The Tax Relief and Health Care Act of 2006 was passed into law this week, extending the State and Local Sales Tax Deduction, the Higher Education Tuition and Fees Deduction, and the Educator Expense Adjustment. See this IRS news release for details, or see below for how to deal with the extended tax breaks on the 2006 Form 1040.
Continue Reading...| For some last things to think about before getting set to get your estate plan in order for 2007, check out this recent article by Kay Bell published on Bankrate.com: | |||
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Have you been too busy to make your list, much less check it twice? No problem. We've got it right here.
Nah, we're not talking about that reminder sheet for your holiday shopping. This is your all-important year-end tax to-do list.
By checking off these 13 items by Dec. 31, you'll find your tax filing chore next year much easier. Even better, these year-end moves might net you enough tax savings so that you can easily pay for most of the gifts on that other list.
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1) Last Will and Testament- Have an up-to-date, professionally prepared Will or Living Trust. Keep the original in a safe place.
2) Title to Assets and Beneficiary Designations - Review property ownership and beneficiary designations for life insurance and retirement accounts to ensure that they are coordinated with your will or trust provisions.
3) Durable Power of Attorney - Have a comprehensive, professionally prepared Durable Power of Attorney. Register it if necessary.
4) Health Care Power of Attorney - Have a current Health Care Power of Attorney valid in your state of residence. Make sure your doctor has a copy.
5) Advance Directives - Have a current Living Will or Medical Directive that clearly and accurately states your wishes. Make sure your doctor has a copy.
6) Talk to your Fiduciaries – Make sure you have spoken to your Executors, Trustees, Agents (under a power of attorney), and Guardians named in your estate planning documents to ensure they agree to serve and are aware of your wishes and other necessary information, including the location of the documents and contact information for your attorney.
7) Insurance – Review all of your policies to see if you have adequate coverage (life, medical, disability, auto, home). Consider upping the liability limits on your auto insurance and purchasing umbrella liability insurance. Particularly if you have young children, make sure you have enough life insurance to cover their expenses through college. If you are in your 50’s or 60’s, take a look at long-term care insurance to see if it makes sense for you.
8) Asset Protection – If you own rental real estate, place it in an LLC. Avoid large joint accounts. If you are getting married, talk to an attorney about the advisability of a prenuptial agreement. Protection your children’s inheritances by keeping the assets in trust for them.
9) Taxes – If you are normally a do-it-yourselfer, have a CPA or tax attorney review your return to ensure that you are making the most of your deductions and any tax breaks. If your assets exceed $2 million (including face value of life insurance), make sure you have addressed estate taxes in your estate plan. Do not give over $12,000 a year to anyone without seeking advice as to the gift tax consequences of the gift.
10) Attorney – Establish a relationship with an attorney whom you can trust and easily communicate. Experience and credentials are very important, but they mean little if your attorney won’t return your phone calls or doesn’t take the time to adequately explain things to you.
The following news is from Stephanie Heilborn of the Milbank, Tweed law firm in New York City:
Russ Sullivan, Democratic Staff Director of the Senate Finance Committee, spoke at the joint meeting of the Estate & Gift Tax Committee and Trusts, Estates & Surrogate's Courts Committee of the NYC Bar Association last night. He provided some good insight into the current thinking on estate & gift tax reform.
Congress expects to address the estate tax in the second half of 2007. The bottom line is that for any bill to pass both houses, it cannot reduce the revenues raised by estate/gift tax by more than 50% (apparently the reason last year's proposal didn't pass is that it cost just a little too much (it reduced revenues by 60%) for some key Democratic senators to support it). Any new estate tax law is highly likely to contain the following provisions:
Step-up in basis (the feedback regarding carryover basis has been loudly and uniformly negative)
Estate tax exemption between $3.5 million and $5 million
Estate tax rate will correspond to the capital gains rate--possibly 15% rate for the first $5-10 million and a higher rate, which "will start with a 3", for the balance over that
Exemptions will be transferable between spouses
No state tax deduction (Apparently the state governors have been terrible lobbiers--not a single one has complained about the loss of state estate tax revenues.)
There will be "offsets" in exchange for the reduction in tax rates. These are likely to include restrictions on discounts available for family limited partnerships, especially those funded with mostly marketable securities. He told us, "Take a good look at some of the proposals from during the Clinton administration."
Unclear whether the estate and gift tax will be reunified--there has been disagreement within the Senate Finance Committee staffs
If we get to 2010 and no estate tax bill has been passed, they will extend the 2009 provisions for a while--even the more progressive Democrats agree that we can't go back to the pre-2001 law.
Finally, they do expect to issue technical corrections to the Pension Protection Act of 2006 sometime next year.
This is good news for most, but any new limitations on discounts available for family limited partnerships and limited liability companies could restrict planning for some wealthier taxpayers.
From a recent IRS e-newsletter:
Continue Reading...WASHINGTON — Individuals and businesses making contributions to charity should keep in mind several important tax law changes made last summer by the Pension Protection Act.
The new law offers older owners of individual retirement accounts a new way to give to charity. It also includes rules designed to provide both taxpayers and the government greater certainty in determining what may be deducted as a charitable contribution. Some of these changes include the following.
From the N.C. State GiftLaw eNewsletter this week:
In January of 2007, Rep. Charles Rangel (D-NY) will assume the leadership of the House Ways and Means Committee. Chairman Rangel has indicated that alternative minimum tax (AMT) reform will be a high priority. Large numbers of taxpayers from his district in New York City have substantial incomes and now are subject to AMT.
During the past five years, Congress has repeatedly passed an "AMT Patch." As more taxpayers have been subject to AMT, Congress has slowly and steadily increased the AMT exemption. However, with increasing numbers of taxpayers with higher incomes and reductions in top tax rates in 2001 and 2003, millions of American taxpayers are now facing alternative minimum tax.
Bills have previously been introduced in both the House and the Senate to repeal the AMT. If the revenues forgone by AMT repeal are calculated, the cost could potentially amount to a trillion dollars. Therefore, the major question on AMT repeal is whether or not to use offsets to create a "revenue-neutral" bill. "Revenue-neutral" is Washington language for a bill that will include some tax increases. Given the magnitude of the funds involved, the offsets may include higher rates for upper-income taxpayers.
Sen. Charles Grassley, who will be the ranking Republican on the Senate Finance Committee in January, issued a press release that warned about raising rates to pay for AMT repeal. He noted, "I hope the new Democratic leaders won't fall into traps on AMT repeal, such as counting on the revenue that AMT raises for more Government spending. It's ridiculous to rely on revenue that was never supposed to be collected in the first place. Another trap is raising taxes to pay for AMT repeal. It's unfair to raise taxes to repeal something with serious unintended consequences like the AMT."
Sometimes known as the "awfully mean tax," the AMT involves a complex set of rules designed to ensure that high-income taxpayers pay their "fair" share of taxes. Personally, I don't like seeing my itemized deductions being reduced because of AMT limitations. Even if I end up paying the same amount of tax due to tax increases, I support AMT repeal as small step in simplifying the tax code.
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