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.

Is a Death Tax the Same as an Inheritance Tax?

Published on: June 14, 2019 | By McCulloch & Miller, PLLC

Estate tax, death tax, income tax and inheritance tax: what do they mean for your estate and your heirs? You’ll want to be sure to know the difference between them, as you create your estate plan.

Most people don’t have to worry about the federal estate tax, which is often referred to as the death tax. Unless your estate is valued at more than $11.4 million ($22.8 for couples), you won’t be paying this tax. However, says Forbes in a recent article, “Eight Things You Need To Know About The Death Tax Before You Die,” that doesn’t mean your estate and your heirs won’t have to pay income taxes or inheritance taxes.

Assets in your name only and everything else you had control over will be added into your gross estate. For example, all stocks, bonds, bank accounts and life insurance death benefits are included, as well as any real estate, business interests, jewelry, household furnishings and artwork.

Should You Make Lifetime Gifts While Living?

Published on: May 22, 2019 | By McCulloch & Miller, PLLC

Some people give generously all year long, supporting local nonprofits and taking care of their family members. If that’s you, perhaps it’s time to consider taking a more strategic approach to lifetime giving.

Not everyone gives because they are looking to minimize their taxes. If you’ve reached the age and stage where you have accumulated more than enough wealth to retire on, you may enjoy being generous and seeing the impact your gifts can have on the lives of those you love, or those who are less fortunate.

WMUR’s recent article, “Money Matters: Lifetime non-charitable giving,” explains that lifetime giving means you dictate who gets your property. Remember, if you die without a will, the intestacy laws of the state will dictate who gets what. With a will, you can decide how you want your property distributed after your death. However, it’s true that even with a will, you won’t really know how the property is distributed, because a beneficiary could disclaim an inheritance. With lifetime giving, you have more control over how your assets are distributed.

What Purpose Does a Revocable Trust Serve In My Estate Plan?

Published on: April 8, 2019 | By McCulloch & Miller, PLLC

The foundation of your estate plan is a will, also known as a last will and testament. Depending upon your situation, your Houston area estate planning attorney may recommend additional documents, including trusts.

The first part of your estate plan is the creation of a will to provide clear instructions of how your property should be distributed after you pass. The will is also used to name a guardian for minor children, if your family is still young. The concept that many people don’t understand, is that without a will, these and other decisions will be made for you according to the laws in Texas. It’s far better to make these decisions for your family yourself.

Some estates are straightforward and simple. If you have a large amount of assets, children from different marriages, or own a business, your estate will draw on different strategies used by the estate planning attorney. Among them may be a revocable trust.

How Can I Use My Life Insurance to Give to Charity?

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

“Financial planning is an ongoing process that examines your goals, situation and finances, in order to determine if and how these goals can be met. It’s not a product-centric process, but often we use financial products like mutual funds, annuities and/or life insurance to achieve goals in the most efficient manner.”

As Forbes explains in the article “2 Ways To Combine Charitable Giving And Life Insurance,” one of the core products for protecting wealth is life insurance. As you age, your need for life insurance may lessen, but sometimes it will increase. If you have a life insurance policy that you no longer need, one option might be to donate the policy to a charity. There are several ways that life insurance policies can be gifted or used for charitable purposes.

Gift Your Existing Policy. You can simply give away an existing policy, if you no longer need the policy for estate liquidity or estate taxes. You could gift the policy outright to your favorite charity or use a Donor Advised Fund (DAF). If you give the policy to a charity outright, you can change ownership of the policy and pretty much be done with it. You might get a charitable income tax deduction for the value of the policy at the time of the gift (it’s measured by the sum of the interpolated terminal reserve plus unearned premiums rather than the death benefit amount).

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.

What’s “Hot” In Estate Planning? The ING Trust

Published on: March 4, 2019 | By McCulloch & Miller, PLLC

The ING trust is used to generate tax savings in a number of ways. For the right person, they are a trend worth looking into. Are they right for you?

The expanded transfer tax exemptions created by the 2017 tax reform legislation will end in 2026. However, in the meantime, the increased exemptions have led many high-net worth individuals and couples to review their existing estate plans. The ING trust has now become a valuable tool and could easily become the biggest trend in 2019 estate planning.

Think Advisor’s recent article, “ING Trusts: The Hot Trend in HNW Estate Planning,” explains that because of the changes from the tax reform, ING trusts have taken on new significance. ING trusts can generate significant savings, both in income taxes and in overall transfer (gift, GST and estate) taxes. This means that it can be a good idea to look into an ING trust.

How Life Insurance Works Best in an Estate Plan

Published on: February 15, 2019 | By McCulloch & Miller, PLLC

Life insurance can help heirs avoid having to incur expenses like estate taxes, funeral costs and similar expenses. However, it also gives heirs breathing room, so they can make the best use of other assets.

Here is an example of how life insurance should work. A father, Howie, dies and leaves a large estate to daughter Eva. The estate is large enough that it triggers a huge estate tax. However, the bulk of his assets are tied up in an IRA and real estate properties, some of which could be put on the market quickly, but not quickly enough for tax deadlines.

With that scenario, Eva might not want to immediately force a sale of the real estate. However, if she accesses the inherited IRA to raise money, she’ll have to pay income tax on the withdrawal and lose a terrific opportunity for extended tax deferral.

Here’s How to Donate to Loved Ones and Avoid a Tax Bite

Published on: February 8, 2019 | By McCulloch & Miller, PLLC

While there’s a time limit on this great opportunity for tax-free giving—2025, unless Congress makes some changes—this is a good time to take advantage of minimizing your tax liability through generosity. There’s a new big break for top-dollar wealth transfers, thanks to the new tax law.

Basic rule: the more you give away, the smaller your estate and, therefore, the smaller your tax liability. If you’ve got a lot of wealth, this is a good time for you and those you want to make gifts to. The sooner you exploit this, the more you can give. It means that there’s less of a chance your estate will have to write a check to the IRS.

The Street’s recent article, “This Is the Golden Age of Tax-Free Gift Giving,” says the federal government has taxed estates since 1924, and as recently as 2001, the threshold when taxes kicked in was $675,000. This exemption level from taxation has been increased ever since. However, a large increase came from the Tax Cuts and Jobs Act, which took effect in 2018. The Act doubled the exemption level and indexed it to inflation. Anything above the new limits is taxed at 40%. It is $11.4 million for singles and $22.8 million for married couples in 2019.

The Biggest Retirement Risks? The Ones You Don’t Know About

Published on: January 28, 2019 | By McCulloch & Miller, PLLC

You know that health care, taxes and not saving enough for retirement can derail retirement. However, what about the risks you never saw coming?

Consider these three risks to retirement says Wealth Advisor in the article, “The Three Risks To Prepare For In Retirement.” They are a little less obvious than the ones you usually worry about, but no less dangerous for your later years.

Complacency. Don't let yourself fall victim to complacency risk. This involves feeling smug or uncritical satisfaction with your own achievements. In this case, it’s thinking that you have your retirement plan all set and forgetting about it.