If you’ve been appointed an executor of a loved one’s estate, or a successor trustee, and that person dies, your grief – not to mention your to-do list, including tasks ranging from planning the funeral, coordinating relatives coming in from out of town and (eventually) meeting with a trust administration or probate lawyer – can be quite overwhelming. First and foremost, take care of yourself during this emotional time.
To help you with the “business” end of things, here’s a quick checklist of crucial details that will make the trip to our office to handle the legal affairs easier. I know it can be difficult, but some of these things have a deadline, so make sure that you reach out sooner rather than later:
You may be thinking about handling all the paperwork yourself. It’s a tempting thought – why not keep things as simple as possible? – but a “DIY” approach to this process might cost you and your family dearly. Read on to understand why.
Consequences of Mishandling an Estate: Examples from Real Life
Example #1: Failing to disclose assets to the IRS. Lacy Doyle, a prominent art consultant in New York City, inherited a large estate when her father passed away in 2003. He allegedly left her $4 million, but she only disclosed fewer than $1 million in assets when she filed the court documents for the estate. Per the New York Daily News: “She opened an ‘undeclared Swiss bank account for the purpose of depositing the secret inheritance from her father’ in 2006 — using a fake foreign foundation name to conceal her identity… [she also] didn’t report her interest in the hidden accounts — nor the income they generated — from 2004 to 2009.” As a result of these alleged shenanigans and Doyle’s failure to report the accounts to the IRS, she was arrested, and she now faces a six-year prison sentence.
Example #2: Misusing power of attorney. Another famous case of an improperly handled estate involved the son of famous New York socialite, Brooke Astor. Her son, Anthony Marshall, was convicted of misusing his power of attorney and other crimes. Per a fascinating Washington Post obituary: “In 2009, Mr. Marshall was convicted of grand larceny and other charges related to the attempted looting of his mother’s assets while she suffered from Alzheimer’s disease. He received a sentence of one to three years in prison but, afflicted by congestive heart failure and Parkinson’s disease, was medically paroled in August 2013 after serving eight weeks.”
Some Key Takeaways
We’re here to help you steer clear of the obstacles and free you to focus on yourself and your family during this difficult time. Call our office at (480) 776-6055 for assistance. We can help you manage estate and trust related concerns as well as point you towards other useful resources.
Forming a business can seem overwhelming – especially when you’re doing it alone. Creating a business plan will allow you to refine incomplete ideas, address areas you may have not yet considered, create a map so you know what to do next, and increase credibility for bank loans or investor funding.
While you may think you’ve got your business concept down pat, turning the idea you wrote down on a napkin into reality isn’t as easy as it might appear and many people get so caught up on how to start the process that the business itself never materializes.
Following this solid eight point plan, based on guidelines from the U.S. Small Business Administration (SBA), will help you get down to business, literally:
It’s likely that you may not even know the answers to these questions. That’s okay. We can help you to refine your goals, map out your plan, provide the kinds of details needed to make your venture a success, and form your business entity.
Are You Prepared to Include the “Wow” Factor?
When forming a business, you may think your business plan is great; but don’t forget that most people think the same of their own business. The Wow Factor becomes especially important when you’re all competing for funding.
Make sure your plan has a “Wow” factor by:
The bottom line is that you want to make your business plan stand out far above the rest – your plan needs to be well thought out, organized, and unique. Even if you don’t need outside funding, complete the business plan so you have a roadmap and the knowledge that you haven’t missed an important consideration.
Let’s Continue This Conversation
If you’re not used to drafting business plans, the task may feel daunting and you may be tempted to jump ahead. Don’t. We’re happy to help you with forming a business plan and make sure you have protections in place so that your business gets off to the right start. And, even if you’re already knee deep in your business, we’ll help you get all of your ducks in a row. Give us a call at (480) 776-6055 and get on our calendar.
To qualify for the QBI deduction, the business must be a qualified business, the definition of which excludes service providers (lawyers, CPAs, doctors, financial planners, realtors, consultants, etc.). However, these excluded businesses receive the QBI deduction if their adjusted gross income does not exceed $315,000 for joint filers, $157,500 for individuals (over which amounts the QBI deduction is gradually phased out). Wages paid to the business owner are not reduced by the QBI deduction. While owners of qualified businesses are not subject to these income limitations, there are other limitations that could apply. The QBI deduction is applied to the aggregate of all business income/loss for all businesses the taxpayer owns, and is limited to: 1) 20% of the QBI for each separate business, and 2) the greater of (a) 50% of the W-2 wages the business owner received from each separate business or (b) 25% of the wages the business owner received from the business plus 2.5% of the qualified property owned by the business. Qualified property is defined as depreciable property owned and used by the business. Qualified property is valued at its original cost basis and remains qualified property over its depreciable life not to exceed 10 years.
The structure of the 2017 Tax Act as it applies to small businesses reflect congressional efforts to incentivize investment into capital assets. The economic effect of which increases demand for assets such as equipment, machines, furniture, and real property. Increased demand results in more manufacturing, which leads to more jobs thereby reducing unemployment; when demand for labor increases, prices for human resources increase leading to higher wages. More production results in an overall growth of our economy and GDP. Further, lowering the tax bill on small business owners will put more money into the hands of middle class Americans which, with more disposable income, results in more spending and investing at the grass roots level. This is clearly a tax plan designed to grow the American economy by lowering the tax bill on small business owners and promoting business investments into property, plant, and equipment.
Because of the way the QBI deduction is allowed and limited, business owners should consider separating ownership of various profit centers. For example, a doctor that owns the building out of which she operates is subject to the QBI income limitation. If the doctor spins ownership of the building into a separate LLC and leases the building back to the medical practice, then the QBI income applicable to the medical practice does not apply to income arising from the real estate leasing entity.
For the foregoing reasons, it’s wise for business owners to visit with their business and tax advisors to review how the 2017 Tax Act will affect them, and to consider reorganization options to maximize their ability to benefit from our new tax laws.
Tax Rates: The 2017 Tax Act compresses the current 7 tax brackets (10%, 15%, 25%, 28%, 33%, 35%, AND 39.6%) into four tax brackets: 12%, 25%, 35% and 39.6%. The 12% tax bracket applies to all taxpayers except for those whose marginal rate is in the top bracket, in which case the 12% rate is phased out for the top earners.
The 25% tax bracket starts at $90,000 for married taxpayers ($45,000 for single).
The 35% tax bracket starts at $260,000 for married taxpayers ($200,000 for single).
The 39.6% tax bracket starts at $1M for married taxpayers ($500,000 for single).
Standard Deduction and Personal Exemption: The current standard deduction of $12,700 for married taxpayers ($6,350 for single) is increased to $24,000 for married taxpayers ($12,000 for single). The standard deduction increases to $18,000 for single taxpayers with at least one child. However, there will no longer be personal exemptions (currently $4,050).
Small Business Owners: Individuals owning a closely held business will pay a maximum rate of 25% for a portion (about 30%) of their business income with the remaining 70% taxed at the individual tax rates. Capital gains, interest income, and dividend income retains its character as under current law.
Child Tax Credits: Child tax credits (currently $1,000 per child) are increased to $1,600 per child, plus non-child dependents are allowed a $300 credit. Credits are a dollar for dollar reduction in your tax liability (not a tax deduction, but rather a credit acts like a tax payment and could result in a refund if you otherwise have no tax due). Under the new law, the refundable portion of the tax credit will remain $1,000. These credits are phased out for married taxpayers exceeding $230,000 ($115,000 for single).
Itemized Deductions: Current law phases out itemized deductions for higher income taxpayers with complex formulas. The 2017 Tax Act repeals the phase outs. Current law allows mortgage interest deductions for up to two homes on debt not exceeding $1M. The 2017 Tax Act allows mortgage interest deductions on only one primary residence with a limit of a $500,000 mortgage. Current law allows deductions for state income and property taxes. The 2017 Tax Act limits these deductions to state and local taxes paid in connection with a business activity, plus property taxes up to $10,000. The current itemized deductions for casualty losses are repealed in the 2017 Tax Act. The 50% limitation for cash contributions to public charities is increased to 60% allowing a larger deduction for charitable giving. Tax preparation expenses will no longer be deductible under the 2017 Tax Act, as are deductions for medical expenses. Likewise, alimony payments will no longer be taxable to the payee nor deductible to the payer. Further, there will be no deduction for unreimbursed employee expenses.
Sale of Principal Residence: Under current law, taxpayers may exclude from income gain on the sale of their principal residence up to $500,000 for married taxpayers ($250,000 for single) if they reside in the home for 2 out of 5 years. Under the 2017 Tax Act, to receive the exclusion, the taxpayer must hold the residence as a primary residence for 5 out of 8 years, and the exclusion is phased out for high income taxpayers ($500,000 for married taxpayers, $250,000 for single).
IRA and Retirement Plans: The current law allows taxpayers to convert qualified plans into “Roth IRAs,” then invest aggressively and if they make substantial gains, they retain the Roth IRA with all the gains, free of tax; however, if their aggressive investments lose money, they can retroactively reverse the conversion to recoup the costs of converting to a Roth IRA. The 2017 Tax Act closes this loophole.
Overall, the 2017 Tax Act lowers taxes on all individuals under $500,000 of income, and simplifies some of the more complex rules while closing unnecessary loopholes.
CNBC.com argues that those making $8.5M per year receive massive $1M tax cuts while middle class taxpayers save only $1,000. Of course, the top earners to which MSNBC refers currently pay upwards of $3.7M per year in taxes (wow!) while the lower income earners are paying close to $5,500. CNBC claims the top earners save 27% under Trump’s plan while lower income earners save only 10%. USA Today ran this exact same article. Do these numbers pencil out?
Let’s look at a single parent with one child earning $75,000 per year. Under current law that taxpayer gets $8,100 of personal and dependent exemptions and a standard deduction of $9,350 resulting in taxable income of $57,550, and a tax liability of $6,970 (accounting for a $1,000 child tax credit). Under president Elect Trump’s tax plan, the same taxpayer is allowed a standard deduction of $15,000 but no personal and dependent exemptions (Trump eliminates them as part of his simplification initiative). However, Trump allows a child care deduction ranging from $7,000 to $12,000 (let’s use the average, $9,500 for our calculations) resulting in taxable income of $57,550. Trump’s tax rate is only 12% resulting in a tax liability of $6,060. This is a savings of $910 per year (or 13%).Continue reading