Is It Time To Review Your Estate Plan?
Apr 19, 2016
When you are busy living your life, you’re probably not putting much thought into your estate plan. Ensuring the proper disposition of your money and property should be a priority. Even if there is no meaningful change in your life, it’s smart to review your estate plan document to ensure it still addresses all your concerns and reflects your wishes.
Five-year Follow-up As a general rule, it’s a good idea to give your estate plan a thorough review every five years. Your legal and financial professionals can help you check your plan and assess whether it still meets all your goals. Among other matters, you may should review the following:
- The values of your personal and business assets. If values have changed significantly, you may need to adjust your estate plan accordingly.
- Accounts are titled jointly.
- Beneficiary designations to make sure they are still appropriate.
- Bequests you’ve made for charitable contributions to see if they need to be increased or decreased depending upon your current situation.
Annual Assessments You and your financial professional also may want to give your estate plan a once-over each year. You’ll want to make sure that your plan is still tax effective if there have been any changes to the federal and/or your state’s tax law. Current economic and investment market conditions also could have an impact on your estate planning.
Each and Every Event Big changes in your life could mean having to make a big change to your estate plan. So, if you’ve recently married or divorced, you should review your plan. The marriage or divorce of a child or grandchild also may prompt a review. The birth or death of a family member could have an impact on your will and your current beneficiary designations. And, if you retire or receive a sizable inheritance, you probably should review your plan.
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Are Social Security Benefits Taxable?
Apr 14, 2016
It depends. If your income exceeds certain tax law thresholds, a portion of your Social Security retirement benefits will be subject to federal income taxes.
The Thresholds
The IRS uses your “provisional income” to determine the percentage of benefits subject to tax. Generally, provisional income includes your modified adjusted gross income plus tax-exempt interest and half of the Social Security benefits you received during the year.
Individuals with provisional income between $25,000 and $34,000 and married couples (filing jointly) with provisional income between $32,000 and $44,000 are taxed on up to 50% of their benefits. And up to 85% of benefits are taxable for individuals with provisional income over $34,000 and married couples with provisional income over $44,000.
As these thresholds are not adjusted for inflation, more taxpayers tend to be affected as overall income levels increase. For example, according to the IRS, the number of taxpayers with taxable benefits in 2012 was about one million more than in 2011.
Minimizing the Tax Bite
If you are collecting Social Security, be aware that certain actions, such as taking a large retirement account distribution or recognizing capital gain from the sale of a second home, could push your provisional income past a threshold and/or increase your overall tax rate.
To help lessen the impact of taxes on your benefits, you might consider:
- Structuring a vacation home sale or traditional individual retirement account (IRA) distribution so that income is received over more than one year
- Liquidating assets in a taxable investment account rather than a retirement account if it will mean recognizing only a small capital gain or you have capital losses on other transactions that would offset the gain
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Going Green Can Have A Tax Benefit
Apr 12, 2016
Thinking about installing a renewable energy system in your residence? Uncle Sam offers individual taxpayers a federal income-tax credit equal to 30% of the cost of qualified residential energy-efficient property (REEP) placed in service in 2015 or 2016.
What Systems Can Qualify?
Credit-eligible property includes:
- Solar electric
- Solar water heating
- Geothermal heat pump (uses ground or ground water as a thermal energy source for heating or cooling)
- Small wind energy (generates electricity using a wind turbine)
- Fuel cell (generates electricity from hydrogen and oxygen through an electrochemical process)
The credit covers the cost of both the equipment and its installation, including labor and any piping or wiring necessary to connect it to your home.
The system must meet specified standards for energy efficiency. You should obtain a certification from the manufacturer that the component you are purchasing meets the relevant requirements for the REEP credit. Note that the manufacturer’s certification is different from the U.S. Department of Energy’s Energy Star label; not all products with the Energy Star label meet the credit requirements.
When available, the tax credit is quite generous. For example, let’s say you spend $6,000 in 2015 on a home solar water heating system that meets all requirements for the REEP tax credit. After considering the $1,800 credit ($6,000 × 30%), the system costs you only $4,200.
Restrictions
The home you are installing the equipment in must be located in the United States and you must use it as your residence. The credit is not available for equipment used to heat a swimming pool or hot tub.
Solar, geothermal, or wind energy property can qualify for the credit whether it is installed in your principal residence or another residence. The credit for fuel cell property is limited to equipment installed in your principal residence.
As for cost, the tax law generally places no dollar limits on the credit. However, there is an exception for fuel cell property: The maximum credit is $500 for each 0.5 kilowatt of capacity.
Some states and public utilities offer incentives to encourage the purchase of energy-efficient property. Certain types of incentives may require an adjustment to your purchase price or cost for credit calculation purposes.
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Home Repairs May Save You From Paying Tax On The Sale
Apr 07, 2016
The paint. The dust. The torn-up room. Home improvement projects may not be high on your list of enjoyable events. However, when you’re ready to sell your house, any money you have spent on fixing it up may save you from paying tax on the sale.
The Home-sale Exclusion
You probably know a married couple is entitled to $500,000 of tax-free gain ($250,000 for singles) on a home sale if they’ve used the house as a principal residence for two out of the five years prior to the sale. Taxable gain is the difference between your basis in the home (essentially, your cost) and the selling price. So, for most people, the exclusion eliminates or severely reduces any tax on a home sale. But not for all.
That is where home improvements could come into play. If you’ve kept good records, you can increase your home’s basis by adding in remodeling costs. Generally, any work that adds to your home’s value or extends its life counts toward your basis.
What Counts?
Examples of eligible expenditures include:
- Putting in a patio, deck, or swimming pool
- Finishing a basement or attic
- Landscaping
- Adding a room or fireplace
- Vinyl or aluminum siding or similar exterior improvements like masonry work
- Storm windows and doors
- New plumbing or heating system
- Air conditioning
Simple repairs, such as painting or fixing broken gutters and windows, don’t get added to your basis. However, if repairs are scheduled as part of a home improvement project, the entire cost of the renovation can be added to your basis.
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Deducting Business & Entertainment Expenses
Apr 05, 2016
A lot of business is done outside of the office — over lunch, on the golf course, etc. Tax law allows deductions for business meals and entertainment expenses only if specific requirements are met. Even then, deductions are generally limited to 50% of the cost.
General Rules
Meal and entertainment expenses can qualify for the 50% tax deduction if they are directly related to business. Example: You have a dinner meeting with your customer to discuss the schedule for a new project. Because the purpose of the meeting is to talk about the project — a revenue generating activity for your firm — the meal is directly related to your business.
What if you don’t “talk business” while you are entertaining a customer, client, or prospect? The expense may still qualify for a deduction if a substantial, bona fide business discussion takes place before or after (on the same day as) the meal or entertainment activity. Example: You and your client meet at your office to discuss a business matter. Afterward, you treat the client to lunch and a ball game. In this case, 50% of your expenses are potentially deductible because they are associated with the active conduct of your business.
To support your deduction, you should have records of the time, place, and business purpose of the activity; who attended and their business relationship; and the amount spent.
When the 50% Limit Does Not Apply
In some cases, meal and entertainment expenses are fully deductible. Expenses that may qualify for a 100% deduction include:
- The cost of occasional recreational and social activities primarily for the benefit of employees, such as an annual summer picnic
- Amounts treated as employee compensation (for example, the cost of an all-expenses-paid vacation for your company’s top-grossing salesperson)
- Amounts paid for tickets to charitable sporting events, such as a golf fundraiser
Taxpayers must meet various requirements to qualify for these deductions. If you have questions or concerns about how these deductions may affect your business, please reach out to your William Vaughan Company representative.
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