Tax Articles

When a person dies, their estate is responsible for managing and settling their debts. The executor must take inventory of assets and debts, prioritize payments, and handle exempt assets and debt assumptions. Executors should seek professional guidance to navigate the complex process, especially if the estate is insolvent.

The federal tax code offers a strategy to mitigate business downturns by allowing certain losses to reduce taxable income in future years. The Net Operating Loss (NOL) deduction helps businesses average their income and losses over several years, ensuring fair tax payments. Recent changes under the Tax Cuts and Jobs Act (TCJA) have introduced new limits and rules for NOLs, including the elimination of carrybacks and a cap on the deduction at 80% of taxable income.

Coordinating estate plans between spouses is crucial to avoid unintended consequences such as conflicting provisions, unexpected tax implications, or assets passing in ways that don't align with shared wishes. This approach ensures that both spouses' documents and strategies work together harmoniously, enhancing tax efficiency, streamlining estate administration, and adhering to state laws. Proactive planning strengthens financial security and the shared legacy of married couples.

Owners of C corporations and S corporations must ensure their compensation is reasonable to avoid IRS scrutiny, which can lead to penalties, back taxes, and interest. By conducting market research, maintaining detailed job descriptions, and documenting annual reviews, owners can justify their pay levels and stay compliant with tax laws.

Selecting the right trustee is crucial in estate planning, as they manage trusts and ensure assets are handled according to the trust's terms and in the best interests of the beneficiaries. Trustees must possess qualities such as knowledge of tax and trust law, investment management experience, bookkeeping skills, integrity, and objectivity to effectively fulfill their responsibilities.

Section 127 educational assistance plans allow businesses to provide up to $5,250 annually in tax-free educational benefits to employees. These plans cover a wide range of educational expenses, including graduate coursework, and can help attract and retain talented employees.

Members of the sandwich generation, who care for aging parents while supporting their own children, face unique financial and emotional pressures. Estate planning is a critical yet often overlooked task that can help manage these challenges effectively.

SEP and SIMPLE plans are retirement options designed for small businesses to simplify administration and reduce financial burdens. SEP plans allow employers to make discretionary contributions to employees' SEP-IRAs, while SIMPLE plans involve employer matching contributions based on employee salary reductions. Both plans offer unique advantages, including tax benefits and minimal IRS filing requirements.

The GST tax is a federal tax that applies to transfers of assets to grandchildren or other skip persons, ensuring that large estates cannot bypass a round of taxation. Careful estate planning, including the use of trusts, is essential to allocate the GST tax exemption effectively and ensure tax-efficient transfers to younger generations.

Decanting an irrevocable trust explains the concept of decanting, which involves transferring assets from one trust to another with different terms. This process allows trustees to update or adjust the terms of an irrevocable trust under certain conditions, making it a strategic way to modernize an inflexible trust and better serve long-term goals and beneficiaries.