirit. However, by taking a bit of time to plan out charitable giving, including doing some research and talking with your family about your legacy, your giving could have a greater impact this year and in years to come.

A rough ride in the start of the year’s markets and changes to the tax laws have left many donors wondering if they can afford to be as generous in 2019, as they were in the past. Fundraisers advise donors to think more about what non-profits have greater meaning to them and to take a more thoughtful approach to giving. Philanthropy is still good for your legacy, sense of community and, when done right, taxes.

The Reno Gazette Journal’s article, “Get an early jump on charitable giving” looks at tax planning opportunities for charitable giving, specifically in light of the Tax Cuts and Jobs Act and Qualified Charitable Distributions (QCD). Here’s a review of why people give. The primary reasons for donating include the following:

New Tax Law Calls for An Estate Plan Review

Published on: August 21, 2018 | By McCulloch & Miller, PLLC

Don’t assume that the new tax law means that you don’t need an estate plan. If anything, you need to review your estate plan to make sure you’re not missing out any new opportunities.

When was the last time you reviewed your estate plan? If it’s been more than a few years, you could be risking making some big mistakes, in terms of taxes and what you leave behind for your loved ones.

The new tax law in effect doubles the federal estate-tax exemption to roughly $11.2 million per person. As a result, most people won’t be subject to federal estate tax. However, before you unfriend your estate planning attorney on social media, understand that the drastic increase in the federal exemption amount means that old wills and trusts may be in dire need of an update.

Top Three Tax Mistakes by Retirees

Published on: January 24, 2018 | By McCulloch & Miller, PLLC

Many things change when you retire, including tax strategies. Steps that you took when you were working, may now work against you. Knowing what has changed and what you need to do can help avoid unnecessary tax liabilities.

Tax planning is different after retirement. You might think that a lower income level and fewer deductions are the only changes, but it’s not that easy. You have to understand how retirement benefits and investment returns are impacted by federal and state laws, according to a recent article in Kiplinger, “3 Tax-Planning Mistakes Retirees Too Often Make.” Here are the three most commonly made mistakes:

Tax Loss Harvesting. Tax loss selling means selling a capital asset, like a stock, for a loss to offset a gain realized by the sale of other investments. The result is that the investor avoids paying capital gains on recently sold investments. Retirees with stock holdings should review their holdings every year to determine their market exposure and any tax consequences of selling stocks with substantial capital gains.

Who Pays Taxes When Mom and Dad Make a Generous Gift?

Published on: January 22, 2018 | By McCulloch & Miller, PLLC

First, say thank you. Then, learn more about the rules about paying taxes on a financial gift.

Couples whose families are generous enough to give them help towards buying their first home are often concerned with what, if any, tax liability may be created. Do they have to pay taxes on the gift? Do their parents or in-laws pay taxes?

The tax laws on gifts can be pretty confusing, says nj.com in an article, “Are taxes owed on gift from in-laws?”

Can You Make Charitable Donations from Retirement Accounts Without Triggering Taxes?

Published on: November 16, 2017 | By McCulloch & Miller, PLLC

If you roll the money over to an IRA first, you can donate funds from your 401(k) Required Minimum Distribution tax free. Be very careful to follow the rules, so that you don’t create a tax or penalty problem.

First, let’s define the RMD (Required Minimum Distributions). This is the least amount of money that someone who owns a retirement plan is required to withdraw every year, starting the year that the individual turns 70½, or, if they retire later, the year when they retire.

However, if the retirement plan account is an IRA or the account owner is a 5% owner of the business sponsoring the retirement plan, the RMDs have to start once the account holder is age 70 ½—even if she’s not retired. The rules of what can and cannot be done with retirement plans are very strict, so you may need help from a professional.

How Can a Roth IRA Reduce the Tax Burden Facing Your Heirs?

Published on: October 30, 2017 | By McCulloch & Miller, PLLC

There’s more than retirement savings power in a Roth IRA. Used properly, it can help cut your beneficiary’s tax liability, regardless of if and when tax reform becomes reality.

If you’re interested in reducing the taxes your heirs will have to pay, you’re probably concerned about the discussion about tax reform going on in Washington these days. Unfortunately, there’s no way to be certain what, if any, changes will actually occur. In the meantime, your estate planning attorney can help you structure your estate, so that less of it ends up being consumed by taxes. That includes moving funds into non-taxable accounts, including Roth IRAs.

Motley Fool’s recent article, “A Clever Way to Cut Your Heirs' Income Taxes,” says the money you put into a Roth retirement savings account has already been taxed. It was taxed on the contributions you made or as a rollover from a tax-deferred retirement savings account. As a result, everything in that account is now non-taxable for income-tax purposes. As the Roth has been open for at least five years prior to your death, the money in that account won’t be subject to federal income taxes.

Handling Harvey: IRS Tax Relief

Published on: August 31, 2017 | By McCulloch & Miller, PLLC

Taxpayers who have a valid extension until October 15, 2017 to file income tax returns and who live in the covered Texas disaster area may be helped by the IRS extending the filing periods.

IRS announced certain relief from deadlines relating to filing and certain tax deposits for Hurricane Harvey victims. The IRS action covers filings that were due or matters that occurred on or after August 23, 2017(1). Returns for tax payers who have valid filing extensions in the affected Texas Counties have filing deadlines extended again until January 31, 2018. The extensions for eligible taxpayers also includes the quarterly estimated income tax payments originally due on Sept. 15, 2017 and Jan. 16, 2018, and the quarterly payroll and excise tax returns normally due on Oct. 31, 2017. In addition, penalties on payroll and excise tax deposits due on or after Aug. 23, 2017, and before Sept. 7, 2017, will be abated as long as the deposits were made by Sept. 7, 2017.

Generally, the persons eligible for this relief include individuals who live, and businesses whose principal place of business is located, in the covered disaster area. The returns eligible include individual, corporate, and estate and trust income tax returns; partnership returns, S corporation returns, and trust returns; estate, gift, and generation-skipping transfer tax returns; and employment and certain excise tax returns), that have either an original or extended due date occurring on or after Aug. 23, 2017, and before Jan. 31, 2018. Affected taxpayers that have an estimated income tax payment originally due on or after Aug. 23, 2017, and before Jan. 31, 2018, will not be subject to penalties for failure to pay estimated tax installments as long as such payments are paid on or before Jan. 31, 2018.