The Ohio Estate Tax is Coming to an End! | Tax Tip of the Week | No. 103 July 27, 2011
Posted by admin in : Tax Tip, Taxes, Taxes, Uncategorized , add a commentOhio Estate Tax Update
The recently enacted 2012-2013 budget that Gov. Kasich signed into law includes a provision that eliminates the Ohio estate tax. Before this repeal, Ohio taxed anyone who died with assets above $338,333 at a tax rate of up to 7%. This was the lowest exemption amount of any state in the United States.
Unfortunately, the repeal is not immediate. Anyone who dies, on or after January 1, 2013, will not face the burden of the Ohio estate tax. Until January 1, 2013, however, the current estate tax law will continue to apply. This means that if someone dies before that date, their estate is still subject to the current tax law.
The repeal of the Ohio estate tax is great news. It affected a large number of Ohioans, many of whom had accumulated only modest wealth. It particularly helps Ohioans who many times are asset-rich but cash poor—such as farm families. Once the repeal goes into effect, not only will you not owe any estate tax, you will not need to hire a professional to prepare and file the tax returns.
It is important to remember that even though this is a “permanent” repeal of the Ohio estate tax, all that really means is that it does not automatically come back at some point in the future. What one administration grants, another can take away in the future. There is nothing that prohibits a future administration from reenacting the Ohio estate tax.
Even though the Ohio estate tax is being repealed, combined with the increase of the Federal estate tax exemption, this does not mean you should ignore your estate planning needs. Estate planning is not just about money and taxes. We highly recommend you consult with an estate attorney to reevaluate your estate planning needs. We can refer you to a competent estate attorney if you need an introduction.
Editor’s Note: This TTW relies heavily upon an update written by:
O’Diam & Stecker Law Group, Inc.
75 Harbert Dr.
Dayton, OH 45440
(937) 458-0574
As always, give us a call if you have any questions.
You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our website.
Rick Prewitt – the guy behind TTW
…until next week.
IRA Terms You Should Know | Tax Tip of the Week | No. 102 July 20, 2011
Posted by admin in : Tax Tip, Taxes, Taxes, Uncategorized , add a commentThree Terms Regarding Roth Conversions
There were a lot of discussions this recent tax season regarding the tax law changes on Roth conversions. Those conversations will likely continue this year, as some changes to your new Roth can be made through October 2011.
Here are three terms you should know:
Conversion: A conversion is the act of moving your retirement account assets from one type of IRA to another.
You can convert all or part of a traditional IRA to a Roth IRA. Just remember the amount you convert is taxable, assuming you have no basis in your traditional IRA.
Note: Only conversions made in 2010 allowed you the option to pay one half the tax liability in 2011 and the other half in 2012. Any conversions made in 2011, and the subsequent taxes, will need to be paid on your 2011 tax return.
Recharacterization: After making a Roth conversion, you can choose to transfer the assets back to your traditional IRA. Recharacterizing cancels the initial conversion as if it never happened. This could be good tax planning if the value of the assets decline after you converted. While the loss is not deductible, you’ll avoid paying tax on the full amount of the initial conversion.
For a 2010 conversion, you have until October 17, 2011 to do a recharacterization.
Reconversion: A reconversion is what happens after you convert a traditional IRA to a Roth, later recharacterize, and then decide to make another conversion.
A waiting period applies that limits you to one reconversion per year.
Give us a call to see if any of these tax planning tips could help you.
You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our website.
Rick Prewitt – the guy behind TTW
…until next week.
Ohio Closes Seven Tax Centers | Tax Tip of the Week | No. 101 July 13, 2011
Posted by admin in : Tax Tip, Taxes, Taxes, Uncategorized , add a commentNew Budget Plan Reduces Government Spending
Dealing with the Ohio Department of Taxation (ODT) just became a little more difficult. ODT has announced that June 30, 2011 was the last day that Service Centers in Akron, Cincinnati, Cleveland, Dayton, Toledo, Youngstown, and Zanesville would be open.
This move is expected to save more than $7 million/year. A union leader for the laid off tax workers argued that the closings would hurt 42,000 taxpayers that visit the offices each year. This move was one among many that were recently passed by Gov. Kasich’s new budget plan to reduce government spending.
Only three walk-in centers remain:
- 4485 Northland Ridge Blvd., Columbus, OH 43229 (Income)
- 30 East Broad St., 20th Floor, Columbus, OH 43215 (Sales and Use Tax)
- 30 East Broad St., 19th Floor, Columbus, OH 43215 (Excise, Motor Fuel & IFTA)
If you need help with your Ohio taxes, you will now need to travel to Columbus, visit ODT’s website, or call the automated telephone hotline (800) 282-1780 (for personal income tax issues).
Or, you can always call us if you have any questions.
You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our website.
Rick Prewitt – the guy behind TTW
…until next week.
Insulate Your Children From Tax Issues | Tax Tip of the Week | No. 100 July 6, 2011
Posted by admin in : Tax Tip, Taxes, Taxes, Uncategorized , 2commentsTen Steps to Make Your Kid a Millionaire
This week we are going to paraphrase an excellent article that appeared in the June 27, 2011 issue of Forbes (author: William Baldwin).
The article outlines ten steps you can make which will make your children insulated from looming entitlement reductions and tax increases.
1. Don’t Overeducate: The master’s degree your son or daughter wants may be a bad investment.
2. Find a Cheap B.A.: In reality, graduates do well in life because of talent and ambition, not because of an expensive degree.
3. Fund a Roth: Tell your kids you will match every dollar they earn, provided that your dollars go into a Roth retirement account that they will not touch for 50 years.
4. Avoid Credit Card Debt: An average credit card balance of $8,000 at 15% interest rate will result in $60,000 finance charges over the lifetime of the debt.
5. Shop for a 529 Plan: Start saving for college expenses when your children are young.
6. Give Away Grandpa’s IRA: If, for example, your parent names you beneficiary of their IRA upon their death, you have the option to “disclaim” the inheritance. By so doing, you can then name the next generation as beneficiaries of the IRA and therefore extend the tax-deferred accumulation of earnings.
7. Start Them Young: Children should learn about budgets – and limits – at an early age.
8. Give Stock: This strategy works well for children over age 24 (due to Kiddie Tax rules). The idea is to give appreciated stock up to $13,000 to allow them to make a major purchase.
9. Put Your Kids In a House: The gift of a down payment on your kid’s first house can create a benefit of compounding over decades.
10. Hire Your Offspring: If you own a business, putting your children on payroll offers numerous tax saving opportunities.
To read the full article, click here.
Give us a call to discuss steps you can take based upon your situation and goals.
You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our website.
Rick Prewitt – the guy behind TTW
…until next week.
IRS Increases Mileage Rate | Tax Tip of the Week | No. 99 June 29, 2011
Posted by admin in : Tax Tip, Taxes, Taxes, Uncategorized , add a commentSpecial Tax Alert
Effective July 1, 2011, the IRS has made two significant tax law changes. The first is an increase in the mileage rate. The second is a reduction in the Federal Unemployment rate (FUTA). The IRS has announced an increase in the standard mileage rates for the final six months of 2011. Taxpayers may use the optional standard rates to calculate the deductible costs of operating an automobile for business and other purposes.
Mileage Rate Changes
The rate will increase to 55.5 cents a mile for all business miles driven from July 1, 2011, through Dec. 31, 2011. This is an increase of 4.5 cents from the 51 cent rate in effect for the first six months of 2011.
“This year’s increased gas prices are having a major impact on individual Americans. The IRS is adjusting the standard mileage rates to better reflect the recent increase in gas prices,” said IRS Commissioner Doug Shulman. “We are taking this step so the reimbursement rate will be fair to taxpayers.”
The new rate for computing deductible medical or moving expenses will also increase by 4.5 cents to 23.5 cents a mile, up from 19 cents for the first six months of 2011. The rate for providing services for charitable organizations will remain at 14 cents a mile.
Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.
As always, you need to maintain contemporaneous records to substantiate your deductions.
Reduction of the Federal Unemployment Rate
Congress has announced that the 0.2% FUTA surcharge will not be extended. The IRS will begin implementing this reduction of payroll taxes July 1, 2011.
Employers have been required to pay a flat rate of 6.2% on the first $7,000 of each employee’s annual wages for FUTA. The 6.2% FUTA rate included a temporary 0.2% surcharge that was first added in the 1970’s. Effective immediately, the rate will be reduced to 6.0%. Employers will still receive the 5.4% credit for paying state unemployment on time, reducing the FUTA rate to .6% on wages paid up to the annual FUTA limit of $7,000.00.
The IRS is currently revising Form 940 to accommodate the two different FUTA rates for calendar year 2011.
Let us know if you have any questions.
You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our website.
Rick Prewitt – the guy behind TTW
…until next week.
Divorce and the Tax Consequences of Payments | Tax Tip of the Week | No. 98 June 22, 2011
Posted by admin in : Tax Tip, Taxes, Taxes, Uncategorized , add a commentUnderstanding Applicable Tax Laws
Determining the tax consequences that can arise during a divorce or marital separation can be vital for the financial protection and well being of you and your family. That’s why it’s important to understand applicable tax laws before making any major decisions.
Often most confusing during the divorce process is determining whether a payment should be considered alimony or child support. Generally, alimony is the amount paid to a spouse for his or her living expenses, education, health or life insurance, property taxes, or mortgage payment. Alimony is not for providing child support. The person receiving alimony must pay taxes on the alimony in the year it is received, and the paying spouse may deduct the amount in the year it is paid, provided the alimony meets all of the following conditions:
• The payment is made in a cash form, which includes checks, bank deposits, etc. Payments in the form of such things as bonds, stocks, money market shares, or actual objects are not considered alimony for tax purposes.
• The payment is made as the result of a legal separation agreement or divorce decree.
• The spouses do not live in the same household at the time the payment is made.
• The divorce decree does not designate the payment as nontaxable to either party.
• There can be no liability for payments after the death of the receiving spouse.
Child support, unlike alimony, is not taxable to the spouse who received the payment, nor is it tax deductible by the spouse who makes the payment. A divorce decree may specifically call the payment “alimony,” but the payment may have the “characteristics” of child support. One characteristic of a child support payment might be the designation in the divorce document that the payment be terminated if the child’s situation changes.
Tax challenges during and following a divorce are common, but they can be minimized with some knowledge about tax laws and IRS procedures. Financial planning is an important part of the divorce process. This tax tip contains general tax information only. Each tax situation may be different, do not rely upon this information as your sole source of authority.
As always……give us a call BEFORE you do something-not after!
You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our website.
Rick Prewitt – the guy behind TTW
…until next week.
Preparing for Disasters | Tax Tip of the Week | No. 97 June 15, 2011
Posted by admin in : Tax Tip, Taxes, Taxes, Uncategorized , add a commentUpdate Your Emergency Plans
The IRS recently issued a press release targeted for those located in areas prone to hurricanes. While those of us in the Dayton area don’t normally need to worry about hurricanes, the disaster planning advice is still something each of us should consider.
Create a Backup Set of Records Electronically
Taxpayers should keep a set of backup records in a safe place. These backups should be stored away from the original set. Your backups should at least include: bank statements, brokerage statements, tax returns, insurance policies and any will and trust documents.
Many financial institutions offer access to these records via the internet, making your job easier. Any paper-only documents can be scanned and burned onto a CD or DVD.
Document Valuables
Another step to consider is to photograph or videotape the contents of your home, especially items of higher value. The IRS has a disaster loss workbook, Publication 584, which can help you compile a room-by-room inventory of belongings.
These photos or tapes should be stored with a friend or family member living outside your area.
Update Emergency Plans
Emergency plans should be reviewed annually. Both personal and business situations change over time as do preparedness needs.
Check on Fiduciary Bonds
Employers who use payroll service providers should ask the provider if it has a fiduciary bond in place. The bond could protect the employer in the event of default by the payroll service provider.
These are just a few steps to get you started. You now have something to do as we approach the hazy days of summer when it is too hot to do anything outdoors.
Let us know if you have any questions.
You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our website.
Rick Prewitt – the guy behind TTW
…until next week.
Change of Address | Tax Tip of the Week | No. 96 June 8, 2011
Posted by admin in : Tax Tip, Taxes, Taxes, Uncategorized , add a commentRemember to Change Your Address With the IRS
In our constantly mobile society, many of us change our address several times during our lifetime. While you may remember to file a change of address with the post office to forward your regular mail, you may not think about changing your mailing address with the IRS.
Why should you notify the IRS of an address change? The IRS has up to three years after a tax return has been filed (or is due) to notify a taxpayer of any discrepancy, tax due or failure to file. Any notices are sent to the address that the particular return was filed under. They then have seven additional years to collect . Even though you have not physically received the notice, you are still responsible for the payment or correcting any errors and you will be located for the payment.
If your address has changed, you need to notify the IRS to ensure you receive any IRS refund or correspondence. If you change your address before filing your return, simply update your address on the tax return. The update will occur when the IRS processes your return.
If you change your address after filing your return, you should notify the post office that services your old address. Because not all post offices forward government checks, notifying the post office that services your old address ensures that your mail will be forwarded, but not necessarily your refund check. To change your address with the IRS, you may complete a Form 8822 (PDF), Change of Address, and send it to the address shown on the form. You may download Form 8822 from the IRS website (www.irs.gov) or order it by calling 800–TAX–FORM (800–829–3676).
You may also write to inform the IRS of your address change. If you write, you will need your full name, old and new addresses, and your Social Security Number or Employer Identification Number and your signature. If you filed a joint return, you should provide the same information and signatures for both spouses. Send your written address change information to the campus where you filed your last return. The campus addresses are listed in the instructions to the tax forms.
If you filed a joint return and you and/or your spouse have since established separate residences, you both should notify the IRS of your new addresses.
As always, give us a call if you have any questions.
This week’s author is Linda Johannes, CPA
You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our website.
Rick Prewitt – the guy behind TTW
…until next week.
“Hummer Rules” Have Changed | Tax Tip of the Week | No. 95 June 1, 2011
Posted by admin in : Tax Tip, Taxes, Taxes, Uncategorized , add a comment
“Hummer Rules” Have Changed
New Bonus Depreciation Rules
New SUVs with a gross weight of over 6,000 pounds, placed in service in 2011, can now be a 100% write-off if used 100% for business.
This is due to the new bonus depreciation rules. (See TTW #79 for a closer look at depreciation options). Previously, SUVs were limited to a maximum first year deduction of $25,000. Several years ago this limitation was put into the tax code to prevent large deductions for such vehicles—many called it the “Hummer Rule”.
New pickup trucks with loaded weights over 6,000 can also use this rule. Depreciation rules for work related automobiles remain unchanged for 2011.
If you use a vehicle for business, be sure to closely document your mileage even if deducting actual expenses. A 100% business use argument is sometimes hard to substantiate in an audit. If you can’t prove 100% business use, you can still use the limited deduction as long as the business use exceeds 50% of the total yearly mileage.
Also, the SUV must be new—used vehicles do not qualify.
Give us a call if you want more details.
You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our website.
Rick Prewitt – the guy behind TTW
…until next week.
Eight Tips About Rental Income and Expenses | Tax Tip of the Week | No. 94 May 25, 2011
Posted by admin in : Tax Tip, Taxes, Taxes, Uncategorized , add a commentDo you Rent Property to Others?
If you rent property to others you’ll want to read the following eight tips about rental income and expenses.
You generally must include in your gross income all amounts you receive as rent. Rental income is any payment you receive for the use of or occupation of property. Expenses of renting property can be deducted from your gross rental income. You generally deduct your rental expenses in the year you pay them. Publication 527, Residential Rental Property, includes information on the expenses you can deduct if you rent property.
1. When to report income: You generally must report rental income on your tax return in the year that you actually receive it.
2. Advance rent: Advance rent is any amount you receive before the period that it covers. Include advance rent in your rental income in the year you receive it, regardless of the period covered.
3. Security deposits: Do not include a security deposit in your income when you receive it if you plan to return it to your tenant at the end of the lease. But if you keep part or all of the security deposit during any year because your tenant does not live up to the terms of the lease, include the amount you keep in your income in that year.
4. Property or services in lieu of rent: If you receive property or services, instead of money, as rent, include the fair market value of the property or services in your rental income. If the services are provided at an agreed upon or specified price, that price is the fair market value, unless there is evidence to the contrary.
5. Expenses paid by tenant: If your tenant pays any of your expenses, the payments are rental income. You must include them in your income. You can deduct the expenses if they are deductible rental expenses. See Rental Expenses in Publication 527, for more information.
6. Rental expenses: Generally, the expenses of renting your property, such as maintenance, insurance, taxes, and interest, can be deducted from your rental income.
7. Personal use of vacation home: If you have any personal use of a vacation home, or other dwelling unit that you rent out, you must divide your expenses between rental use and personal use. If your expenses for rental use are more than your rental income, you may not be able to deduct all of the rental expenses.
8. Depreciation: Properly depreciate the rental and all improvements. When you initially offer a property as a rental you need to separate the land value from the home value because land never depreciates. A residential property would then be depreciated over 27.5 years. A commercial property is depreciated over 39 years. Any subsequent improvements that have a useful life of more than one year need be depreciated over their useful lives. New carpet, for example, has a useful life of five years.
Rental income and expenses are typically reported on Form 1040-Schedule E.
As always, we suggest you give us a call before going into the rental business—-not after!
You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our website.
Rick Prewitt – the guy behind TTW
…until next week.
