News & Articles

How the Current Tax Law Affects Charitable Giving from IRAs

Posted on Mon, Mar 04, 2019

For charitable donors, the Tax Cuts and Jobs Act (TCJA) provided some tax breaks and took away others. Here's what charity-minded individuals need to know.

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Tags: IRA Distributions, Charitable Giving, Charitable Donations, Charitable Contributions, IRA

IRS Issues Final QBI Deduction Regulations

Posted on Wed, Feb 13, 2019

The IRS has issued final regulations on determining allowable deductions based on qualified business income (QBI) from pass-through entities. This break is available only through 2025, unless it's extended by future legislation.

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Tags: IRS, Qualified Business Income (QBI), Pass-Through Entities

Be Careful When Saving for Your Kids' Education

Posted on Wed, Jan 30, 2019

Here's a little-known secret for parents planning to send their children to college in the future: Some of the tax-saving moves you make now could hurt your student's chances for getting financial aid later.

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Tags: Retirement Accounts, College Savings Plan Accounts, Financial Aid

2018 Income Tax Withholdings: Too Much, Too Little or Just Right?

Posted on Mon, Jan 21, 2019

Did you withhold enough money from your regular paychecks in 2018? If you withheld too little — or, didn't pay enough estimated taxes if you're self-employed — you could have an unpleasant surprise when you file your 2018 return.

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Tags: Tax Credits, Individual, Tax Cuts and Jobs Act (TCJA), Theft

Important Tax Figures for 2019

Posted on Mon, Jan 07, 2019

The following table provides some important federal tax information for 2019, as compared with 2018. Many of the dollar amounts are unchanged and some changed only slightly due to inflation.

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Tags: Tax Credit, Estate, Income Tax, Kiddie Tax, Tax Figures for 2019

Maximize Social Security Benefits When You Retire

Posted on Fri, Nov 30, 2018

Get the most from Social Security. Younger retirees face a harsh penalty for working part-time. For every $2 earned over $17,640 in 2019 (up from $17,040 in 2018), you lose $1 in Social Security benefits. In the year you reach full retirement age, a higher earnings threshold applies. Your benefits will be reduced by $1 for every $3 of earnings only when earnings exceed $46,920 in 2019 if you reach full retirement age (up from $45,360 for 2018).

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Estate Tax Planning Tips for Married Couples

Posted on Wed, Nov 28, 2018

The TCJA sets the unified federal estate and gift tax exemption at $11.4 million per person for 2019 (up from $11.18 million for 2018). For married couples, the exemption is effectively doubled to $22.8 million for 2019 (up from $22.36 million for 2018). The exemption amounts will be adjusted annually for inflation from 2020 through 2025. In 2026, the exemption is set to return to an inflation-adjusted $5 million, unless Congress extends it.

What's the GST Tax?

The generation-skipping transfer (GST) tax generally applies to transfers made to people two generations or more below you, such as your grandchildren or great-grandchildren. Transfers made both during your lifetime and at death can trigger this tax — and it's above and beyond any gift or estate tax due.

Under the Tax Cuts and Jobs Act (TCJA), the GST tax continues to follow the estate tax. So, the GST tax exemption also increases under the TCJA. For 2018, both exemptions are $11.4 million per person, or effectively $22.8 million for a married couple. The GST exemption can be a valuable tax-saving tool for taxpayers with large estates whose children also have large estates. With proper planning, they can use the GST exemption to make transfers to grandchildren and avoid any estate or gift tax at their children's generation.

Taxable estates that exceed the exemption amount will have the excess taxed at a flat 40% rate. In addition, cumulative lifetime taxable gifts that exceed the exemption amount will be taxed at a flat 40% rate. Taxable gifts are those that exceed the annual federal gift tax exclusion, which is $15,000 for 2018 and 2019. If you make gifts in excess of what can be sheltered with the annual gift tax exclusion amount, the excess reduces your lifetime unified federal estate and gift tax exemption dollar-for-dollar.

Under the unlimited marital deduction, transfers between spouses are federal-estate-and-gift-tax-free. But the unlimited marital deduction is available only if the surviving spouse is a U.S. citizen.

Important: Some states also charge inheritance or death taxes, and the exemptions may be much lower than the federal exemption. Discuss state tax issues with your tax advisor to avoid an unexpected tax liability or other unintended consequences of an asset transfer.

Exemption Portability

For married couples, any unused unified federal estate and gift tax exemption of the first spouse to die can be left to the surviving spouse, thanks to the so-called "exemption portability" privilege. The executor of the estate of the first spouse to die must make the exemption portability election to pass along the unused exemption to the surviving spouse.

The portability privilege — combined with the increased unified exemption amounts and the unlimited marital deduction — will make federal estate and gift tax bills for married folks a rarity, at least through 2025. That's because the portability privilege effectively doubles your estate and gift tax exemption to a whopping $22.8 million for 2019 (with inflation adjustments for 2020 through 2025).

Important: Exemption portability isn't a new privilege under the TCJA. It existed under prior law, and it will continue to exist after the increased estate and gift tax exemptions expire at the end of 2025.  

Estates below $11.4 Million

If your joint estate is worth less than $11.4 million, there won't be any federal estate tax due even if you and your spouse both die in 2019. That's because the unified estate and gift tax exemption allows either of you to leave up to $11.4 million to your children and other relatives and loved ones without federal estate tax or any planning moves.

But there are still many reasons for you to create (or review) your estate plan. For example, if you have minor children, you need a will to appoint someone to be their guardian if you die. Or you might want to draft a will to designate specific assets for specific individuals. Likewise, if you're concerned about leaving money to a spouse or other individual who isn't financially astute, you might want to set up a trust to manage assets that person will inherit.

Estates between $11.4 Million and $22.8 Million

Couples with joint estates between $11.4 million and $22.8 million are positioned to benefit greatly from exemption portability. If you die in 2019 before your spouse, you can direct the executor of your estate to give any unused exemption to your surviving spouse. If your spouse dies before you, he or she can do the same.

The portability privilege effectively doubles your exemption. That means you and your spouse can transfer up to $22.8 million for 2019 (with inflation adjustments for 2020 through 2025) without incurring estate or gift tax. 

Estates over $22.8 Million

What if your joint estate is worth more than $22.8 million? The generous $11.4 million federal estate tax exemption, the unlimited marital deduction and the exemption portability privilege will work to your advantage. But you may need to take additional steps to postpone (or minimize) federal estate taxes.

For example, Leon and Lucy are a married couple with adult children and a joint estate worth $30 million. They both die in 2019.

Leon dies in February 2019, leaving his entire $15 million estate to Lucy. The transfer is federal-estate-tax-free, thanks to the unlimited marital deduction. Leon also leaves Lucy his unused $11.4 million exemption.

When Lucy dies in November 2019, how much can she leave to her loved ones without incurring federal estate tax? Lucy's estate tax exemption is $11.4 million; she also has the portable exemption ($11.4 million) that Leon left when he died in February. So, she can leave up to $22.8 million to her beneficiaries without incurring any federal estate tax. Minimizing federal estate taxes on the remaining $7.2 million in Lucy's estate would require some additional estate planning moves.

Alternatively, Leon could leave $11.4 million to his children (federal-estate-tax-free thanks to his $11.4 million exemption) and $3.6 million to Lucy (federal estate-tax-free thanks to the unlimited marital deduction). That way, when Lucy dies in November 2019, her estate would be worth $18.6 million (her own $15 million plus the $3.6 million from Leon). Then her exemption would shelter $11.4 million from the federal estate tax. Again, minimizing federal estate tax on the remaining $7.2 million in Lucy's estate would require some additional steps.

Important: The same considerations apply if Lucy is the first to die.

Smart Moves for Big Estates

People with joint estates worth more than $22.8 million should consider planning strategies designed to lower federal estate and gift taxes. Here are a few:

Make annual gifts. Each year, you and your spouse can make annual gifts up to the federal gift tax exclusion amount. The current annual federal gift tax exclusion is $15,000. Annual gifts help reduce the taxable value of your estate without reducing your unified federal estate and gift tax exemption.

For example, suppose you have two adult children and four grandkids. You and your spouse could give them each $15,000 in 2019. That would remove a grand total of $180,000 from your estate ($15,000 × six recipients × two donors) with no adverse federal estate or gift tax consequences. This strategy can be repeated each year, and can dramatically reduce your taxable estate over time.

Pay college tuition or medical expenses. You can pay unlimited amounts of college tuition and medical expenses without reducing your unified federal estate and gift tax exemption. But you must make the payments directly to the college or medical service provider. These amounts can't be used to pay for college room and board expenses, however.

Give away appreciating assets before you die. In 2019, a married couple, combined, can give away up to $22.8 million worth of appreciating assets (such as stocks and real estate) without triggering federal gift taxes (assuming they've never tapped into their unified federal estate and gift tax exemption before). This can be on top of 1) cash gifts to loved ones that take advantage of the annual gift tax exclusion, and 2) cash gifts to directly pay college tuition or medical expenses for loved ones.

To illustrate, say you give stock worth $2 million to your adult son in 2019. That uses up $1.985 million of your $11.4 million lifetime unified federal estate and gift tax exemption ($2 million – $15,000). Your spouse does the same. When it comes to gifts of appreciating assets, using up some of your lifetime exemption can be a smart tax move, because the future appreciation is kept out of your taxable estate.

Set up an irrevocable life insurance trust. Life insurance death benefits are federal-income-tax-free. However, the death benefit from any policy on your own life is included in your estate for federal estate tax purposes if you have so-called "incidents of ownership" in the policy. It makes no difference if all the insurance money goes straight to your adult children or other beneficiaries.

It doesn't take much to have incidents of ownership. For example, you have incidents of ownership if you have the power to:

  • Change beneficiaries,
  • Borrow against the policy,
  • Cancel the policy, or
  • Select payment options.

This unfavorable life insurance ownership rule can inadvertently cause unwary taxpayers to be exposed to the federal estate tax.

To avoid this pitfall, a married individual can name his or her surviving spouse as the life insurance policy beneficiary. That way, under the unlimited marital deduction, the death benefit can be received by the surviving spouse free of any federal estate tax. However, this maneuver can cause too much money to pile up in the surviving spouse's estate and expose it to a major federal estate tax hit when he or she dies.

Alternatively, large estates can set up an irrevocable life insurance trust to buy coverage on the lives of both spouses. The death benefits can then be used to cover part or all of the estate tax bill. This is accomplished by authorizing the trustee of the life insurance trust to purchase assets from the estate or make loans to the estate. The extra liquidity is then used to cover the estate tax bill.

The irrevocable life insurance trust is later liquidated by distributing its assets to the trust beneficiaries (your loved ones). Then, the beneficiaries wind up with the assets purchased from the estate or with liabilities owed to themselves. And the estate tax bill gets paid with money that wasn't itself subject to federal estate tax.

Bottom Line

The TCJA generally improves the federal estate tax posture of taxpayers for 2018 through 2025. But, to achieve optimal results and cover all your bases, you may need to meet with your EHTC Tax Advisor and legal advisor to create or update your estate plan.      

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Tags: Gifts, Estate Planning, Tax Rates, Tax Cuts and Jobs Act (TCJA)

Tax Cheer for Holiday Gifts to Employees

Posted on Mon, Nov 26, 2018

With the holidays fast approaching, you might want to reward your employees for all their hard work in 2018. Gift-giving ideas include gift cards, holiday turkeys and achievement awards.

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Grand Rapids Cybersecurity Panel 2018

Posted on Wed, Nov 14, 2018

With technology playing an ever increasing role in everyday business, it's important to know the risks that can also happen to your company. On Tuesday, November 27, 2018, a panel of local experts and local business leaders will help you to better understand the process and implications of preparing, protecting, detecting and responding to today's growing cybersecurity threat landscape. Listen to these experts and leaders, including Mark Davidson EVP, Cynthia Kay, Michael S. Melfi, J.D., MBA, and Chad Paalman from 3:00 - 5:00 at Egypt Valley Country Club with cocktails and conversation to follow.

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Tags: Technology, Cyberattack, Cybersecurity

7 Year-End Tax Planning Moves for Small Businesses

Posted on Mon, Oct 29, 2018

Business owners still have time to significantly reduce their tax bills for 2018. Here are seven year-end moves to consider, taking into account changes included in the Tax Cuts and Jobs Act (TCJA).

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Tags: Tax Planning, Business Owner, Tax Cuts and Jobs Act (TCJA)