March 19th, 2012 by Moore McLaughlin
Parents may not realize that there are tax rules that may affect their child’s investment income. The IRS offers the following four facts to help parents determine whether their child’s investment income will be taxed at the parents’ rate or the child’s rate.
1. Investment income Children with investment income may have part or all of this income taxed at their parents’ tax rate rather than at the child’s rate. Investment income includes interest, dividends, capital gains and other unearned income.
2. Age requirement The child’s tax must be figured using the parents’ rates if the child has investment income of more than $1,900 and meets one of three age requirements for 2011:
- Was under age 18 at the end of the year,
- Was age 18 at the end of the year and did not have earned income that was more than half of his or her support, or
- Was a full-time student over age 18 and under age 24 at the end of the year and did not have earned income that was more than half of his or her support.
3. Form 8615 To figure the child’s tax using the parents’ rate for the child’s return, fill out Form 8615, Tax for Certain Children Who Have Investment Income of More Than $1,900, and attach it to the child’s federal income tax return.
4. Form 8814 When certain conditions are met, a parent may be able to avoid having to file a tax return for the child by including the child’s income on the parent’s tax return. In this situation, the parent would file Form 8814, Parents’ Election To Report Child’s Interest and Dividends.
More information can be found in IRS Publication 929, Tax Rules for Children and Dependents. This publication and Forms 8615 and 8814 are available on this website or by calling 800-TAX-FORM (800-829-3676).
Links:
- Form 8615 , Tax for Certain Children Who Have Investment Income of More Than $1,900 and instructions
- Form 8814 , Parent’s Election to Report Child’s Interest and Dividends
Publication 929 , Tax Rules for Children and Dependents
Tags: asset protection, Asset Protection Planning, Capital gains tax, Children, Dependents, Form 8615, Form 8814, income tax, internal revenue code, Internal Revenue Service, IRS, IRS and state tax collections, mclaughlin & quinn, Moore McLaughlin, Providence, Publication 929, Rhode Island, tax, Tax planning, Tax Rules for Children and Dependents, Thomas P. Quinn, unearned income
Posted in Asset Protection Planning, Estate Planning, Tax Current Events and News, Tax planning
March 16th, 2012 by Moore McLaughlin
If you’re self-employed and paying for medical, dental or long-term care insurance, the IRS wants to remind you about a special tax deduction for some insurance premiums paid for you, your spouse, and your dependents.
Starting in tax year 2011, this deduction is no longer allowed on Schedule SE (Form 1040), but you can still take it on Form 1040, line 29.
You must be one of the following to qualify:
- A self-employed individual with a net profit reported on Schedule C (Form 1040), Profit or Loss From Business, Schedule C-EZ (Form 1040), Net Profit From Business, or Schedule F (Form 1040), Profit or Loss From Farming.
- A partner with net earnings from self-employment reported on Schedule K-1 (Form 1065), Partner’s Share of Income, Deductions, Credits, etc., box 14, code A.
- A shareholder owning more than 2 percent of the outstanding stock of an S corporation with wages from the corporation reported on Form W-2, Wage and Tax Statement.
The insurance plan must be established under your business.
- For self-employed individuals filing a Schedule C, C-EZ, or F, the policy can be either in the name of the business or in the name of the individual.
- For partners, the policy can be either in the name of the partnership or in the name of the partner. You can either pay the premiums yourself or your partnership can pay them and report the premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to be included in your gross income. However, if the policy is in your name and you pay the premiums yourself, the partnership must reimburse you and report the premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to be included in your gross income. Otherwise, the insurance plan will not be considered to be established under your business.
- For more-than-2-percent shareholders, the policy can be either in the name of the S corporation or in the name of the shareholder. You can either pay the premiums yourself or your S corporation can pay them and report the premium amounts on Form W-2 as wages to be included in your gross income. However, if the policy is in your name and you pay the premiums yourself, the S corporation must reimburse you and report the premium amounts on Form W-2 as wages to be included in your gross income. Otherwise, the insurance plan will not be considered to be established under your business.
For more information see IRS Publication 535, Business Expenses, available on this website or by calling 800-TAX-FORM (800-829-3676).
Tags: asset protection, Asset Protection Planning, corporate tax, form 1040, Form W-2, income tax, internal revenue code, Internal Revenue Service, IRS, IRS and state tax collections, IRS Publication 535, mclaughlin & quinn, partnership, Providence, Rhode Island, S corporation, schedule C, Schedule C-EZ, Schedule SE, self-employed, tax, tax deduction, Tax planning, Thomas P. Quinn
Posted in Asset Protection Planning, Tax Current Events and News, Tax planning
March 9th, 2012 by Moore McLaughlin
Is having an out-of-date will better than having no will at all? While wills do not have expiration dates, certain changes can render them useless. When this happens, having an out-of-date will can be the same as having no will at all. It is important to review your will periodically to ensure it still does what you want. The following are five ways your will can become out-of-date:
- Your beneficiaries have died. What happens if your will leaves your estate to your two siblings, but both siblings die before you? If your beneficiaries predecease you, your will is still technically valid, but it will have no effect on who will inherit from your estate. Instead, your estate will be distributed according to the law in your state, just as if you had died with no will at all.
- You have potential new beneficiaries. A will that was written before you got married or had children will be of little assistance in distributing your estate. States have provisions that protect spouses and children that come after a will is written. In most states, spouses are entitled to a certain percentage of an estate. In addition, many states have laws that protect children born after a will was written, allowing them to inherit from the estate. It’s possible that under the laws of your state, a spouse and children not named in your will may not receive as much as you would have wanted them to. In both of these circumstances, state law is dictating where your estate is going, not you.
- Your executor is dead or unable to serve. The executor (also called a personal representative) is the person named in your will who oversees the distribution of your property. If the person you named as executor is unable to serve, the court will have to appoint someone else. Beneficiaries may have a say in who is chosen, but it may not be someone you would have wanted in the position.
- You no longer own property named in the will. Suppose your will attempts to divide up your estate equally by giving cash to your daughter and property of equal value to your son. If the property is sold before you die, your son will receive nothing. In this case, your will is no longer ensuring your estate is divided equally.
- The law changes. If your estate plan was designed specifically to avoid estate taxes and the estate tax law changes, your will may no longer serve its purpose.
Contact elderlaw attorney Jill E. Sugarman at 401-421-5115 or by e-mail at JSugarman@McLaughlinQuinn.com to ensure your will is still up to date or if you have no will at all.
Tags: asset protection, Asset Protection Planning, assisted living facilities, elder law, elderlaw, estate, Estate Planning, Estate tax, Jill E. Sugarman, Jill Sugarman, living will, Long-term care, long-term care insurance, mclaughlin & quinn, Medicaid, Medicaid planning, nursing homes, Providence, Rhode Island, seniors, will, wills
Posted in Asset Protection Planning, Elderlaw/Law For Life, Estate Planning, Tax planning
March 6th, 2012 by Moore McLaughlin
Each year, millions of taxpayers choose whether to take the standard deduction or to itemize their deductions. The following seven facts from the IRS can help you choose the method that gives you the lowest tax.
1. Qualifying expenses – Whether to itemize deductions on your tax return depends on how much you spent on certain expenses last year. If the total amount you spent on qualifying medical care, mortgage interest, taxes, charitable contributions, casualty losses and miscellaneous deductions is more than your standard deduction, you can usually benefit by itemizing.
2. Standard deduction amounts -Your standard deduction is based on your filing status and is subject to inflation adjustments each year. For 2011, the amounts are:
Single $5,800
Married Filing Jointly $11,600
Head of Household $8,500
Married Filing Separately $5,800
Qualifying Widow(er) $11,600
3. Some taxpayers have different standard deductions – The standard deduction amount depends on your filing status, whether you are 65 or older or blind and whether another taxpayer can claim an exemption for you. If any of these apply, use the Standard Deduction Worksheet on the back of Form 1040EZ, or in the 1040A or 1040 instructions.
4. Limited itemized deductions – Your itemized deductions are no longer limited because of your adjusted gross income.
5. Married filing separately – When a married couple files separate returns and one spouse itemizes deductions, the other spouse cannot claim the standard deduction and therefore must itemize to claim their allowable deductions.
6. Some taxpayers are not eligible for the standard deduction – They include nonresident aliens, dual-status aliens and individuals who file returns for periods of less than 12 months due to a change in accounting periods.
7. Forms to use – The standard deduction can be taken on Forms 1040, 1040A or 1040EZ. To itemize your deductions, use Form 1040, U.S. Individual Income Tax Return, and Schedule A, Itemized Deductions.
These forms and instructions may be downloaded from the IRS website at www.irs.gov or ordered by calling 800-TAX-FORM (800-829-3676).
Links:
- Publication 17, Your Federal Income Tax ( PDF )
Schedule A, Itemized Deductions ( PDF )
Tags: Capital gains tax, corporate tax, income tax, internal revenue code, Internal Revenue Service, IRS, IRS and state tax collections, itemized deduction, mclaughlin & quinn, Moore McLaughlin, Providence, Rhode Island, standard deduction, tax, Thomas P. Quinn
Posted in Asset Protection Planning, Tax Current Events and News, Tax planning
March 5th, 2012 by Moore McLaughlin
The IRS has warned senior citizens and other taxpayers to beware of an emerging scheme tempting them to file tax returns claiming fraudulent refunds. The scheme carries a common theme of promising refunds to people who have little or no income and normally do not have to file a tax return. Under the scheme, promoters claim they can obtain a tax refund or nonexistent stimulus payment based on the American Opportunity Tax Credit, even if the victim was not enrolled in or paying for college. The IRS is actively investigating the sources of the scheme and its promoters may be subject to criminal prosecution.
“This is a disgraceful effort by scam artists to take advantage of people by giving them false hopes of a nonexistent refund,” said IRS Commissioner Douglas H. Shulman. “We want to warn innocent taxpayers about this new scheme before more people get trapped.”
Scammers are targeting seniors, people with very low incomes and members of church congregations with bogus promises of free money. A variation of this scheme incorrectly claims the college credit is available to compensate people for paying taxes on groceries.
The IRS is reminding people to be careful because all taxpayers, including those who use paid tax preparers, are legally responsible for the accuracy of their returns and must repay any refunds received in error. Taxpayers should beware of the following: fictitious claims for refunds or rebates based on false statements of entitlement to tax credits; unfamiliar for-profit tax services selling refund and credit schemes to the membership of local churches; internet solicitations that direct individuals to toll-free numbers and then solicit Social Security numbers; homemade flyers and brochures implying credits or refunds are available without proof of eligibility; offers of free money with no documentation required; promises of refunds for “low income—no document tax returns;” claims for the expired Economic Recovery Credit Program or for economic stimulus payments; unsolicited offers to prepare a return and split the refund; unfamiliar return preparation firms soliciting business from cities outside of the normal business or commuting area.
IR-2012-29, March 2, 2012
Tags: American Opportunity Tax Credit, asset protection, Asset Protection Planning, Douglas H. Shulman, Economic Recovery Credit Program, elder law, elderlaw, Elderlaw/Law For Life, Estate Planning, income tax, internal revenue code, Internal Revenue Service, IRS, IRS and state tax collections, Jill E. Sugarman, Jill Sugarman, mclaughlin & quinn, Moore McLaughlin, nursing homes, Providence, Rhode Island, seniors, tax, Tax planning, Thomas P. Quinn
Posted in Asset Protection Planning, Current Events, Elderlaw/Law For Life, Tax Current Events and News
February 29th, 2012 by Moore McLaughlin
Mortgage Debt Forgiveness: 10 Key Points
Canceled debt is normally taxable to you, but there are exceptions. One of those exceptions is available to homeowners whose mortgage debt is partly or entirely forgiven during tax years 2007 through 2012.
The IRS would like you to know these 10 facts about Mortgage Debt Forgiveness:
1. Normally, debt forgiveness results in taxable income. However, under the Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude up to $2 million of debt forgiven on your principal residence.
2. The limit is $1 million for a married person filing a separate return.
3. You may exclude debt reduced through mortgage restructuring, as well as mortgage debt forgiven in a foreclosure.
4. To qualify, the debt must have been used to buy, build or substantially improve your principal residence and be secured by that residence.
5. Refinanced debt proceeds used for the purpose of substantially improving your principal residence also qualify for the exclusion.
6. Proceeds of refinanced debt used for other purposes – for example, to pay off credit card debt – do not qualify for the exclusion.
7. If you qualify, claim the special exclusion by filling out Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, and attach it to your federal income tax return for the tax year in which the qualified debt was forgiven.
8. Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the tax relief provision. In some cases, however, other tax relief provisions – such as insolvency – may be applicable. IRS Form 982 provides more details about these provisions.
9. If your debt is reduced or eliminated you normally will receive a year-end statement, Form 1099-C, Cancellation of Debt, from your lender. By law, this form must show the amount of debt forgiven and the fair market value of any property foreclosed.
10. Examine the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incorrect. You should pay particular attention to the amount of debt forgiven in Box 2 as well as the value listed for your home in Box 7.
For more information about the Mortgage Forgiveness Debt Relief Act of 2007, visit www.irs.gov . IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions and Abandonments, is also an excellent resource.
You can also use the Interactive Tax Assistant available on the IRS website to determine if your cancelled debt is taxable. The ITA takes you through a series of questions and provides you with responses to tax law questions.
Finally, you may obtain copies of IRS publications and forms either by downloading them from www.irs.gov or by calling 800-TAX-FORM (800-829-3676).
Tags: Abandonments, asset protection, Asset Protection Planning, business tax, cancel debt, cancellation of indebtedness income, Capital gains tax, COD income, collection, corporate tax, debt cancellation, Discharge of Indebtedness, foreclosure, Form 1099-C, Form 982, income tax, internal revenue code, Internal Revenue Service, IRS, IRS and state tax collections, IRS Form 982, IRS Publication 4681, mclaughlin & quinn, Moore McLaughlin, Mortgage Forgiveness Debt Relief Act of 2007, mortgage restructuring, Providence, real estate, Repossessions, residence, Rhode Island, tax, Tax planning, tax relief, Thomas P. Quinn
Posted in Asset Protection Planning, Bankruptcy, Financial workout, Tax Current Events and News, Tax planning
February 24th, 2012 by Moore McLaughlin
Did you know that almost everything you own and use for personal or investment purposes is a capital asset? Capital assets include a home, household furnishings and stocks and bonds held in a personal account. When you sell a capital asset, the difference between the amount you paid for the asset and its sales price is a capital gain or capital loss.
Here are 10 facts from the IRS about how gains and losses can affect your federal income tax return.
1. Almost everything you own and use for personal purposes, pleasure or investment is a capital asset.
2. When you sell a capital asset, the difference between the amount you sell it for and your basis – which is usually what you paid for it – is a capital gain or a capital loss.
3. You must report all capital gains.
4. You may only deduct capital losses on investment property, not on personal-use property.
5. Capital gains and losses are classified as long-term or short-term. If you hold the property more than one year, your capital gain or loss is long-term. If you hold it one year or less, the gain or loss is short-term.
6. If you have long-term gains in excess of your long-term losses, the difference is normally a net capital gain. Subtract any short-term losses from the net capital gain to calculate the net capital gain you must report.
7. The tax rates that apply to net capital gain are generally lower than the tax rates that apply to other income. For 2011, the maximum capital gains rate for most people is 15 percent. For lower-income individuals, the rate may be 0 percent on some or all of the net capital gain. Rates of 25 or 28 percent may apply to special types of net capital gain.
8. If your capital losses exceed your capital gains, you can deduct the excess on your tax return to reduce other income, such as wages, up to an annual limit of $3,000, or $1,500 if you are married filing separately.
9. If your total net capital loss is more than the yearly limit on capital loss deductions, you can carry over the unused part to the next year and treat it as if you incurred it in that next year.
10. This year, a new form, Form 8949, Sales and Other Dispositions of Capital Assets, will be used to calculate capital gains and losses. Use Form 8949 to list all capital gain and loss transactions. The subtotals from this form will then be carried over to Schedule D (Form 1040), where gain or loss will be calculated.
For more information about reporting capital gains and losses, see the Schedule D instructions, Publication 550, Investment Income and Expenses or Publication 17, Your Federal Income Tax. All forms and publications are available at www.irs.gov or by calling 800-TAX-FORM (800-829-3676).
Tags: capital asset, capital gain, Capital gains tax, capital loss, income tax, internal revenue code, Internal Revenue Service, IRS, mclaughlin & quinn, Moore McLaughlin, Providence, Rhode Island, tax, Tax planning
Posted in Tax Current Events and News, Tax planning
February 23rd, 2012 by Moore McLaughlin
President Obama on February 22 signed the Middle Class Tax Relief and Job Creation Act of 2012. The new law extends through December 2012 a reduction in employment tax rates from 6.2 percent to 4.2 percent for employees and the self-employed, scaled back unemployment benefits from 93 weeks to 63 weeks in most states, and retention of the current Medicare reimbursement to physicians that otherwise would face a 27-percent reduction. The president lobbied hard for passage of the bill, stressing that the payroll tax cut extension would prevent a tax increase on 160-million working Americans and would save the average household approximately $40 per paycheck.
Tags: income tax, internal revenue code, Internal Revenue Service, IRS, mclaughlin & quinn, Middle Class Tax Relief and Job Creation Act of 2012, Moore McLaughlin, Providence, Rhode Island, tax, Tax planning
Posted in Current Events, Tax Current Events and News, Tax planning
February 20th, 2012 by Moore McLaughlin
The Internal Revenue Service issued its annual “Dirty Dozen” list of tax scams, advising taxpayers to use caution to protect themselves from being victims in a variety of schemes ranging from identity theft to return preparer fraud. The schemes peak during the filing season and they can be used in-person, on-line and by e-mail to mislead individuals with promises of refunds and free money. The IRS Criminal Investigation Division and the Department of Justice work closely to identify the scams and prosecute the criminals who commit them.
The following are the dirty dozen scams for the 2012: identity theft, phishing, return preparer fraud, hiding income offshore, offering free money from the IRS involving Social Security, false or inflated income and expenses, using false Forms 1099 for refund claims, frivolous arguments, falsely claiming zero wages, the abuse of charitable organizations and deductions, the use of disguised corporate ownership and the misuse of trust entities. The top scam is identity theft and the IRS has stepped up its internal reviews to spot false tax returns before refunds are issued, as well as working with the taxpayers whose identity has been stolen.
The IRS has collected $3.4 billion from people who have participated in two voluntary disclosure programs to report income from offshore banks, brokerage accounts and other foreign financial accounts. Taxpayers are advised that, if they are a party to scams that use a Form 1099 to create fake refund claims or falsify income, deductions or credits, they could be liable for financial penalties or even face criminal prosecution.
IRS examiners have uncovered intentional abuse by exempt organizations that shield income or assets from taxation and attempts made by donors to maintain control over donated assets or income from donated property. The IRS is working with state authorities to identify disguised corporate ownership that is being used to underreport income, claim fictitious deductions, avoid filing tax returns and facilitate money laundering and other financial crimes. IRS personnel have also seen an increase in the improper use of private annuity trusts and foreign trusts to shift income and deduct personal expenses; individuals should seek the advice of a trusted tax professional before entering into a trust arrangement.
Tags: 2012 Dirty Dozen, asset protection, Asset Protection Planning, business tax, Capital gains tax, corporate tax, Estate Planning, income tax, internal revenue code, Internal Revenue Service, IRS, IRS and state tax collections, IRS audit, IRS levy, IRS lien, IRS Notice, mclaughlin & quinn, Moore McLaughlin, Providence, Rhode Island, Tax planning, tax returns, Thomas P. Quinn
Posted in Asset Protection Planning, Current Events, Estate Planning, IRS and state tax collections, Tax Current Events and News, Tax planning, Uncategorized
February 13th, 2012 by Moore McLaughlin
Americans are living longer than they did in years past, including those with disabilities. Planning by parents can make all the difference in the life of a child with a disability, as well as that of his or her siblings who may be left with the responsibility for caretaking (on top of their own careers and caring for their own families).
Supplemental needs trusts (also known as “special needs” trusts) are an important component of planning for a disabled child (even though the child may be an adult by the time the trust is created or funded). These trusts allow a disabled beneficiary to receive inheritances, gifts, lawsuit settlements, or other funds and yet not lose her eligibility for certain government programs. The trusts are drafted so that the funds will not be considered to belong to the beneficiary in determining her eligibility for public benefits.
As their name implies, supplemental needs trusts are designed not to provide basic support, but instead to pay for comforts and luxuries that could not be paid for by public assistance funds. These trusts typically pay for things like education, recreation, counseling, and medical attention beyond the simple necessities of life.
For more on supplemental needs trusts, including the different kinds of trusts available, contact Jill E. Sugarman, Esq at 401-421-5115 or by e-mail at JSugarman@McLaughlinQuinn.com.
Tags: asset protection, Asset Protection Planning, assisted living facilities, disabilities, disability, disabled beneficiary, elder law, elderlaw, Elderlaw/Law For Life, Estate Planning, Jill E. Sugarman, Jill Sugarman, Long-term care, long-term care insurance, mclaughlin & quinn, Medicaid, Medicaid planning, nurses, nursing homes, Providence, Rhode Island, seniors, social security, special needs, special needs trust, supplemental needs trust
Posted in Asset Protection Planning, Elderlaw/Law For Life, Estate Planning
