Monthly Archives: September 2013

How to handle claims against estates

As an executor, it’s your responsibility to settle the estate you’ve been entrusted to administer. An important part of your job is identifying legitimate expenses of the estate and paying those bills in a timely fashion.

One reason for diligence on your part has to do with federal tax rules. If a federal estate return (Form 706) is required, some claims against an estate, such as unpaid income tax or gift tax, are deductions that reduce the amount of estate tax due. In order to benefit from the deductions, the claims must be bona fide, have existed at the date of death, and actually be paid. (For 2013, estates with gross assets of $5,250,000 or more will generally have to file Form 706.)

What happens if you’re unable to measure the amount of a claim against the estate? For example, say the estate is involved in litigation, and you’re not sure of the final outcome at the time the tax return is due.

In that case, you’ll need to file a “protective claim.” The claim, which you attach to the estate return, preserves the ability to take a deduction when an expense is settled and receive a refund of the estate taxes paid.

Give us a call for more information about claims against estates and other tax considerations. We’re here to help.

Check your 2013 estimated tax payments

Figuring your quarterly estimated tax payments is not quite as complicated as winning a jelly-beans-in-a-jar counting contest. Still, new rules, including higher tax rates, limits on itemized deductions, and two Medicare surtaxes, add a different flavor to the calculation this year.

For example, say you and your spouse will be subject to the additional 0.9% Medicare surtax because your combined wages exceed the $250,000 threshold. The two of you might be expecting your employers to withhold the additional amount.

However, employers are only required to withhold when your compensation exceeds $200,000 — without taking into consideration how much your spouse makes or any income you may earn from another job.

That could mean you’ll owe tax — and perhaps a penalty for underpaying the tax — on your 2013 return. Estimated payments can help cover the shortfall.

The 3.8% surtax on net investment income affects estimated payments too. Are you receiving income from capital gains, interest or dividends? It’s a good idea to estimate your income to determine if you’re over the $250,000 threshold ($200,000 when you’re single).

The basic estimated tax rules have not changed. Generally, you can avoid penalties by paying in the same amount of tax you owed on your 2012 return, or 90% of this year’s tax, whichever is less. When your income is over $150,000, you’ll have to pay 110% of last year’s tax or 90% of this year’s.

Think you may need to make or adjust your 2013 estimates? Give us a call. We’re here to help.

Get ready for the net investment income tax

Are you ready for the impact of the net investment income tax? This new 3.8% tax will appear for the first time on 2013 federal returns — and you don’t want to wait until next April to find out if you’ll have to pay.

Here’s a quick refresher so you can begin to assess your exposure.

  • When the tax applies. When you plan to file a joint return, report investment income such as capital gains, dividends or interest, and expect this year’s modified adjusted gross income to exceed $250,000, you may be affected by the net investment income tax. (The MAGI threshold is $200,000 when you file single or head of household, and $125,000 for married filing separately.)

    What’s MAGI? In this case, it’s the amount you get when you add any excludable foreign income to your adjusted gross income. You’re already familiar with adjusted gross income — that’s the income on your return less above-the-line deductions such as moving expenses, alimony, or student loan interest.

  • What you can do. If you’re coming up to the threshold, consider increasing your contributions to retirement plans. Installment sales, investments in municipal bonds, and timing asset sales can also help reduce your adjusted gross income.

Please give us a call for more suggestions. We’ll run a tax projection, explain your options, and help you come up with a proactive plan.

Consider an appeal if your property taxes seem too high

Home prices in many parts of the country have not fully recovered, yet many homeowners are still paying property taxes that reflect appraisals performed at the peak of the housing market. According to the Congressional Budget Office, property tax adjustments tend to lag behind changes in home prices by an average of three years. Accordingly, many homeowners — some watchdog organizations estimate over 50 percent — are paying too much property tax.

To determine whether your tax bill is a good candidate for appeal, consider the four components that local agencies use to calculate property taxes:

  • Appraised value. The appraisal may be based on comparable sales, in-home visits, community-wide reassessments, computer models, even aerial photographs.
  • Assessment ratio. In some states, taxes are based on a percentage of appraised value. Other locales set taxes at 100 percent of current market prices.
  • Assessed value. Multiply appraised value times the assessment ratio to arrive at assessed value.
  • Tax rate. Set by local governments to cover various costs, including road maintenance and school expenses, this rate varies among regions. Typically, it’s figured for every $100 of assessed value. So if your assessed value is $150,000 and the tax rate is .025, you’ll be charged $3,750 in annual property taxes.

Of these four components, it’s wise to focus on the one that’s the most subjective and controllable: the property’s appraised value. Railing against exorbitant tax rates, while possibly therapeutic, probably won’t yield favorable results at city hall.

To get started, find out your local taxing authority’s process for filing appeals. Next, obtain a copy of the assessor’s property record card, which summarizes the characteristics of your home. Compare data on the card to the physical attributes of your house. Is the square footage accurate? Does the assessor claim you have three bathrooms instead of two? Is your basement listed as “finished” when, in fact, it’s a barely accessible crawl space?

Stroll through your neighborhood, taking photos and jotting down addresses of homes that have sold recently. When you get home, check the county’s online tax assessment listings. If owners of larger and more amenity-laden houses are paying lower property taxes than you are, take note.

Finally, lay out your evidence to local decision makers, presenting all documents in an organized manner. Be courteous, but firm. If you don’t win the appeal (and cost-benefit considerations warrant further action), consider hiring a tax attorney or property tax consultant.

Create a positive first impression for your business

You’re new to town and your car needs fixing. Scanning the local phone book, you come across an auto repair shop that’s a few blocks away. Pulling into the parking lot, you start to notice things: the signage above the door, the clothing of the employees, the shrubbery skirting the building. You step into the waiting area and continue to observe. You check out the condition of the carpet, the smells and sounds emanating from the garage, the magazines scattered on the coffee table. As you approach the service counter, you consider the condition of the counter top, the receptionist’s tone of voice, and the calendar on the wall.

All of this happens within minutes of your arrival and before any service is rendered. If what greets your senses is generally positive, you will likely give this company return business — assuming their services are reasonably priced and their staff is competent. On the other hand, if your first impression is negative — even if the service is performed in a satisfactory manner — you’re less likely to darken their doors again. First impressions matter.

So how do you create a positive first impression for your business? Start with “curb appeal.” As any realtor will tell you, a fresh coat of paint can work wonders. Trimmed hedges, clean windows, and signage that says, “We care and we’re open for business” — all these physical aspects of your facility will either invite customers or drive them away. Pleasant music, coffee and popcorn, freshly baked cookies — such relatively inexpensive accoutrements can create a positive impression as well.

Even if your facility is pristine, your employees make a big difference to that first impression. Train them to make eye contact with every customer, to communicate clearly, and to focus on individual needs. If possible, uniforms should be clean and in good repair. Staff should be courteous, even when customers become irate or unreasonable. Employees should learn to keep their cool and explain facts in an even-handed manner. If you walk through the door and observe a red-faced employee in a heated verbal exchange with a customer, will you return to that business?

People are observing all the time, and they’re reporting those observations to friends and associates. Make sure your business leaves a positive first — and lasting — impression.