News

Avoiding Gift Tax – Make Sure The Checks Clear!

Recently, I discussed the issues surrounding the estate of Aretha Franklin. From the sources that I reviewed, it appears that she did not intentionally reduce the size of her estate through gifting to her heirs before her death. It isn’t required that people reduce their estates through giving, however. . . With an annual ceiling of $15,000, affluent individuals of advanced age may prefer to distribute a portion of some inheritances before their death, to avoid taxes to both themselves as well as the recipients.

For those that choose to give before death, whatever you do, make sure your heirs cash those checks as soon as they receive them! A recent tax case (Estate of de Muth v Commissioner) determined that if a check isn’t cleared before a person dies, the checks become part of the estate, and therefore subject to estate tax. Of course, gifters can’t force recipients to quickly cash checks given to them, but if the intent is to ensure that the size of the estate is reduced, then time is truly of the essence.

I was interested in Estate of de Muth because it was always my understanding that it was the date of gifting, and not the date of cashing, that determined when a gift was given. But with the tax courts determining that the act of gift giving occurs upon cashing the check, I now have a different perspective regarding gifts and what constitutes receipt. This is why I love staying aware of the changes with the tax law: you never know what you’ll learn!

I Bonds – A Less Explored Investment Vehicle

Merry Monday, friends! I stumbled upon an investment option late last week, and I was so excited about it that I wanted to share it here with you all.

The Treasury announced that the initial interest rate on new Series I savings bonds is 9.62 percent. You can buy I bonds at that rate through October 2022, and for the first six months that the bonds are held, you will get that interest rate. Bonds usually have much lower interest rates, so this is a great way to get a better return on your investment. I used to buy I bonds with my tax returns, but I’ve gotten away from the practice. I’ve decided to invest in a few bonds before the cutoff date (October 2022).

Please don’t interpret this as investment advice: I encourage you to do your own research and determine whether this is an investment strategy that works for you and your goals. As for me, I’ll be investing some of my discretionary income and holding the bonds until I’m ready to invest in something bigger.

That’s it for today, friends! Check out the I bonds over on Treasury Direct, and see if this is something you want to add to your investment portfolio!

*

*

*

Aretha Franklin’s Messy Estate – Key Takeaways

A couple of weeks ago, it was announced that Aretha Franklin’s estate has settled a nearly $8 million tax bill, and the way has been cleared for her four sons to start receiving payments from the revenue generated from the use of her image and music. This outcome was a long time coming: Franklin passed four years ago, and her heirs have been unable to settle the estate issues until recently. This development is excellent news, as this opens the way for her sons to start receiving the benefits to which they are entitled.

I won’t rehash all of the details of the case, however, I will highlight some key takeaways that I gleaned as I learned about the messy estate left behind by the Queen of Soul:

  • Destroy previously executed wills. For most people, their end-of-life planning only covers the execution of a will (if they’re proactive). Sadly, some people don’t even do that much planning: far too many people die intestate, leaving their estate planning in the hands of the state where they lived and died. But I digress . . . Leaving a will clarifies how you want your property to be distributed after your death. However, this distribution becomes unclear if you have multiple versions of your will floating around. So, consider destroying previously executed wills whenever you make a revision. The estate is currently comparing 3 different versions of Ms. Franklin’s will, and I’m sure the probate courts will have a field day trying to figure out which one is the one that will be honored.
  • Set up a trust. If you only have a will, you’re doing better than many people. But if you really want to simplify how your assets will be handled, a trust is what you need. Trusts can be established to distribute assets before and after death, they can help avoid certain types of taxes, and they can provide an extra level of clarity that may not be accomplished through the execution of a will alone. Consulting with a trust attorney is a great idea, even if it turns out that a trust isn’t advantageous for your specific circumstances. These attorneys can answer many of the questions you may have related to other estate or end-of-life financial issues.
  • Consider gifting some of your possessions while you’re still alive. The current ceiling for tax-free gifting is $15,000 per person that you choose to gift. Even if you aren’t giving everyone you know $15,000, you can certainly gift some of your possessions now, so that your heirs can avoid gift and estate taxes later.

Those are three of my takeaways from the tax agreement between IRS and Aretha Franklin. I’ll keep an eye on this case to see if any additional developments arise, and if so, I’ll be back with updates. Take care!

Why Recessions Are NOTHING To Fear

Last week, President Biden announced that we are not in a recession, though the data indicates that we have experienced two consecutive quarters of declining economic activity. There have been many discussions surrounding the topic of recessions, and since I’m not an economist, I won’t pretend to be an expert in this topic AT ALL. However, I will share my thoughts as someone that reads regularly, and that has lived through several decades and seen a thing or two.

Practically every decade since the 1920s has experienced recessions. For those that don’t know, the 1970s was marked by record-high stagflation, which has a combination of recession and inflation that put economists in a quandary (proposals to correct one element – either the recession or the inflation – could negatively impact the other element). People have weathered tougher economic times. Of course, not everyone survives severe financial hardship – indeed, the most vulnerable populations offer suffer the greatest – and this post isn’t designed to make light of that. It’s a warning to those that have ears to hear.

In each decade, there have been people who won BIG and set themselves and future generations up for financial ease and freedom. They had a host of varying advantages and disadvantages, but every person that has WON in previous periods of recession had one thing in common: a will to act. Staying paralyzed in fear over possible things to come is a surefire way to remain stuck or to regress.

There is absolutely nothing to fear, if you’re wise, strategic and prepared.

Be wise – Continue to live within your means and reduce extraneous expenses. Live with moderate conservation as your guiding energy: conserve energy, conserve resources, conserve time, all in a moderate way. Excess or gluttony is no one’s friend in these times. Remember to act wisely with what you have and to treat your resources with reverence, neither being indiscriminate nor anxious.

Be strategic – Plan to grow your resources: expanding your financial kingdom, adding valuable individuals to your personal network, cultivating healthy, reciprocal relationships, and positioning yourself to be in communities that are vibrant and abundant. Master multiple skills so that you offer a plethora of value to your networks. Never stop learning: your skills may open doors for you that you didn’t know were possible. Explore as much free online learning as you can. Never forget that resources go beyond cash and tangible assets: PEOPLE are resources, ENVIRONMENTS are resources, OPPORTUNITIES are resources. Expand all of your resources for the best outcome.

Be prepared – I don’t like to post alarmist content, so please take this with the reasonable grain of salt that is intended. Stockpile resources that you suspect may drastically increase in price in coming months (within reason: hoarding is dysfunctional and should be avoided!). Learn practical skills that can help you reduce expenses or that can be traded for other resources within your network. Learn the full benefits of the physical and digital tools you possess, and start leveraging those tools to your advantage. Inventory assets that you have, so that you can have a record of the items of value you possess, in case you decide to trade or sell these to purchase something of exceeding value. And it should go without saying that bug out bags, fully fueled vehicles, and maintaining a full supply of emergency items should be non-negotiable.

You have nothing to fear: you are closer to financial freedom than you know. A few good choices today can mean abundance and ease for years to come. If you aren’t sure where to shore up your defenses, I’ll be offering consultations on my Services page (I’m currently updating it, but it should be live at the time of this posting). Take care, and please let me know the ways that you have been preparing for an upcoming recession!

Tax Changes May Be Coming – The Inflation Reduction Act of 2022

Hey dear readers! I hadn’t planned to post anything else this week, but when there’s breaking news, I have to share it!

I recently learned that the Inflation Reduction Act of 2022 is gaining traction, and Senators Chuck Shumer and Charles Manchin reached an agreement on the terms of this bill. That is exciting news, considering how Manchin had originally pushed for limited terms. Manchin’s decision to back the bill – without limiting it to the areas of concern, namely, pharmaceutical prices and continued health care subsidization – was unexpected, but an exciting turn that means this bill will be moving forward sooner than expected.

For those that are curious, there are tax implications in this bill (I mean, why else would I be posting about it?). For starters, $124 billion is set aside to fund increased tax enforcement. This means that, if the bill is passed, there will be enhanced enforcement, starting with a little over $3 billion for taxpayer services, $45.6 billion for enforcement (think revenue agents and officers, auditors and specialists, attorneys, and appeals unit employees and resources to support all of the functions), $25 billion for operations support (the other employees that work behind the scenes outside of the enforcement functions), and $4.75 billion for business systems modernization, among other things. The funding is designed to cover 10 years, so the financial gravity of these provisions can be staggered over time.

For taxpayers (individuals) this means that IRS may be getting more help in the months and years to come (the bill provides for more “direct hire authority” capabilities, meaning faster hires). This also means that the previous weakened collection and enforcement function will be beefed up, so the scams and schemes that may have slipped through the cracks before may be identified and examined faster and more efficiently (in other words, wrap up your scams now, if you have some!) For tax practitioners, prepare for more clients that want to clean up their tax records before the enforcement units have the staff and resources to pursue collections on more individuals. There is also an opportunity to offer modernization services and products once various IRS contracts become available.

Now, the bill, as it’s written, indicates that the increased funding isn’t designed to target anyone that earns less than $400,000 annually. However, I think that some taxpayers that earn under the $400K amount may end up getting caught up in the random audits, especially when the more specialized agents and officers are hired and assigned to higher dollar cases, freeing up the overall caseload for less technical (but still effective) specialists and auditors. This will all take a bit of time, of course, but it’s something to look for on the horizon.

The other tax implication discussed in this bill is enforcing a minimum corporate tax of 15% for companies that have over $1 billion in profits. The actual corporate tax rate is a statutory 21%, but these highly profitable companies often pay far less than the proposed 15% amount, because they have the best attorneys and accountants that exploit all of the loopholes currently in the tax code (which is EXACTLY what good practitioners are supposed to do on behalf of their clients, and within the confines of the law). With these new proposals, corporations that qualify will have to pay no less than 15% tax on profits. According to the bill, the minimum corporate tax rate would go into effect after December 31, 2022.

This may sound like a groundbreaking move, but to be clear, the minimum corporate tax rate was a standard issued by the OECD at the last G20 summit (October 2021), and already standard tax practice in multiple other countries. The 15% minimum rate was proposed as part of the two-pillar plan to address digital economies and the tax avoidance that is prevalent in that realm. This segment of the Inflation Reduction Act of 2022 is simply mirroring the accepted standards already in place in other OECD member countries.

Also, the minimum corporate tax rate would only affect 200 companies. So the targeted parties are small in number but account for billions of dollars in the economy. For this reason, there is already criticism from some representatives, regarding the fact that this could affect jobs. Indeed, billion-dollar companies usually employ a lot of people, so there is a possibility that the workforce may be affected. Time will tell what the overall effect will be once the most profitable companies are forced to fork over a minimum amount of their earnings.

Whew, that’s it for today! I hope this got you all caught up on the latest tax happenings, and I’ll be sure to share more of my thoughts as the situation develops. Take care, and I’ll talk to you all soon!

*

*

*

*

*

Articles reviewed: Yahoo, OECD, Business Insider

This Week in Tax & Finance

Here’s a quick rundown of the most interesting tax and finance articles I’ve read this week:

Special taxes for soda? Well, Mexico implemented a 10% soda tax, which meant that any sugary, carbonated beverages costs consumers more than the price of a bottled water. According to the article posted by Wired, the US could learn something from how the Mexican soda tax was implemented. Berkeley, California already has a version of this tax, but, without nationwide uniformity, the effects of a soda tax are limited. The researchers remain hopeful about the US implementing something similar, but I remain a skeptic. I know how Americans, in general, feel about any tax. They also believe it is their right to guzzle toxic products, so long as said toxic product tastes good.

The takeaway? A soda tax is highly unlikely in the US, where personal freedom reigns over collective wellbeing.

**********

Kids are benefiting from “drugs” (marijuana sales) in Colorado. The Cannabist reports that the 2015 excise taxes collected on marijuana sales totals $3.5 million so far, with numbers expected to increase over the upcoming months. The funds are being used for school construction. There is some additional proposed legislation that will help facilitate the continued use of the excise taxes for school, but it’s very likely that the proposition will pass.

The takeaway? Since marijuana purchases in Colorado mean school funding, purchasing cannabis is now a civic duty.

**********

Do you find that, at the end of the month, you always end up with more month than money? Well, that seems to be a national epidemic, as the federal government managed to overspend its tax revenue by $313 billion dollars. According to CNS News, the feds collected nearly $2.5 trillion dollars in tax revenue over the past 9 months, and still managed to overspend. The largest tax collected came from individual income taxes, followed by payroll (Social Security and Medicare) taxes, then corporate taxes. Despite so many tax streams, the government still spends too much. Let’s hope that this fiscal mismanagement gets under control.

The takeaway? Bouncing checks is a national trait, and it’s detrimental on any level.

**********

That’s all for this week. Look out for another post this week!

This Week in Tax & Finance …

More of the amusing and interesting stories in the world of tax and finance that I’ve read this week…

If you think that your last speeding ticket was a doozy, just imagine paying $58k for wanting to get to your destination faster. Forbes reports that Finland assesses speeding fines based on a percentage of personal wealth, rather than the fixed rates that most countries impose. This fine was imposed for going just 14 miles over the speed limit. It may sound odd, but since fines and penalties are designed as a deterrent, it makes sense that these fees would be proportionate to income.

The takeaway? Drive at the speed limit.

**********

Usually, being the first person to do something is a privilege. It’s a source of pride for years and gives you serious bragging rights. However, Plaxico Burress, NFL wide receiver and New Jersey resident, is finding out that being the first isn’t always a good thing. Burress has been indicted for “willful failure to pay state income tax”. The law went into effect September 2014 and Burress is now the first person to be charged for willful nonpayment. According to the NJ Prosecutor’s Office, Burress filed his state income taxes but experienced a failed Electronic Funds Transfer (EFT). The state views failed EFT similarly to writing bad checks.

The takeaway? Make sure that your checks and EFTs are clearing properly, so you won’t be left with fees and (in the case of Burress) legal woes.

**********

Is it possible to get hooked on doing GOOD for others? According to this Reuters article, microfinancing addictions are REAL and the urge to do more can quickly become consuming. The author mentions that the desire to help as many budding entrepreneurs around the globe can spiral out of control. He suggests that microlenders set a cap to their spending, be patient with issuing loans and receiving repayment. and consult others before going all in with your lending.

The takeaway? Pace your do-gooder inclinations so that you can do good for a longer time.

**********

That’s all for this week. There will be more posts VERY soon!

This Week in Tax & Finance …

This post is just a summary of the more interesting articles I’ve read about tax and finance over the past few days.

*****

According to this article published yesterday (April 26, 2015) on NBC News, the Clinton Foundation had errors on its tax return. The errors weren’t of the calculation sort, but were due to misidentified income. I’m fairly certain that someone will lose a job over this, especially since this is the beginning of the Clinton presidential campaign and there is NO room for errors that may make the organization look unethical or careless.

The takeaway lesson? Grant money IS NOT a charitable donation. Identify it properly!

*****

Next, an article posted by Accounting Today highlights the tax effect of the marijuana business. 27 states and the District of Columbia have legalized marijuana usage in some form, though it is still considered a controlled substance under federal law. Marijuana businesses get taxed on their income as gross income (similar to gambling winnings and alimony) instead of net income (like businesses that aren’t selling controlled substances). This means higher taxes for marijuana retailers- unless they get creative with their taxes. There is also speculation that any providing tax advisory services to a marijuana business could be found in violation of federal law, as they may be found to participating in “aid[ing], abet[ting], counsel[ing], command[ing], induc[ing] or procur[ing] the commission of a federal offense”. Tax preparation isn’t so problematic, as it is done AFTER business transactions have occurred. It’s tax advisement (which occurs BEFORE the taxes are filed) that may punishable by federal law.

The takeaway lesson? A good tax preparer may help marijuana retailers avoid a heavy tax burden, but tax advisors could get in hot water over their advice.

*****

Say it isn’t so! Hershey’s stock is down and they are hurting. CNN reports that Hershey has recently purchased several other companies, including Mauna Loa, the macadamia nut processors (imagining the tasty treats that can come from that merger). Unfortunately, Hershey isn’t making any money off of those purchases yet. Nestle, however, has seen a 10% overall in stock value, due to the euro weakening and making chocolate production cheaper.

The takeaway lesson? The US dollar is up, the euro is down, and even though Hershey is suffering, this is a great time to take a trip to Europe (perhaps you can enjoy some more affordable Nestle products while you’re there).

*****

That’s my quick recap of the most interesting articles I’ve seen over the past couple of weeks. Look out for even more fun stuff in May, including some great FREE gifts to subscribers!