When it comes to our loved ones, we all seek to ensure they’re cared for, even after we’re gone. Contrary to popular belief, estate planning is not just about dividing assets for the wealthy or tax avoidance. It’s about creating a comprehensive strategy to safeguard your family’s financial future and preserve your legacy regardless of your financial status.
As a law firm specializing in solving IRS problems, tax resolutions typically begin with getting taxpayer clients in compliance. In other words, most tax resolutions first require tax compliance. In this post, we’ll guide you through the best practices to help you stay on the right side of the IRS.
1. Estimated Tax Payments
Estimated tax is the method used to pay taxes on income that is not subject to withholding. This may include income from self-employment, business earnings, interest, dividends, rent, or alimony. It also applies to individuals who do not elect voluntary tax withholding. Think of the IRS as a “pay as go” system. It does not matter whether taxes were withheld. It’s generally your obligation to pay the taxes prior to tax filing.
Despite the recent tumultuous times, the use of cryptocurrencies such as Bitcoin, Ethereum, and others are still prevalent in today’s digitized age. While these digital assets offer numerous benefits, including decentralization and security, they also present unique challenges when it comes to estate planning. In this blog post, we will explore the importance of incorporating cryptocurrency into your estate plan and provide practical tips to safeguard your digital assets for future generations.
If you hold Power of Attorney for a loved one and a Trust is involved, don’t expect to be making the same decisions regarding certain assets as the Trustee (and vice versa). Be aware of your specific responsibilities in the event of the loved one’s incapacity or death. Here are some key differences:
“HEMS” stands for “health, education, maintenance, and support” and is commonly referred to as an “ascertainable standard”. If there is a HEMS provision in a Trust, the money distributed can only be used for specific needs of the beneficiary related to health, education, living expenses, or other needs or support that a Trustee can ascertain. Some examples include health insurance, surgery, exercise equipment, prescriptions, tuition, career training, rent, mortgage payments, home repairs, taxes, legal fees, vacations, or other reasonable comforts.
Beneficiary designations for your financial assets are helpful in that assets can be transferred quickly to your heirs without waiting for probate of the Estate (and assuming you do not have a Trust). Although this can be a good option, don’t overuse it or use it blindly. Consider these risks before assuming your assets are protected:
An estate tax return (Form 706) must be filed if the gross estate of a decedent, increased by the decedent’s adjusted taxable gifts and specific gift tax exemption, is valued at more than the filing threshold for the year of the decedent’s death. The filing threshold for 2022 is $12,060,000. The threshold is adjusted for inflation and increases each year. An estate tax return also must be filed if the estate elects to transfer any deceased spousal unused exclusion (DSUE) amount to a surviving spouse, regardless of the size of the gross estate or amount of adjusted taxable gifts. The election to transfer a DSUE amount to a surviving spouse is known as the “portability” election.
You have probably used payment apps like Venmo or Zelle to transfer money to a friend or make a payment to a business. Think of these payment apps as a faster way to transfer money when compared to prior formats such as PayPal or Stripe. Recently, there was a provision in the American Rescue Plan Act of 2021 that reduced the threshold for these type of transactions from $20,000 or 200 transactions to $600 without regard to the number of transactions, resulting in businesses receiving Form 1099-K’s (and the IRS also receiving the tax form). This new law allows for increased potential for businesses to be audited if they do not correctly report their earnings.
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