News & Articles

Navigate the Tax Rules for Boats and RVs

Posted on Thu, Jul 15, 2021

Will you be cruising the waters on your boat or camping out in your RV this year? Besides the pleasure you can enjoy through your personal property, you may also be eligible for tax breaks, if certain requirements are met.

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Tags: Deductions, Tax Savings, Tax Cuts and Jobs Act (TCJA)

Year-End Moves for Charitable Donations

Posted on Tue, Oct 20, 2020

'Tis almost the season for charitable giving. Besides helping a worthy cause, your donations may qualify for a festive write-off on your 2020 tax return if you qualify. Here are five ways to boost your deduction for charitable contributions if you itemize.  

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Tags: Year-End Tax Planning Strategies, Charitable Giving, Charitable Donations, Tax Cuts and Jobs Act (TCJA)

Plan Now to Reduce AMT Exposure

Posted on Thu, Sep 10, 2020

First the bad news: Despite passage of the Tax Cuts and Jobs Act (TCJA), the individual alternative minimum tax (AMT) is still in place. But there's some good news: The law has made AMT rules more taxpayer-friendly through 2025. In addition, other TCJA changes reduce the odds that you'll owe the AMT for those years. Even so, you may still benefit from taking steps now to avoid or minimize it.

Know the Basics

The AMT is connected to, but separate from, the regular federal income tax system. The difference is that the AMT taxes certain types of income that are tax-free under the regular income tax system. Also, the AMT disallows some regular tax breaks.

The maximum AMT rate is 28%, versus the 37% maximum regular tax rate. For the 2020 tax year, the maximum 28% AMT rate kicks in when AMT income exceeds $98,950 for individuals and $197,900 for married joint-filing couples (for 2019 these figures were $97,400 and $194,800 respectively).  If your AMT bill for the year exceeds your regular tax bill, you'll owe the higher AMT amount.

There's an inflation-adjusted AMT exemption that you can subtract when calculating your AMT income. But the exemption is phased out when your AMT income is greater than the applicable threshold. For 2018-2025, the TCJA raises the exemption amount and greatly increases the phase-out thresholds. For 2020, the exemption amounts are $72,900 for unmarried individuals, $113,400 for married joint-filing couples and $56,700 for married individuals who file separately (for 2019 these amounts were $71,700, $111,700, $55,850 respectively). The phase-out thresholds in 2020 are $518,400, $1,036,800 and $518,400 respectively (in 2019 $510,300, $1,020,600 and $510,300.).

Your exemption is reduced by 25% of the excess of AMT income over the applicable phase-out threshold. But thanks to the TCJA's much-higher thresholds through 2025, only those with very high incomes will be affected by the phase-out rule. Middle-income taxpayers will benefit from full exemptions.

Recognize Risk Factors

Several variables make it difficult to pinpoint exactly who will and who won't be hit by the AMT under the new tax law. However, the TCJA reduces or eliminates the risk associated with some factors through 2025, for example:

Substantial income. High income can cause your AMT exemption to be partially or completely phased out — which greatly increases the odds that you'll owe the AMT. Although this risk factor still exists, it has been substantially diminished by the TCJA's more-taxpayer-friendly AMT exemption rules.

Large itemized deductions for state and local taxes. Itemized deductions for state and local income and property taxes are disallowed under AMT rules. Through 2025, the TCJA limits regular-tax itemized deductions for state and local income and property taxes to a combined total of only $10,000, or $5,000 if you use married filing separate status. Because large itemized deductions for these taxes are no longer possible through 2025, this risk factor is greatly reduced for now.

Several dependents. Previously, there was some risk to taxpayers who claimed several personal and dependent exemption deductions. These deductions are disallowed under AMT rules. But the TCJA eliminates personal and dependent exemption deductions for through 2025, eliminating this risk factor for those years.

Miscellaneous itemized deductions. In the past, deducting such items as investment expenses, fees for tax advice and preparation, and unreimbursed employee business expenses could raise the risk of AMT exposure. But for 2018-2025, the TCJA eliminates most miscellaneous itemized deductions for regular tax purposes. So this risk factor is gone for now.

But even following the passage of the TCJA, some factors continue to make taxpayers vulnerable to the AMT, including:

Exercise of ISOs. In-the-money incentive stock options (ISOs) feature a bargain element — the difference between the market value of the shares on the exercise date and the exercise price under the ISO. This bargain element doesn't count as income under regular income tax rules but it does count as income according to the AMT. This risk factor still exists and will likely continue to be a common cause of AMT liabilities.

Interest from private activity bonds. Such interest is tax-free for regular tax purposes but taxable under AMT rules. The TCJA doesn't change this treatment, so private activity bond interest remains a risk factor.

Disallowed standard deductions. Through 2025, the TCJA almost doubles standard deduction amounts, but these write-offs are disallowed under the AMT rules. Therefore, the new law actually increases this risk factor.

Depreciation write-offs. Traditionally, assets such as machinery, equipment, computers, furniture and fixtures from a business or from investments in S corporations, limited liability companies or partnerships were required to be depreciated over longer periods for AMT purposes. This increased the likelihood that you'd owe AMT. For both regular income tax and AMT purposes, businesses can now deduct the entire cost of many depreciable assets placed in service between September 28, 2017 and December 31, 2022 in Year 1. The TCJA thus reduces this risk factor for newly-acquired assets. However, if you're depreciating older assets under the prior law's rules, the depreciation write-off threat still exists.

Avoid or Minimize the Tax

As we explained above, the TCJA reduces the odds that you'll owe the AMT. Even if you do owe it, you'll probably owe less — possibly a lot less. Nevertheless, you might benefit from making some changes that will help reduce your exposure to the AMT. For example:

Some taxpayers are in the habit of prepaying state and local income and property taxes that are due early in the following year. These taxes aren't deductible under AMT rules, and it may now make sense to deduct them next year when you have a chance of not being exposed to the AMT. Prepaying also may be a bad idea because the TCJA limits itemized deductions for state and local income and property taxes to a combined total of $10,000 ($5,000 for those married filing separately). Paying next year's taxes this year might push you over the threshold for non-deductibility.

You should also be careful when exercising in-the-money ISOs. Triggering these options when there's a big spread between current market value and exercise price is one of the most common causes for AMT liabilities. Consider spreading out ISO exercises over several years.

And although the interest on municipal bonds is tax-free under regular tax rules, interest on private activity bonds is taxable under AMT rules. In general, a private activity bond is a bond issued by or on behalf of local or state government to finance the project of a private user, such as a bond used to finance a stadium for a professional sports team.

Claim the AMT Credit

A portion of the AMT that you pay can potentially generate the minimum tax credit, which we will call the AMT credit. This credit can be used to reduce your regular tax liability in future years — but only to the extent that the regular tax liability equals the AMT liability for that particular year. The AMT credit can be carried forward for an unlimited number of years.

The credit is generated only by AMT liabilities that are attributable to deferral preferences (items that are recognized at different times for regular tax and AMT purposes). By contrast, AMT liabilities attributable to exclusion preferences (items that are permanently treated differently under the regular tax and AMT rules) don't generate AMT credits.

Exclusion preferences include:

  • Itemized deductions allowed for regular tax purposes but disallowed under AMT rules (such as state and local income and property taxes and miscellaneous itemized deductions that were allowed before the TCJA),
  • Deductions for home equity loan interest that was allowed for regular tax purposes before the TCJA if the loan proceeds weren't spent on your first or second residence,
  • Your standard deduction if you claimed it instead of itemizing,
  • Personal and dependent exemptions allowed before the TCJA, and
  • Tax-exempt interest from private-activity bonds.

Most other AMT adjustments and preferences are deferral preferences that potentially will generate AMT credits. For example, the bargain element from exercising an ISO is a deferral preference as are AMT depreciation adjustments. Because the TCJA reduces or eliminates such exclusion preferences as itemized deductions for state and local taxes, home equity loan interest deductions, and personal and dependent exemption deductions, anyone who owes the AMT under the current rules is more likely to generate AMT credits than under prior law.

When to Take the Contrarian Approach

If you know you have AMT exposure this year, remember that the maximum AMT rate is 28% — compared with the maximum regular tax rate of 37%. So you might actually benefit from accelerating some income into the next year when it may be taxed at the 28% AMT rate instead of at a higher, regular tax rate next year. Over the two-year period, you'll likely save taxes.


Although avoiding or minimizing the AMT is a worthy tax-planning goal, don't shoot yourself in the foot. For example, postponing the exercise of an ISO could turn out to be a bad idea if the stock price plummets. Your tax advisor can help you identify the most beneficial moves and avoid costly mistakes.

About EHTC

EHTC is a dedicated, full-service CPA firm in West Michigan that focuses on helping clients to achieve their full potential through comprehensive accounting, finance and tax services. We are a local firm with large firm resources, using a team approach to proactive client service that helps our clients gain a competitive advantage through our ability to develop strategies and present realistic solutions that build value.

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Tags: AMT, Tax Cuts and Jobs Act (TCJA)

Has the TCJA Lowered Your Taxes?

Posted on Fri, Feb 21, 2020

We now have two years of the Tax Cuts and Jobs Act (TCJA) changes under our belts: 2018 and 2019. Are your taxes lower than before the law went into effect? Not surprisingly, the answer depends on your specific situation. 

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Tags: Tax Cuts and Jobs Act (TCJA)

14 Tax-Favored Fringe Benefits: What's the Right Mix for Your Business?

Posted on Wed, Sep 25, 2019

Job applicants look at more than just wages when evaluating potential employers. They consider the whole compensation package, including fringe benefits and perks. These add-ons enable employers to cast a wider net in the job market, helping them attract and retain top-quality workers. 

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Tags: Health Insurance, fringe benefit, Retirement Plan, Tax Cuts and Jobs Act (TCJA)

IRS Announces Changes for Personal Use of Employer-Provided Vehicles

Posted on Tue, May 14, 2019

The free use of a company car is one of the best perks an employee may receive as part of a compensation package. But the benefit to the employee isn't completely "free" under current tax law. Essentially, personal use of a company car is treated as a taxable noncash fringe benefit, subject to income tax obligations.

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Tags: Vehicle, IRS, Tax Cuts and Jobs Act (TCJA)

Delinquent Taxpayers May Experience Passport Issues

Posted on Wed, Mar 27, 2019

Let's say a person is planning to take a plane trip out of the country. And further suppose that individual owes the federal government a fair amount of back taxes. The person may not be able get a passport if he or she owes the government a significant amount of back taxes. The IRS is now reminding taxpayers that legislation passed in 2015 allows the tax agency to revoke passports or deny new ones to major debtors.

Taxpayers Free to Go Overseas

The IRS says it won't certify a taxpayer as owing a seriously delinquent tax debt or will reverse the certification for an individual who: 

  • Is in bankruptcy;
  • Has been identified by the IRS as a victim of tax-related identity theft;
  • Has an account the IRS has determined is currently not collectible due to hardship;
  • Is located within a federal disaster area;
  • Has a request pending with the IRS for an installment agreement;
  • Has a pending offer in compromise with the IRS; or
  • Has an IRS accepted adjustment that will satisfy the debt in full.

Background of the Law

Under the Fixing America's Surface Transportation Act of 2015, a highway spending measure, the IRS was granted the authority to notify the State Department about taxpayers who have "seriously delinquent tax debts." The State Department is then tasked with denying the individual their passport application or renewal. It took awhile to put the wheels in motion, but the IRS began enforcing this provision of the law last year.

For these purposes, a seriously delinquent tax debt is defined as $50,000 or more, indexed for inflation. The threshold for 2019 is $52,000. This includes back taxes, penalties and interest for which the IRS has filed a tax lien or issued a levy.

How It Works

If a taxpayer is certified as owing a seriously delinquent tax debt, he or she receives a Notice CP508C from the IRS. This notice explains the steps that must be taken to resolve the debt. For instance, IRS representatives may help a taxpayer set up a payment plan or explain other payment alternatives. People who owe back taxes shouldn't delay — especially if they're planning a trip abroad.

Once the tax obligations are met, the IRS will reverse the taxpayer's certification within 30 days. Matters may be expedited under certain circumstances.

Before denying a passport renewal or new passport application, the State Department will hold a taxpayer's application for 90 days to allow him or her to resolve any erroneous certification issues, make full payment of the tax debt or enter into a satisfactory payment arrangement with the IRS.

In an IRS announcement, the agency presents several ways that an individual can avoid having the State Department notified of a seriously delinquent tax debt, including the following:

  • Pay the tax debt in full;
  • Pay the tax debt in a timely manner under an approved installment agreement;
  • Pay the tax debt in a timely manner under an accepted offer in compromise (OIC);
  • Pay the tax debt in a timely manner under the terms of a settlement agreement with the Department of Justice (DOJ);
  • Have requested or have a pending collection due process appeal with a levy; or
  • Have collection suspended because you've made an innocent spouse election or requested innocent spouse relief.

The IRS also has provided details on two key relief programs available to taxpayers who could have their passports revoked or denied.

1. Payment agreements. A taxpayer can formally request to use a payment plan by filing Form 9465. This form can be sent with a tax return bill or notice or a taxpayer can arrange a monthly payment agreement online.

2. Offers in compromise. With an OIC, a taxpayer settles up with the IRS for an amount that's less than the actual tax liability. The IRS will examine the individual's income and assets to determine his or her ability to pay. An individual can use an online pre-qualifier to see if he or she is likely to qualify for an OIC.

Other special rules apply to taxpayers who are currently serving in a combat zone.

Moral of the story: As you can see, there are several available options for avoiding a worst-case scenario. With assistance from a tax advisor, a person who owes back taxes should be able to find a happy tax landing.

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Tags: Filing Taxes, IRS, Tax Cuts and Jobs Act (TCJA)

It's Not Too Late for Some Business Owners to Lower Their 2018 Taxes

Posted on Mon, Mar 25, 2019

Most businesses will owe less tax for the 2018 tax year than they would have under prior law, thanks to changes brought by the Tax Cuts and Jobs Act (TCJA). But have you done everything possible to lower your business tax bill for last year? Even though 2018 is in your review mirror, there are some possibilities for business owners to consider if your return for the last tax year hasn't been prepared yet.

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Tags: Deductions, C corporation, LLC, Sole Propietorship, Tax Cuts and Jobs Act (TCJA), Qualified Business Income (QBI)

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

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)