Estate tax law is marking a centennial this year. As you might expect, the rules have changed a bit over the past century. Here’s an overview of current provisions.
- Exemption amount. The estate tax exemption is the amount of assets you can transfer, estate tax-free, to your heirs via your estate plan or through gifts during your lifetime. The basic federal estate tax exemption is $5 million, and is adjusted annually for inflation. For 2016, the exemption is $5,450,000.
- Portability. Portability is an election you make as an executor to apply the unused portion of one spouse’s basic exemption to the second spouse’s estate. As a permanent part of estate tax rules, portability makes it possible to transfer all or part of an unused exclusion between spouses. You do that on Form 706, the federal estate tax return. The catch: Normally, you have to file the return and the election by the nine-months-after-death due date, even if the total value of the estate is less than the exclusion.
- Basis reporting. Estate tax rules require consistent reporting of property values between an estate and the beneficiaries. As an executor, you’ll have to file a statement with the beneficiaries and the IRS notifying both of the value of the property as reported on the estate return. Unless an exception applies, the beneficiaries, in turn, can claim no more than that value when the property is later sold or disposed of. The statement is due within 30 days after the estate return is filed or 30 days after the due date of the estate return, whichever is earlier. Penalties apply for failure to file the statement and for inconsistent reporting of the values.
Contact Carl Heinemann, your Chattanooga CPA, to schedule an appointment to update your estate plan. We can help you understand planning documents, such as wills, trusts, and beneficiary designations, as well as your exposure to federal and state taxes.
June is the end of the second quarter, and you’re no doubt gearing up for next month’s due date for your federal payroll tax returns. But you may also need to complete one task before the end of June: securing your eligibility to claim the Work Opportunity Tax Credit. Here are the details, as well as other current payroll news.
- Work Opportunity Tax Credit. You can claim this federal tax credit when you hire employees who are members of “target” groups. Normally, you have 28 days after an eligible worker’s first day to complete the necessary paperwork for the credit. But the 28-day rule has been extended for some new workers hired between January 1, 2015, and May 31, 2016. For certain employees hired within that time period, the deadline for filing the required form is June 29, 2016. The extended date gives you a chance to review your personnel files for credit-eligible employees.
- Employee leasing. Do you outsource your payroll management tasks to a Professional Employer Organization (PEO)? If so, you may have been concerned about reports that some of these companies failed to send the required payroll taxes to the IRS, leaving employers on the hook for unpaid taxes. A voluntary certification program implemented by the IRS may help ease your concern. Hiring a PEO that’s certified under the new rules shifts the liability for failing to remit payroll taxes to the PEO.
- Incorrect payroll notices. If you were confused by the changes to April due dates caused by various federal and state holidays, take heart. The IRS was confused, too. As a result, some payroll deposits that were made correctly on April 18 (instead of April 15) were flagged as late, and the IRS issued penalty notices. You can hold off replying to the notice. The IRS will let you know when the mistake is corrected.
Contact Carl Heinemann, your Chattanooga CPA, for more details about these and other payroll issues. We’re here to help.
Remember that purchase you made online — the one you didn’t have to pay sales tax on? Guess what? In most cases, you were supposed to pay the tax yourself, at the same rate as your state’s sales tax. These consumer-assessed taxes are called “use” taxes, and they typically apply when you or your business make a purchase from an out-of-state seller that is not required to collect sales tax in your state. If the seller does not collect the tax from you, and the purchase is otherwise taxable, you’re responsible for remitting use tax to the state. The idea is to keep in-state businesses from suffering a competitive disadvantage against out-of-state rivals.
The result? If your state has a use tax, you generally owe the tax on most items you buy out of state and bring in state. The tax applies to purchases both large and small, and sometimes even to items such as magazine subscriptions. In practice, states have had difficulty tracking purchases and collecting use taxes from individuals. Businesses are required to report use taxes on their sales tax returns and are audited to check compliance.
However, as states seek to collect more taxes without raising rates, enforcement of use tax laws could increase. Some states require you to report the use taxes you owe on your personal state tax return. Others may have reporting arrangements with neighboring states to track purchases, or they may monitor deliveries coming across state lines.
Failing to pay means you could be liable for penalties and interest in addition to the unpaid tax. If you think the use tax applies to you, contact Carl Heinemann, your Chattanooga CPA, for information about filing requirements.
According to a 2016 report from the Treasury Inspector General for Tax Administration, the IRS mailed more than 188 million notices and letters to taxpayers during 2014. There’s no reason to believe the number of notices will be any less this year. If you’re one of those taxpayers on the IRS mailing list, here’s what to do.
- Scan the heading. The first line, generally printed in bold type and centered beneath your name and address, will tell you why the IRS is contacting you. Questions about missing information, additional taxes owed, or payments due mean you’ll want to take prompt action to avoid more notices or assessments of interest and penalties.
- Review the discrepancy. You’ll find the tax form and the year to which the notice applies printed in the upper right corner. Pull out your copy of the corresponding tax return, along with the supporting documents, and compare what you filed with what the IRS is questioning.
- Prepare your explanation. Are the proposed changes correct? Did the IRS misapply a payment? Whatever the issue, there’s usually no need to file an amended return. However, the IRS typically wants a response, by either phone or mail, in order to clear the notice from your account.
- Do not delay. Ignoring IRS correspondence will not make it go away. Reply to the IRS in a timely manner even if you don’t have all the information being requested.
Please contact us as soon as you receive a notice from the IRS or state or local taxing authority. We’re here to set your mind at ease by helping you resolve the matter as quickly as possible.
You may assume that a legally enforceable will is all you need to ensure that your assets are properly distributed when you die. Unfortunately, that’s not necessarily true. Retirement accounts, life insurance policies, annuities, and accounts at financial institutions are governed by beneficiary designations. If those designations are outdated, unspecific, or wrong, assets may not be distributed the way you would like. That’s why it’s important to periodically review your choices. Here are items to consider.
- Be specific and stay current. When you name a beneficiary, your assets can pass directly to that person or entity without going through the probate process. Just about anyone can be named as a beneficiary, including a charity, trust, or individual (though state laws make exceptions for minor children), and you’ll want to remember to update the designations for life events such as divorce, remarriage, births, deaths, job changes, and retirement account conversions. In addition, you may want to name specific individuals as beneficiaries instead of using a group designation such as “all my children” or “all my grandchildren.” Why? Certain individuals, such as stepchildren, may not be included under the legal definition of “children” in some states.
- Think about unexpected outcomes. Be alert for the effect of taxes and unintended consequences. For example, if the money in your accounts is distributed directly to your heirs, they may be stuck with a large unexpected tax bill. For wealthier heirs, estate tax may also play a role. In 2016, the estate tax exclusion is $5.45 million and the top estate tax rate is 40%. Another concern: If one of your designated beneficiaries is disabled, government benefits may be reduced or eliminated by the transfer of assets. You may want to consult an attorney to establish a special needs trust to ensure your loved one is not adversely affected.
- Name contingent beneficiaries. If your primary beneficiary dies or is incapacitated, having a “backup”, or contingent, selection will ensure that your assets are properly distributed. In some cases, a primary beneficiary may choose to disclaim, or waive, the right to the assets. In that case, contingent beneficiaries can step up to primary position.
- Practice good recordkeeping. Keep your beneficiary designation forms tucked away in a safe location, and maintain current copies with your financial institution, attorney, or advisor.
Beneficiary designations are an important part of estate planning. Contact Carl Heinemann, your Chattanooga CPA, for more information.
Only a few years ago, Facebook, Twitter, Instagram, LinkedIn, and YouTube were mere dreams of forward-looking visionaries. Now, computer users worldwide spend hours every day communicating via these social media platforms. And the conversation is not all about weekend fun and dinner menus. One study found that two-thirds of adult internet users were influenced by blogs and other social media outlets when making purchasing decisions. Whether your company’s target demographic includes retirees planning their next vacation or kids hanging out at the local coffee shop, the lure of online community and its potential as a marketing venue should not be overlooked. Here are pros and cons to consider.
On the plus side, social media marketing is relatively inexpensive. Compared to more traditional forms of advertising, such as billboards, television, radio, and magazines, placing your products in the public eye via social media can be done rather cheaply. You set up an account, upload a video, and voila! Your campaign is on its way. Social media sites let you reach a huge audience, both domestic and international. According to one survey, 89% of internet users between the ages of 18 and 29 participate in social media activities. That’s a big market. Professionals use social media sites, too, to network with colleagues.
On the other hand, maintaining a social media presence can be time consuming. Keeping content fresh, updating product information, and responding to customer feedback require significant resources, and the benefits are hard to measure. As a result, months may pass before marketing efforts produce a demonstrable return on investment. In addition, when you post a video or share a new product line, negative comments may follow. Some customers aren’t reluctant to criticize products and services that annoy them, whether or not the criticisms are justified. Erroneous and deceptive information can be shared at the click of a button, and negative feedback, if left unchecked, has the potential to damage your brand and reputation for years.
Connecting with others is the time-tested way to create a successful business, and social media is one more channel available to you. Just be aware of the benefits and risks before you begin leveraging the potential of this latest form of marketing.