Gift Tax | Begin the Begin

Mega Millions Winnings – Imagine the Possibilities!

October 19, 2018

Currently there is a lot of focus on the Mega Millions that has a jackpot of $1.6 billion (and climbing) and many discussions are being had detailing what one would do if they won. Imagine the possibilities! Some of the considerations include making gifts and loans to friends and family members.

Although chances of winning are 1 in 302.5 million, if you do win and you are in a position to consider making gifts or loans to friends and family members, there are a few key points to remember to minimize any gift tax consequences. As highlighted in an earlier article, we each have the ability to gift during our lifetimes without incurring gift tax. The current exemption is $11.18 million per person above which a 40% flat tax is imposed. In order to utilize that exemption, a gift tax return is required.

Furthermore, each of us has the ability to gift up to $15,000 per person to an unlimited number of people each year. If you are married, a married couple can gift up to $30,000 per person each year. These annual gifts do not count against the lifetime exemption, and are therefore a separate method in which gifting can be made.

IRS regulations also permit you to pay the tuition expenses for a full-time or part-time student directly to the “qualifying educational organization” without having to claim an exemption from gift tax or incurring gift tax. Tuition expenses do not include books, supplies, dorm fees, board or other such expenses that are not direct tuition expenses.

In addition, you can pay for “qualifying medical expenses” that include expenses for diagnosis, cure, treatment, prevention as well as amounts paid for medical insurance. This exemption does not include any expenses that were reimbursed ultimately by medical insurance. Again, such expenses can be paid directly and you would not have to claim your lifetime exemption or incur gift tax.

And what about making loans to friends and family? Be sure that any loan you make is not deemed to be a gift. That is, the loan should impose interest at current fair market values. Applicable Federal Rates (AFR) for October range from 2.55% for short term loans (up to 3 years) to 2.99% for long term loans (over 9 years). Loans can be structured in myriad different ways.

Also, don’t forget about cash gifts to charity. The charitable deduction on your income tax returns was increased under last year’s tax reform act to 60% of your adjusted gross income for 2018, up from 50% of your AGI. The charities of your choice would also help facilitate a lifetime gift and/or planned gift depending your wishes.

So, while you are thinking about what you would do if you won a million dollars or more in the lottery, be sure to keep in mind a few gift or loan options that are available to you and good luck! #megamillions #winningthelottery #lottery #gifttax #estateplanning #taxplanning #planyourjourney

A New Year Means New Exemption Levels

January 14, 2018

Welcome to the New Year! As with any new year, there are usually changes to a variety of important numbers for estate planning and elder law purposes. This year the applicable exclusion amount from Federal estate tax is set at $11.18 million per person thanks to tax reform. The lifetime exclusion from gift tax is also $11.18 million per person and the exemption from generation skipping transfer tax is $11.18 million. The annual exclusion from gift tax will be at least $14,000.

For local jurisdictions that have estate tax, the District of Columbia increased its estate tax exemption from $1,000,000 to $2,000,000 last year and this year has increased the threshold further to match the Federal exemption. Maryland’s exemption from estate tax has increased to $4,000,000. Virginia continues to have no state level estate or inheritance tax.

In the elder law field, the Medicaid spousal impoverishment numbers were released increasing the minimum community spouse resource allowance (CSRA) to $24,720 and the maximum CSRA to $123,600. The maximum monthly maintenance needs allowance is now $3,090.00 while the minimum remains at $2,030.00. The minimum home equity limit is now $572,000 and the maximum is $858,000, but be aware that local jurisdictions may apply these limits differently.

If you have questions regarding the new limits and how they may impact your estate planning, your should consult your professional advisor. #estateplanning #taxplanning #elderlaw #taxreform #HappyNewYear @bgnthebgn

#GivingTuesday – Considerations for Year-End Charitable Giving

November 28, 2017

As the year draws to an end, many of you look to make your charitable donations or are advising individuals regarding their charitable donations. Of course, there are a variety of ways in which one can make such a charitable gift. The IRS recently published IR 2017-191, which is part of a series of articles providing taxpayers with relevant information so they can be ready for the next tax season. In this recent article, the IRS reminded taxpayers of certain aspects of charitable giving in an effort to help taxpayers avoid problems come tax time. I have summarized these helpful tips below.

For starters, individuals can only receive a tax deduction if the charity to which they donate is an ‘eligible organization.’ The IRS has a website, Select Check, that is a searchable online database of ‘eligible organizations’ that can be used to verify the status of an organization.

Next, charitable donations can only be deducted if the taxpayer itemizes their deductions. For some this can be a hassle because that means maintaining accurate records and receipts. If the gift is larger than $250 to the charity, then a written acknowledgement is required. The IRS has provided Publication 526 on charitable contributions to help explain what records are necessary.

Additionally, if an individual is looking to donate tangible personal property like clothing or household items, those items have to be in ‘good used or better’ condition. Household goods include furniture, furnishings, electronics, appliances and linens. The taxpayer must obtain a detailed receipt in which the donated items are described for donations worth $250 or more. Items in which a deduction of more than $500 is claimed usually have to include a qualified appraisal.

Another factor to keep in mind is if the taxpayer receives any ‘benefit’ in the form of merchandise, meals, tickets or other items. The value of such ‘benefit’ will reduce the available deduction amount. For example, a contributor membership to the Kennedy Center is valued at $120, but only $80 of that amount is eligible to be deducted.

One alternative to keeping lots of records and receipts from every organization is the creation of a donor advised fund. An individual can make a single larger contribution to his or her donor advised fund and from that donor advised fund make specific charitable donations. There are a variety of terms and conditions to follow, but the single contribution means that is what is reported on one’s tax returns. Here is just one person’s rationale behind the creation of a donor advised fund that also allowed her to get more involved with her community.

Ultimately, any gift is welcomed by the charity and you should feel free to reach out to the charity or your professional advisor if you have questions or need assistance in making year-end charitable donations. #GivingTuesday @CFNOVA @bgnthebgn #donoradvisedfunds #taxplanning #charitablegiving

Tax Update – 2018 Estate and Gift Tax Exemptions and More…

October 27, 2017

The IRS recently announced the estate and gift exemption levels for 2018 and they continue to increase as per legislation passed in January 2013. The applicable exclusion amount from Federal estate tax will increase to $5.6 million per person allowing a married couple to shelter $11.2 million from Federal estate tax, the rate for which is currently set at 40%. The lifetime exemption from gift tax remains coupled with the exemption from Federal estate tax, and therefore, this exemption will also increase to $5.6 million per person. The annual gift exclusion amount will also increase for the first time since 2013 and will be $15,000 per person. Virginia continues to not impose a state level estate tax. Maryland’s exemption from estate tax will increase to $4 million while the District of Columbia’s now $2 million exemption will rise to meet the Federal exemption beginning in 2018 so long as there is a revenue surplus.

Additionally, in the last article, the fate of the proposed valuation discounting regulations was still up in the air. However, Treasury issued a second report to the President in which those regulations were withdrawn. Therefore, the availability of valuation discounting on certain transfers of interests held in closely held or family owned businesses remains available and is currently no longer under threat.

For seniors and those with disabilities, a cost-of-living adjustment (COLA) for Social Security and Social Security Income (“SSI”) will increase monthly benefits by 2.0%. In addition, the cap on the amount of earnings subject to payroll tax will increase to $128,700. Finally, the tax brackets, standard deductions, Pease and PEP limitations, kiddie tax and other credit and deduction levels for 2018 were announced. Many are watching the tax reform debate to see if any of these numbers will change, so stay tuned… #taxreform #estateplanning #estatetax #taxplanning #taxtime #COLA2018 @bgnthebgn

A New Year Means New Exemptions from Estate Tax

January 5, 2017

Welcome to the New Year! As with any new year, there are usually changes to a variety of important numbers for estate planning and elder law purposes. This year the applicable exclusion amount from Federal estate tax is set at $5.49 million per person. The lifetime exclusion from gift tax is also $5.49 million per person and the exemption from generation skipping transfer tax is $5.49 million. The annual exclusion from gift tax remains at $14,000. The annual exclusion for gifts to non-U.S. citizen spouses increased to $149,000.

For local jurisdictions that have estate tax, the District of Columbia increased its estate tax exemption from $1,000,000 to $2,000,000. Maryland’s exemption from estate tax has increased to $3,000,000. Virginia continues to have no state level estate or inheritance tax.

In the elder law field, the Medicaid spousal impoverishment numbers were released increasing the minimum community spouse resource allowance (CSRA) to $24,180 and the maximum CSRA to $120,900. The maximum monthly maintenance needs allowance is now $3,022.50 while the minimum remains at $2,002.50. The minimum home equity limit is now $560,000 and the maximum is $840,000, but be aware that local jurisdictions may apply these limits differently.

If you have questions regarding the new limits and how they may impact your estate planning, your should consult your professional advisor. #estateplanning #taxplanning #elderlaw @bgnthebgn

Five Considerations for Year-End Charitable Giving

December 22, 2016

As the year draws to an end, many of you look to make your charitable donations or are advising individuals regarding their charitable donations. Of course, there are a variety of ways in which one can make such a charitable gift. The IRS recently published IR-2016-154, which is part of a series of articles providing taxpayers with relevant information so they can be ready for the next tax season. In this recent article, the IRS reminded taxpayers of certain aspects of charitable giving in an effort to help taxpayers avoid problems come tax time. I have summarized these helpful tips below.

Next, charitable donations can only be deducted if the taxpayer itemizes their deductions. For some this can be a hassle because that means maintaining accurate records and receipts. If the gift is larger than $250 to the charity, then a written acknowledgement is required. The IRS has provided Publication 56 on charitable contributions to help explain what records are necessary.

One alternative to keeping lots of records and receipts from every organization is the creation of a donor advised fund. An individual can make a single larger contribution to his or her donor advised fund and from that donor advised fund specific charitable donations can be made. There are a variety of terms and conditions to follow, but the single contribution means that is what is reported on one’s tax returns. Here is just one person’s rationale behind the creation of a donor advised fund that also allowed her to get more involved with her community.

Ultimately, any gift is welcomed by the charity and you should feel free to reach out to the charity or your professional advisor if you have questions or need assistance in making year-end charitable donations. @CFNOVA @bgnthebgn #donoradvisedfunds #taxplanning #charitablegiving

2017 Estate and Gift Tax Exemptions

November 3, 2016

money-2 The IRS recently announced the estate and gift exemption levels for 2017 and they continue to increase as per legislation passed in January 2013. The applicable exclusion amount from Federal estate tax will increase to $5.49 million per person allowing a married couple to shelter $10.98 million from Federal estate tax, the rate for which is currently set at 40%. The lifetime exemption from gift tax remains coupled with the exemption from Federal estate tax, and therefore, this exemption will also increase to $5.49 million per person. The annual gift exclusion amount will remain at $14,000 per person. Virginia continues to not impose a state level estate tax. Maryland’s exemption from estate tax will increase to $3 million while the District of Columbia’s exemption will remain at $1 million until certain revenue surplus targets are met, which may not be until 2018, at which point the exemption will increase to $2 million. As a reminder, proposed regulations issued in August will significantly reduce the availability of valuation discounting on certain transfers of interests held in closely held or family owned businesses, and therefore, taking advantage of 2016 exemption levels is critical for some individuals, business owners and families.

For seniors and those with disabilities, a cost-of-living adjustment (COLA) for Social Security and Social Security Income (“SSI”) will increase monthly benefits by 0.3%. In addition, the cap on the amount of earnings subject to payroll tax will increase to $127,200. Finally, the tax brackets, standard deductions, Pease and PEP limitations, kiddie tax and other credit and deduction levels for 2017 were announced. #estateplanning #estatetax #gifttax #annualgift #exemptionlimits #COLA2017 @bgnthebgn

The Increase of Crowdfunding in Estate Planning

August 18, 2016

Crowdfunding seems to be everywhere, but does it have a place in estate planning? Wikipedia defines crowdfunding as “the practice of funding a project or venture by raising monetary contributions from a large number of people…” Thus, it seems that in the beginning crowdfunding was a form of venture capitalism with the public at large. Websites like Kickstarter and GoFundMe allowed for individuals to present an idea and raise capital to get the project off the ground. However, in relatively recent history, crowdfunding has taken on a prominent role in response to any tragedy. Now it seems that if there is a sudden illness or death, crowdfunding appears to help defray costs. But for those both using or donating through a crowdfunding website, there are a few questions to consider.

Are there any tax consequences to a donation? – In general, giving to a fund that benefits an individual is not a taxable gift so long as you stay below certain thresholds. An individual can give up to $14,000.00 per year to each of any number of different people under current law without incurring any gift tax consequences. Typically in crowdfunding, the fund is set up and smaller contributions are requested or simply contributions of any amount, big or small, are accepted, so hitting that threshold is not an issue. Also, keep in mind that your contribution to such a fund is typically not tax deductible. If the contribution is not to a public charity or other qualified tax-exempt organization, then you are not otherwise allowed to deduct your contribution from your personal income taxes.

Are there fees associated with crowdfunding? – The answer is it depends on the site being used to support the fund. Kickstarter applies a 5% fee and then there are processing fees of approximately 3-5% if the campaign is successful. GoFundMe charges a 5% fee and then approximately an additional 3% processing fee. The fees are charged against each contribution. The donor or person contributing is not charged the fees, but the person receiving the funds does not receive 100% of the monies contributed. Thus, if I give $100 to a GoFundMe fund to help pay for costs associated with the illness of a friend’s child, my friend will only see $92 of my gift. This reality then begs the question as to whether it is simply better to write a check directly to my friend. That way my friend receives $100. Of course the theory behind crowdfunding is that if everyone else is contributing then you will want to do so as well, and therefore, perhaps the fees are worth it if in the end more monies are raised.

How do you determine that the request is legitimate? – You need to be careful that you are going to the actual fund page. Spoof pages can pop up or emails that look legitimate can arrive in your inbox. You may click through and donate not realizing that you are not donating to the actual cause or person that you intended. Thus, you should take care to ensure that the URL for the fund that you are using is from a source you know and trust.

Overall, it appears that recently during times of hardship and tragedy, crowdfunding has become a way that people can express their sympathy and/or support for others. I would expect that any monies received are welcomed and appreciated, but may not be enough. Furthermore, crowdfunding is not a substitute for financial and estate planning where questions relating to life insurance, disability insurance, retirement assets, fiduciaries, guardianship and the like are discussed and analyzed to ensure that in the event of the unexpected, covering expenses does not create additional stress. So the question to ask yourself is, what preparations have you made for the unexpected? #crowdfunding #estateplanning @gofundme @kickstarter @bgnthebgn

ALERT – Valuation Discounting Impacted By New Regulations

August 4, 2016

Estate planners and valuation experts have been advising clients for the last year that the IRS and Treasury would be issuing new regulations that would make it harder to transfer business interests without incurring estate or gift tax. The proposed regulations are now here and will reduce the availability of discounting for transfers of business interests that are subject to certain restrictions (e.g., restrictions on marketability). The proposed regulations will go through a 90 day public comment period and a public hearing is scheduled for December 1, 2016. The proposed regulations will be effective as to transfers that occur on or after the date the regulations become final, and in certain circumstances, as to transfers occurring 30 or more days after the regulations become final. Thus, those who hold interests in closely held businesses should contact their professional advisors to determine whether they need to take action before the regulations are finalized. #valuationdiscounts #2704regulations #businessvaluations #estateplanning #businessplanning @bgnthebgn

If I Won a $1 Million in the Lottery or $1.5 Billion…

January 13, 2016

Today there is a lot focus on the Powerball lottery that currently has a jackpot of $1.5 billion (and climbing) and many discussions are being had detailing what one would do if they won. Some of the considerations include making gifts and loans to friends and family members.

Although chances of winning are 1 in 292 million, if you are in a position to consider making gifts or loans to friends and family members, there are a few key points to remember as to minimize any gift tax consequences. As highlighted in an earlier article, we each have the ability to gift during our lifetimes without incurring gift tax. The current exemption is $5.45 million per person above which a 40% flat tax is imposed. In order to utilize that exemption, a gift tax return is required.

Furthermore, each of us has the ability to gift up to $14,000 per person to an unlimited number of people each year. If you are married, a married couple can gift up to $28,000 per person each year. These annual gifts do not count against the lifetime exemption, and are therefore a separate method in which gifting can be made.

And what about making loans to friends and family? Be sure that any loan you make is not deemed to be a gift. That is, the loan should impose interest at current fair market values. Applicable Federal Rates (AFR) for January range from 0.75% for short term loans (up to 3 years) to 2.65% for long term loans (over 9 years). Loans can be structured in a myriad of different ways.

So, while you are thinking about what you would do if you won a million dollars or more in the lottery, be sure to keep in mind a few gift exemptions that are available to you that help minimize potential tax consequences and good luck! #powerball #ifIWonPowerball #winningthelottery #lottery #gifttax #estateplanning #taxplanning