Individual Strategies

Planning for your future generations often means being real about how much (or how little) will be left behind for your heirs. If you’re like most, it is difficult to imagine telling your grandchildren they may be forced to sell the family home to pay off the IRS in estate tax. One solution is to look for a legal way to move assets and money to your children (or others) while minimizing your tax. A Family Limited Partnerships (FLP) might be the perfect mechanism for you to accomplish this. These special types of partnerships provide solutions to two main issues: asset protection and estate tax reduction. Not only will this help you create a legacy of giving, but it will also ensure that the family business or home actually stays, “in the family.” Asset protection is important as it limits your risk exposure and liability to lawsuits, bankruptcy, and other claims. FLP’s are used to move assets during your life leaving the amount of your taxable estate smaller, and helping you gift much more than the law typically allows. But if you’re thinking this means giving a seat to Jr. at the board room table, think again. You can optimally set up this arrangement to ensure you maintain control until you are ready to step down. All is not rosy in the world of FLPs however. These types of arrangements can be viewed by the IRS as abusive tax shelters to transfer wealth tax free. Keep reading for an in-depth look at FLP’s.

Question: Can I save S/E tax and create passive income by having my spouse own my entity? Answer: Potentially, but it depends on a number of factors. If you’re a sole proprietor or single member LLC, you’ve probably felt the sting of self-employment taxes (S/E tax). If you and your spouse work together and you’re not incorporated, the IRS generally considers you a 50/50 partnership and both spouses’ earnings are subject to S/E tax. This is true even if your spouse minimally participates in the activity. That’s right, even without a partnership agreement, if you and your spouse both share in the profits and losses of an unincorporated business, the IRS considers that you have a partnership owned equally. The IRS calculates self-employment taxes by apportioning 50 percent of the earnings to each spouse. It’s possible to pay way more than you need to if your profits are more than the threshold for Social Security. One way around this is to make your non-participating (or passively involved) spouse your business partner. But if you live in a community property state, be sure to follow these guidelines to secure your savings.

On Wednesday, March 11, President Biden signed into law the American Rescue Plan Act (ARPA) of 2021, a $1.9 trillion COVID stimulus package. The ARPA contains a mix of retroactive and prospective tax breaks in the form of credits, exclusions from income, and even new tax-free grant programs. Let’s take a look at the most tax significant items in the bill.

Looking to escape high state taxes? Perhaps the taxpayer wants to leave the gridlock, housing congestion, and cement jungles behind for the likes of slower, less expensive living? COVID-19’s long-term impact on urbanization may be uncertain, but we have already seen people moving to low-tax states because these states offer more land and outdoor space. Along with the people, many businesses are also looking to relocate to low tax jurisdictions. But before packing up that U-haul, consider how to lock in your tax savings; otherwise, there may be a nasty bill waiting for you in that new mailbox.

Jack and Jill went up the hill to have a lovely wedding Jack fell down and broke his crown When Jill learned all his tax debts That pretty much describes the origin of the taxes faced by an injured spouse: The taxpayer was not married to that spouse at the time he or she incurred the tax obligation or it was assessed or did not sign the tax return where the balance due originated. In other words, it was never the injured spouse’s debt or obligation in the first place. What kinds of debts or taxes might the IRS collect (or “offset”) that would affect the injured spouse’s refund?

The premium tax credit (PTC) is a refundable credit that is available to certain individuals “whose household income for the taxable year equals or exceeds 100%, but does not exceed 400% of an amount equal to the poverty line for a family of the size involved.” In other words, it’s a refundable tax credit that specifically subsidizes the cost of insurance purchased on a health care marketplace for individuals who are over the federal poverty level (FPL), but not by 400 percent or more. This credit is available as an advance paid directly to the marketplace for qualifying taxpayers who cannot afford (or do not wish) to pay their full monthly premium out of pocket. The amount of the credit is calculated based on estimated annual household income. When taxpayers receive more advance credit than they are entitled to, they must repay the excess. So, the consequences for an intentional or inadvertent underestimation of annual income can be severe. What follows is an overview of how the credit works and describes strategies for reducing the amount of advance premium tax credit (APTC) the taxpayer must repay both immediately and after the fact.

Question: I was going to look into a conservation easement (CE) for a client and noticed the IRS has focused heavily on compliance efforts for abusive syndicated transactions. Are there any legitimate conservation easement transactions, or is it best to stay away from this strategy until things calm down? Answer: Sounds too good to be true, right? A $500,000 charitable tax deduction for a $100,000 land purchase in December. In your search for information, you may be scared off by the court cases and Department of Justice investigations of the promoters of syndication easements. Syndication deals are partnerships that own land ideal for conservation and allow groups of investors to pool their money in the business, which typically will also include other activities beyond just the land ownership. These deals have come under heavy scrutiny in the past few years as CEs became a listed transaction and more cases have wound their way through the court system. The IRS even announced a settlement program for syndicated conservation easements in mid-2020. Click here to read the full answer.

The IRS loves to issue penalties to taxpayers. In fiscal year 2019, the IRS imposed a whopping $40.5 billion in civil penalties.1 If a taxpayer wants to contest an IRS penalty, it usually takes a really good explanation plus a lot of time and effort. However, there is a little-known IRS policy that allows a taxpayer to get penalty relief with no explanations required. Taxpayers who file returns late can quickly rack up huge penalty bills.