GRAB 5 QUICK TAX PERKS

             Does your business need trustworthy and reliable employees?  You may not have to look
any farther than across the dinner table.  Hire your spouse to work as an official employee.  Why put your spouse on the payroll?    Because you can gain five tax benefits:

-1-         If you meet the tax law requirements, your company can deduct contributions made to a qualified retirement plan on your spouse's behalf.  The annual limits are quite generous.  If your company has a defined contribution plan, you may put away up to 25% of their compensation or $49,000, whichever is less.  With a 401(k) plan, another dollar limit applies:  Your spouse can defer up to $16,500 to the plan plus an extra $5,500 if they are age 50 or older.  Your company can match those contributions wholly or partially up to tax law limits.

-2-          If you operate a C corporation any compensation you pay to your spouse would have to stay with the company.  Assuming your corporation is in a higher tax bracket than your personal tax bracket, you will save tax overall if your spouse draws a salary.  But don’t look for any income shifting tax benefits if your company falls in a lower tax bracket than your personal bracket.

              Note:   S corporation owners and sole proprietors don’t pay corporate income tax.  You report business income on your personal return whether or not you pay your spouse a salary.  Therefore, this could be a wash.

-3-          Generally, you can’t deduct the travel expenses attributable to your spouse if he or she accompanies you on a business excursion.  However, if your spouse is a bona fide company employee and goes for a valid business reason, you may deduct their travel costs, including air fare, lodging and 50% of the meal expenses.  The benefit also is tax free to your spouse.

-4-          If you’re already paying more to cover your spouse under your company health insurance plan, hiring him or her shifts the expenses to your company.  Typically, your company can deduct your spouse’s full health insurance ne cost.  Even self employed can write off 100% of the cost under a so-called Section 105 medical reimbursement plan.

 

-5-          Your spouse is entitled to the same group term life insurance cove rage as your other employees.  Key point:  The first $50,000 of employer paid, group term coverage is tax free to an employee.    However, one catch for S corporation owners:  Generally, you can’t deduct fringe benefits, such as grout term life insurance, for any employee who owns 2% or more of the company.  By extension, that rule also applies to an employee spouse.

                

               Call on us. So if you know someone that is looking for a way to save taxes and remain invisible to the IRS, call me at 702-642-8953 or write me at isueirs@aol.com. With me you get No conditions. No exceptions. No time limits and No IRS.

 

INCREASE YOUR SOCIAL SECURITY CHECK

Congress is still dithering while Social Security runs out of gas. The newly released trustees’ report says the old age programs will run out of money by 2037. That is no better, and no worse than last year’s projection, according to Paul Katzeff of Investor Business Daily.

With nothing in the trust fund, trustees say benefits then will have to be paid solely by tax revenues. So checks would have to shrink to 78% of what is promised. Perhaps Congress will restore Social Security’s financial health before that happens. Meanwhile, what if you retire and want to start drawing benefits? You can take steps to boost the size of your monthly check.

1. Delay the Start. The most basic strategy is to postpone tapping into the program. You can start collecting at age 62; but if you wait until your full eligible age, your benefits will be higher. Depending on your age, waiting until your reach full eligibility age, which the program calls Normal Retirement Age (NRA) will increase your monthly check by up to 30%. Normal Retirement Age is 66 for people born between 1943 through 1954. It is 67 for anyone born in 1960 or later. The Table below shows Normal Retirement Age for various dates of births.

AGE AT WHICH YOU ARE ELIGIBLE FOR FULL BENEFITS
1937 or earlier 65
1938 65 + 2 months
1939 65 +4 months
1040 65 +6 months
1941 65 +8 months
1942 65 +10 months
1943-1954 66
1955 66 +2 months
1956 66 +4 months
1957 66 +6 months
1958 66 +8 months
1959 66 +10 months
1960 later 67

Aside from resulting in a smaller check, starting benefits early also exposes you to an earnings cap penalty. For every $2 you earn in excess of a certain threshold, you will lose $1 in benefits.


2. Reward for Extra Delay. If you wait until after your NRA your starting benefits are even higher. This is due to the delayed retirement credit. It can be worth up to 8% a year, until age 70, depending on when you were born. Anyone born in 1943 or later gets the 8% annual premium. If you were born in 1933-1934, it’s worth only 5.5% extra per year.

Suppose you were born in 1944; your NRA would be 66. Let’s say your monthly check would be $1,000, given your earnings history. If you wait until age 70 to start benefits, your check will be 32% higher. That’s 8% times four years. Your monthly check would be $1,320. The additional benefit you gain by waiting until 70 vs. 62 is significant. The extra monthly benefit is typically 75% higher, says Alicia Munnell, director of the Center for Retirement Research at Boston College.

3 File and Suspend. The size of benefits for your spouse or dependent children can be based on your earnings record, not theirs. That is the case once you file for your own benefits. File the claim, then suspend your claim. Delay the start until a later date, when their payments will be larger. Meanwhile, your spouse can start to get benefits at a higher level than they would otherwise. The difference this strategy makes is biggest when one spouse has a lot more lifetime earnings than the other. As a practical matter, it is best to disclose your plan in advance to the Social Security office where you will file your claim. You have to physically show up and identify yourself anyway.

4. Do Over. How many times do you get a “Do Over”? Benefits are based on when you start. But you can pay back benefits you have received, then start over at a higher level due to yur higher age. Your start over may also be higher due to the additional earnings. If you repay the benefits, you do not pay interest or penalty. The Social Security Administration will inform you how much you must repay. It can include spousal benefits.

Once you repay, you can immediately apply for the higher benefits at you older age. You may also be able to claim a deduction or credit for some taxes paid on past benefits. Do your homework. The question is how long it will take later higher monthly benefit s to more than make up for the amount you repay. There is also an opportunity cost. Cash used for repayment could be used for investments instead of returning to the Social Security Administration. And don’t overlook other costs. If you stop benefits, automatic deductions that pay your Medicare premiums will also end. You will have to pay Part B Premiums out of pocket.

5 Switch Over. Once you hit age 66 or slightly older if you were born after 1954, rules get flexible concerning the basis for your benefit. Suppose you are two-career couples; you could start benefits, collection 50% of your spouse’s benefit. You are not starting your own benefit; you are delaying that until the benefits would be higher at age 70. At that point your spouse could also switch to collection 50% of your benefit. Her check may be reduced if she started before NRA. And, when you die the spouse jumps up to your benefit amount

Call on us. So if you know someone that is looking for a way to save taxes and remain invisible to the IRS, call me at 702-642-8953 or write me at isueirs@aol.com. With me you get No conditions. No exceptions. No time limits and No IRS.

HEALTH REFORM CHANGES IN 2011

Here are three tax law changes resulting from health care reform that will take effect on January 1, 2011:

LIMITED HEALTH PLAN REIMBURSEMENTS. New rules apply to your withdrawals from health savings accounts (HSAs), Arche4r Medical Savings Accounts (MSAs) Health Flexible Spending Arrangements (FSAs) and Health Reimbursements Arrangements (HRAs).
Beginning January 1, you will no longer be able to use funds in these accounts to pay for over-the-counter medicines or drugs unless you have a prescription from your doctor Insulin and certain medical devices and supplies continue to qualify for tax-free reimbursement.

So do this: Depending on your plan, you may be able to request reimbursement in 2011 for over-the-counter items purchased by December 31, 2010.

HIGHER PENALTIES on NON-QUALIFIED DISTRIBUTIONS. Starting on January 1, 2011, the penalty for nonqualified distributions from your HAS or Archer MSA increases to 20% of the amount you withdraw. That is higher then pulling money out of the IRA before age 59.

OPTIONAL HEALTH COVERAGE REPORTING. Reporting the value of health benefits you provide to employees is optional for the year ending December 31, 2011, instead of mandatory.
You can choose to report the premiums paid for benefits such as health insurance, prescription drug coverage, and dental and vision plans on Forms W-2 for 2011. The reported value is not yet taxable income to employees.

So if you know someone that is looking for a way to save taxes and remain invisible to the IRS, call me at 702-642-8953 or write me at isueirs@aol.com. With me there are: No conditions.
No exceptions. No time limits. No IRS.

The January 1 Affect

Many taxpayers are looking forward to Janaury 1, 2011, hoping a new Congress will put the country back on track. But unless something is done soon, the new year will also come with many tax hikes…including a return of the death tax, according to the American for Tax Reform.

Through the end of this year, the federal estate tax rate is zero, thanks to the package of broad-based tax cuts that the former Congress pushed through to get the economy going. But as midnight December 31, 2010, the death tax returns at a rate of 55% on estates of $1 million or more; and then there are State taxes. The effect this will have on hospital life-support systems is already a matter of conjecture.

Resurrection of the death tax, however, is not the only tax problem that will be ushered in January 1. Many other cuts from the prior administration are set to disappear and a new set of taxes will appear. And if your're rich, according to some government bureaucrat, you will pay.

The lowest bracket for the personal income tax moves up 50% to 15%; the next lowest bracket, will rise to 28%; and the old 28% bracket will be 31%. At the higher end, the bracket becomes 39.6%.

But the damage doesn't stop there. The marriage penalty also makes a comeback, and the capital gain tax goes to 20%. The tax on dividends will go all the way to 39.6%, which is a 164% increase. Both the capital gain and dividend taxes will go up further in 2013, because the
health-care reform adds a 3.8% Medicare levy for individuals making more than $200,000 a year; and joint filers making more than $250,000. Other tax hikes include reducing the child tax credit by $500; and fixing the standard deduction for couples at the same level as it is for single filers.

Letting the tax cuts expire will cost taxpayers $115 billion next year alone, according to the Congressional Budget Office, and $2.6 trillion through 2020. But even more tax headaches lie ahead. The "second wave" of tax hikes, are designed to pay for the health-care law and include:

The Medicine Cabinet Tax. Americans for Tax Reform says taxpayers will no longer be able to use health saving account, flexible spend accounts , or health reimbursement pre-tax dollars to purchase non-prescription, over-the-counter medicines. except insulin.


The Health Savings Account Withdrawal Tax Hike. This provision of Obama-Care provides for an additional tax, on non-medical, early withdrawal from an HSA of 20%. This 20% penalty will disadvantage the taxpayer worst than an early IRA withdrawal and other tax-advantaged accounts, which remain at 10%.


Brand Name Drug Tax. Makers and importers of brand-name drugs will be liable for a tax of $2.5 billion in 2011. The tax goes to $3 billion a year from 2012 to 2016, then $3.5 billion in 2017 and $4.2 billion in 2018. Beginning in 2019 the tax falls to $2.8 billion and stays there. And who pays the new drug tax? Patients.


Economic Substance Doctrine. Americans for Tax Reform reports that "The IRS is now empowered to disallow perfectly legal tax deductions because the IRS judges the deduction or tax-plan lacks 'economic substance’.

A third wave, of taxes consists of (1) widening the Alternative Minimum Tax (AMT) (2) tax hikes on employers and (3) the loss of deductions for tuition.

The Tax Policy Center, says that the failure to index the AMT will subject 28.5 million families to the tax when they file the 2011 tax return.

Small business normal expense equipment purchases up to $250,000. This will be cut to $25,000. Currently larger businesses can expense up to half of their purchases of equipment. In January of 2011, however, all equipment purchases will have to be depreciated.

There are literally scores of tax hikes on business that will take place plus the loss of some tax credits. The research and experimentation tax credit will be the biggest loss; but there are many other as well. Here are a few of the lost credits:

The deduction for tuition and fees will no longer be available and there will be limits placed on education tax credits. Teachers will not be able to deduct their classroom expenses and employer provided educational aid will be restricted. Thousands of families will no longer be allowed to deduct student loan interest.

Then, there is the tax on those who decline to buy health insurance, plus a 3.8% Medicare tax, beginning in 2013, on profits made in real estate transactions by wealthier Americans.


This intellectual capital is offered as an education service to our clients and friends. The information is of general nature and should not be acted upon without further details and professional guidance. So if you know someone that is looking for a way to save taxes and remain invisible to the IRS, think of us. With us there are No conditions, No exceptions, No time limits, No IRS.

REALISTIC BUDGETING FOR TOUGH TIMES

Put off that new boat and start by deciding which needs are urgent and which are
merely important to you. Paul Katezeff, a staff writer with Investor’s Business Daily writes, millions of families have taken the hint. With the economy weak and layoffs rising, they are beefing up the household balance sheet by slashing expenses.

"More people are taking action even if layoffs have not struck their family,” says Bruce Bickel, of PNC Wealth Management in Pittsburgh. The key to cutting expenses is to form a budget. You've got to know what you are spending and where to decide how to cut back. For many people, especially high net worth people, budgeting and reducing their expenditures are tough because they've never done it before. The task can also be tough for emotional reasons. "Some. people hesitate to budget due to pride and embarrassment," says Bruce Bickel. "They always felt above such things." But it's got to be done if you want to avoid a fiscal calamity. Each family member must start by listing their expenses.

Each item should then be categorized as urgent, important or entirely discretionary. The tough part is often distinguishing between urgent and important. The decision especially for high net worth families can hinge on such things as what a family wants its legacy to be. Urgent items are the last to be deleted as you decide where to trim your spending. Next comes the budget itself. It is suggested to set aside 10% of income for long-term goals such as retirement and children’s education.

Then 70% of income should go to the regular living expenses. The final 20% should be for a buffer fund. “That prevents people from living on credit” Bickel said. The buffer fund is also for emergencies.

Cutting back on credit use is a key to making a budget. For one thing, credit can entail interest charges; for another, credit makes it easier to spend beyond your income.

Anne Uno, a financial adviser and tax preparer in Arlington, VA. suggest looking at your loan payments and credit card bills. “Pay off the ones you can, starting with the higher interest-rate debts”. Whether paid by credit or not, the next group of expenditures to tackle are big ticket items. Consider getting rid of these items:

Club Members. Whether it’s a country club or golf club, memberships are important at best but certainly not urgent. They can be extremely expensive and you can save thousands of dollars. No club membership is more important than keeping your home or putting food on the table.

Automobiles and boats. Postpone buying a new car or boat. If the old one breaks down totally, buy a less expensive replacement than whatever you had in mind. Leasing a car or boat. Don't. You don't build equity. You can't resell it. It just adds to debt.

Vacations. Take them less often and make them shorter. Also, consider alternative formats. Look into home exchanges. Travel by train, which cuts down on hotel
stays. And piggyback on professional conferences. That way part of the trip is paid for by your business. Part may be deductible also. Another scenario is to visit grandma and grandpa instead of cruising the Caribbean. You may eliminate hotel costs or slash them altogether. Mom and dad can stay at a motel while the kids bund at their grandparents home.

Dining out. Visit fancy restaurants less often. Don’t be shy about taking home a doggie bag.

Installment payments. If you must buy on credit, shop for a longer
payback period. You'll pay more interest over the long run; but it will cut your monthly bills in the near- term.

Insurance. Shop around. You can often find the same coverage for much less money. You can also save hundreds of dollars a year by cutting more mundane
expenditures.

Service expenditures. Visit beauty salons and barbers at longer intervals. The same goes for things like housecleaning. Instead of scheduling the service monthly, make it every six weeks. And forgo indulgences. Either don't get silk-wrapped nails, or do them yourself. Temporary sacrifices should be spread as evenly as possible through the family. For example, children may have to
go without summer camp this year. Or they may have to make do with fewer weeks. Another option: Day camp instead of overnight camp.

Cable TV. Relax, you don't have to eliminate it completely. How about just trimming some of the bells and whistles? Consider moving down to a less expensive package. That's easiest if you give up multiple movie, channels or
specialty channels. You can give up one or more premium movie channels.
Try using Netflix instead.

Warehouse shopping clubs. Go with a friend and split purchases that you both would make anyway. People often don't use all of their bulk buys, and it goes to waste. Avoid that.

CALL ON US
This intellectual capital is of general nature and should not be acted upon without professional guidance. So if you know someone that is looking for a way to save taxes, avoid audits, and remain invisible to the IRS, call me at 702-642-8953 or write us at isueirs@aol.com. With us there are No exceptions, No time limits; No conditions; No IRS.

SHARPEN YOUR ESTATE TOOLS BEFORE YOU NEED THEM

The U. S. intends to blunt estate devices like Grantor Retained Annuity Trust (GRATs), so advance planning is important.

President Obama and Congress are taking positions against two popular estate planning tools. Tax advisers are urging clients to prepare to adjust their plans if proposals move forward. One involves family limited partnerships (FLPs), used by the wealthy to pass real estate, businesses and other assets to heirs in a tax advantaged way.

FLPs allow sizeable discount, typically 35% to 40% of the value of the property conveyed. Today, you can make a gift of $13,000 to each heir per year without incurring any gift tax. If you go over the limit, then you cut into an additional $1,000 million lifetime exemption. But if you can discount the value of the property using an FLP, then you can transfer even more wealth without paying tax.

Suppose you have an apartment building and stocks worth $2 million. You put these assets in an FLP and create 10 partnership units. Each unit is a portion of ownership, like stock. Under current law, each partnership unit could be worth as little as $120,000 instead of $200,000. That is because the owner of a unit typically cannot sell the interest easily. He also can’t control how the assets are managed.

Those restrictions reduce the value of the units; therefore a professional appraiser would set the unit value. Obama’s proposal would require more backup for the discount claims, says Bruno Graziano, a tax analyst with CCH in Chicago.

If Obama’s final language makes it retroactive to the birth of the FLP, then all FLPs active since 1990 would be more vulnerable to an audit, especially those whose main or sole purpose to the IRS seems to be conveying assets from one family member to another to avoid taxes, says estate planning attorney Martin Shenkman, of Paramus, N.J.

FLPs are supposed to have a business purpose, not just tax benefits. For example, it is legitimate to put income producing real estate into a Family Limited Partnership, to limit individuals’ personal liability, create a mechanism for paying dividends to family members and to enable them to buy and sell portions of ownership.

But where the IRS does not see a business purpose, it often alleges that an FLP’s sole purpose is avoidance of tax. The IRS also questions the size of the discounts. FLP advocates say that discounts typically reflect the extent to which an individual partner is barred from realizing the value of their investment.

For example, an owner of units in a FLP that owns an apartment building may not receive a portion of rents or even any dividends. The partner may be blocked from selling his interest, at least without the consent of the other partners. On the other hand, many restrictions can later be removed. As ownerships units pass out of the hands of older family members due to death or retirement, surviving family partners can vote to amend the FLP’s operating agreement.

In addition to the Obama proposal, another bill in Congress, HR 436 would end discounts on nonbusiness assets in FLPs such as stocks, bonds and money market securities. The bill would also freeze the estate tax exemption at $3.5 million, 2009’s level. Unlike Obama’s plan, it would not be retroactive.

Bottom line is the IRS appears to be on a path to become more hostile to discounts for cash and securities. If your FLP has lots of those, being able to prove that you run it like a business can help preserve full discounts. Have meetings, take minutes. Separate its accounts from your personal assets,

Another potential change from Congress would curtail the estate tax benefit of grantor retained annuity trusts (GRATs). In a GRAT, mom for example, places an asset such as the apartment building into a trust. It counts against her gift tax exemption, but at a discounted value. And she gets an annuity-like payment for the term of the trust.

It’s a sweet deal because Mom pays no income tax on the payout. She is deemed to have made an equal exchange rather than a profit-making transaction. She also gets the apartment building out of her estate, and away from the IRS.

One catch is if she dies during the term of the trust. Then, the trust terminates. The apartment building which in normal times typically rises in value goes back into her estate and could be subject to estate tax.

If she outlives the trust, then the apartment goes it beneficiaries she named, free of gift tax. Attorneys have set up GRATs with terms as short as two years to cut the impact of an untimely death. The Obama administration seeks a 10 year minimum life for GRATs. This would discourage GRATs’ use by older benefactors. Unlike the FLP change, this would only apply to trusts created after enactment.

So if you’re planning to create a GRAT, try to act before any new regulation is enacted. The length of the GRAT term should not matter. If a new law is enacted first, you will have to obey any new minimum term rules.

CALL ON US
This intellectual capital is of general nature and should not be acted upon without professional guidance. So if you know someone that is looking for a way to save taxes, avoid audits, and remain invisible to the IRS, call me at 702-642-8953 or write us at isueirs@aol.com. With us there are No exceptions, No time limits; No conditions; No IRS.

High Income Taxpayers Can Shield Income

The revised tax brackets will let taxpayers earn more money this year without bumping themselves up to a higher tax rate. The new brackets mean you will pay less tax on higher income than you would have in 2008. The timing could not be better says Investor Business Daily.

With the market up strongly, a lot of taxpayers could rack up capital gains this year versus 2008’s losses. Even the economy is heating up; so some taxpayers may earn more this year thanks to everything from year-end bonuses to Roth IRA conversions and withdrawals from the traditional IRAs. In both cases, income from gains or job earnings, savvy moves may help you avoid taxes or reduce your taxes.

Each year, the brackets are adjusted for inflation. For example, the upper limit for the 25% bracket for couples filing jointly went from $131,450 in 2008 to $137,050 in 2009. That is an increase of 4.26%. Those numbers are for taxable income, after deductions from gross income. If you know where you stand you may be able to make some tax efficient moves by year end.

Take a hypothetical James Darren. His modified adjusted gross income (MAGI) will be under $100,000 in 2009. Since that is the income ceiling on eligibility for converting a traditional IRA to a Roth IRA, he can make the switch. Darren, who is single projects his taxable income for this year at $60,000 and that puts him in a 25% federal tax bracket.

That bracket goes up to $82,250 of taxable income in 2009, so Darren is under the ceiling by $22,250. So Darren converts $22.250 of his traditional IRA to a Roth IRA by year end. He will stay in the 25% tax bracket and he will owe the IRS only $5,562.50 on the conversion, which is 25% of the $22,250.

If Darren thinks his tax rate in the future will be higher, converting to a Roth IRA will be a good choice. After five (5) years and after age 59 ½ all withdrawals from the Roth IRA will be tax-free. Another opportunity might arise for Ann and Adam Anderson, a hypothetical retired couple. They’re tapping their traditional IRAs for living expenses to supplement Social Security. The Andersons project their 2009 taxable income at $50,000, so they are in the 15% tax bracket. That goes up to $67,900 in 2009.

The couple can take a total of $17,900 from one or both of their IRAs by year end. As long as they keep their joint taxable income no higher than $67,900 for the year, they will owe the IRS only 15% on these IRA withdrawals. The Andersons are both in their 60s, so they are in no danger of triggering the 10% penalty for a withdrawal from a traditional Ira before age 59 ½. Any penalty would be in addition to the income tax the Andersons would have to pay, but there are some exceptions to the 10% penalty.

You can avoid the penalty if the distributions are equal and at least annual, said Tom Ochsenschlager, Vice President of taxation at the American Institute of Certified Public Accountants. The IRS permits several methods of making this calculation, based on your age. Ochsenschlager said, you have the opportunity to change the amount of the withdrawal, at whichever is later:

Five years from when withdrawals began, or
When you reach 59 ½.
　
Arranging capital gains to fill up a tax bracket this year may be especially appealing, as long as you stay in a 10% or 15% bracket, you will owe no tax on gains in 2009 or 2010 from assets held more than one year. The 0% rate on long-term gains applies if your taxable income is no more than $33,950 this year or $67,900 on a joint return. If your income will be higher, shifting gains to a low bracket loved one can pay off big time.

Say Bob Smith holds appreciated stocks he plans to sell. Smith’s 24 year old son, Jake, is in school and expects $12,000 in taxable income in 2009 from his part time job. The Smiths can give Jake $26,000 in stock. That would use the $13,000 gift tax exclusion amount from Bob Smith and the $13,000 gift tax exclusion amount from Mrs. Smith. Now say the stock cost the Smiths $10,000. Jake sells the stock in 2009 and realizes a $16,000 long term capital gain. Now he has $28,000 in taxable income for the year of 2009. Jake, as a single taxpayer, can have up to $33,950 and stay in the 15% bracket and owe no tax on the long-term capital gains. In fact, the Smith’s son would have to take another $5,950 of long term gains before he would owe tax on any of the gains.

Similar strategies can work with gifts to an elderly parent or parents. Watch out for income shifts to children under the age of 24. Stay away from that transaction because if they are full time students, low taxed investment income is basically capped at $1,900 for 2009.

CALL ON US
This intellectual capital is of general nature and should not be acted upon without professional guidance. So if you know someone that is looking for ways to save taxes, avoid audits and remain invisible to the IRS, call us at 702-642-8953 or write us at isueirs@aol.com. With us there are No exceptions, No conditions. No time limits. No IRS.