C19 UPDATE: Tax Filing Deadline Extended to July 15

There has been some confusion about the tax filing / tax payment deadline extensions. On Friday, March 20 we got clarity that both the filing and the payment deadlines have been extended from April 15 to July 15 giving all taxpayers and businesses additional time to file and make payments without interest or penalties.

If you are expecting a refund, however, the Treasury Department encourages you go ahead and file as soon as possible – the sooner you file, the sooner you will get your refund.

Resource: Tax filing deadline moved to July 15, the latest measure to battle coronavirus downturn, The Washington Post, March 30, 2020

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What Taxes are Due if I Gift My Home to my Grandchild?
Two boys with grandmother playing game at home, Happy kids playing with senior woman at home. Family relationship with grandma and grandkids.

What Taxes are Due if I Gift My Home to my Grandchild?

It’s not unusual for a senior to consider gifting her home to a married daughter or to a grandchild. There are certainly tax consequences to consider.

nj.com’s recent article on this subject asks “What should I know about taxes before I gift my home?” The article explains that you can gift your home or any other asset to anyone, provided that person is capable of receiving the gift and takes delivery or ownership of it. However, if the grandchild is a minor, the gift would have to be made either in trust with a trustee or through a Uniform Transfers to Minors Act (UTMA) account that has a custodian, until he or she attains the age of majority.

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Small Business Saturday – 6 Key Considerations for Passing Down a Family Business

You have spent years building your small business, but have you taken time to consider what will happen to it when you retire, become disabled, or pass away? Although it is often hard to fathom an event that may not occur for many years, it is important to put plans in place in advance. The failure to do so could result in the eventual loss of the business. There are several factors you should keep in mind in making plans for the future of your small business.

  1. Identify a successor(s). Many small business owners plan to transfer their business to a child or children, or sometimes, grandchildren eventually. If you have more than one child, it is important to consider which of them has an interest in stepping into your shoes, as well as whether that child has the skills needed to do so successfully. It is important not to assume that just because one child is the oldest, control of the business will go to that child. The continued success of the company requires that the member(s) of the next generation who will take over the reins have the business acumen and commitment needed to run it.
  2. Consider having the next generation participate in the business before transferring ownership and management duties. For the continued success of the business, your successor(s) should be trained to run the business before your departure. This training can be accomplished over several years, after which you can start the process of transferring management and ownership of the business. Many business owners transfer management control of the business to the next generation first, while staying involved to a limited extent as an advisor, and then, shifting ownership.
  3. Decide whether to transfer the business by a gift or a sale. Although each family must make its own decision about how the transfer should occur, many business succession professionals recommend that the next generation have an economic stake in the success of the business by purchasing at least part of their ownership interest. If your successor does not have the funds to pay a lump sum for the business, the sale can occur as a buyout that happens over the next several years. Alternatively, the next generation can work for the company at a reduced salary to earn their ownership interest in the business. There are several ways the transfer can take place. As business law attorneys, we can help you decide which option is the best one for your particular circumstances.
  4. If more than one child is well-suited to run the business, put a business structure in place that enable the smooth transition to multiple successors with minimal conflict. This transition can be accomplished by incorporating provisions facilitating a smooth transfer into your partnership agreement or LLC operating agreement, for example. If one or more children are not interested in participating in the ownership of the business, consider providing an inheritance for them from other assets or making them the beneficiary of a life insurance policy.
  5. Think about your own needs for your retirement. If you will need a continuous stream of income, consider continuing to play a limited ongoing role in the company for which you receive a salary. Another option is to require the next generation to purchase the business, providing funds for your retirement needs in that way.
  6. Plan with an eye toward minimizing your tax liability. For example, one option is to transfer the business gradually by making gifts of shares in the business each year that are equivalent to the amount of the annual exclusion (currently, $15,000). We can help you accomplish the transfer of your business in a way that minimizes your income, gift, and estate tax liability.

Conclusion

You have invested a lot in making your business a success, and it is hard to think about relinquishing ownership or control of it. Nevertheless, planning is critical in creating a lasting legacy for your family. We can help you put a plan in place that helps you successfully pass your business on to the next generation and ensures that you have a financially secure retirement. Call us (228) 460-5243 or email us at info@perklawgroup.com to find our how your business planning attorney can help you.

Legal disclaimer: The information in this article is provided for information purposes only and should not be construed as legal advice. Your should not act or refrain from acting on the basis of any content included in this article or on our website (www.perklawgroup.com) without seeking legal or professional advice.

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How Do Trusts Work in Your Estate Plan?

A trust can be a useful tool for passing on assets, allowing them to be held by a responsible trustee for beneficiaries. However, determining which type of trust is best for each family’s situation and setting them up so they work with an estate plan, can be complex. You’ll do better with the help of an estate planning attorney, says The Street in the article “How to Set Up a Trust Fund: What You Need to Know.”

Depending upon the assets, a trust can help avoid estate taxes that might make the transfer financially difficult for those receiving the assets. The amount of control that is available with a trust, is another reason why they are a popular estate planning tool.

First, make sure that you have enough assets to make using a trust productive. There are some tax complexities that arise with the use of trusts. Unless there is a fair amount of money involved, it may not be worth the expense. Once you’ve made that decision, it’s time to consider what type of trust is needed.

Revocable Trusts are trusts that can be changed. If you believe that you will live for a long time, you may want to use a revocable trust, so you can make changes to it, if necessary. Because of its flexibility, you can change beneficiaries, terminate the trust, or leave it as is. You have options. Once you die, the revocable trust becomes irrevocable and distributions and assets shift to the beneficiaries.

A revocable trust avoids probate for the trust, but will be counted as part of your “estate” for estate tax purposes. They are includable in your estate, because you maintain control over them during your lifetime.

They are used to help manage assets as you age, or help you maintain control of assets, if you don’t believe the trustees are not ready to manage the funds.

Irrevocable Trusts cannot be changed once they have been implemented. If estate taxes are a concern, it’s likely you’ll consider this type of trust. The assets are given to the trust, thus removing them from your taxable estate.

Deciding whether to use an irrevocable trust is not always easy. You’ll need to be comfortable with giving up complete control of assets.

These are just two of many different types of trusts. There are trusts set up for distributions to pay college expenses, Special Needs Trusts for disabled individuals, charitable trusts for philanthropic purposes and more. Your estate planning attorney will be able to identify what trusts are most appropriate for your situation.

Here’s how to prepare for your meeting with an estate planning attorney:

List all of your assets. List everything you might want to place in a trust: including accounts, investments and real estate.

List beneficiaries. Include primary and secondary beneficiaries.

Map out the specifics. Who do you want to receive the assets? How much do you want to leave them? You should be as detailed as possible.

Choose a trustee. You’ll need to name someone you trust implicitly, who understands your financial situation and who will be able to stand up to any beneficiaries who might not like how you’ve structured your trust. It can be a professional, if there are no family members or friends who can handle this task.

Don’t forget to fund the trust. This last step is very important. The trust document does no good, if the trusts are not funded. You may do better letting your estate planning attorney handle this task, so that accounts are properly titled with assets and the trusts are properly registered with the IRS.

Creating a trust fund can be a complex task. However, with the help of an experienced estate planning attorney, this strategy can yield a lifetime of benefits for you and your loved ones.

Call us (228) 460-5243 or email us at info@perklawgroup.com to find our how your estate planning attorney can help you.

Legal disclaimer: The information in this article is provided for information purposes only and should not be construed as legal advice. Your should not act or refrain from acting on the basis of any content included in this article or on our website (www.perklawgroup.com) without seeking legal or professional advice.

Reference: The Street (July 22, 2019) “How to Set Up a Trust Fund: What You Need to Know”

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Small Business Saturday – Can Your Small Business Write Off Bad Debts

Despite your best efforts to work only with customers or clients you believe will pay for the goods or services your business provides and to diligently collect delinquent amounts owed, you will almost inevitably have to deal with bad debts on occasion. In some circumstances, the IRS allows you to take a bad debt deduction.

What Is Considered a Business Bad Debt?

According to the IRS, a business bad debt is considered a loss incurred from the worthlessness of a debt that was created or acquired in a trade or business or was “closely related” to your trade or business when it became partly or completely worthless. If your primary motive for incurring the debt was related to the business, the IRS will consider the debt to be closely related to the business.

The IRS provides the following examples of bad business debts: (1) loans to clients, suppliers, distributors, and employees, (2) credit sales to customers, or (3) business loan guarantees. For small businesses, the most common bad debt arises from credit sales to customers.

If the circumstances indicate that your business has no reasonable expectation that the debt will be repaid, it will be considered worthless. Depending upon the relevant facts, this could be on the date the debt is due or even prior to that date.

You must be able to demonstrate that you have made a reasonable effort to collect what is owed to your business prior to being eligible for the deduction. What is considered “reasonable” will vary depending upon the type of business in which you are engaged. It is unnecessary to sue the customer if you can show that a judgment would be uncollectible. For example, if the customer has filed for bankruptcy, this is sufficient to demonstrate that your debt is uncollectible and therefore worthless (assuming it is an unsecured debt).

Your Accounting Method Matters

If your small business uses the cash method of accounting, which is often preferred because it is less complicated than the accrual method, you report income during the year it is actually received. Because you have not reported amounts you merely expect to receive, but only those you have actually received, you cannot receive a tax deduction based on a bad business debt. Only businesses that use the accrual method of accounting—which reports income in the year earned despite not having been received—have the right to claim a deduction based upon a bad debt. This is because under the accrual method, a business never actually received the income reported to the IRS as a result of the customer’s failure to pay for the goods or services provided by the business. This does not provide an unfair advantage to businesses using the accrual method. Rather, it simply ensures that those businesses are not paying taxes on income reported but never actually received.

Note: The deduction is available only in the year the debt becomes worthless.

Contact Us Today

If your small business has suffered losses because of bad debts, and you are wondering if you may be entitled to write them off, we can help you navigate the applicable tax rules to minimize your tax liability, as well as provide guidance about steps you can take to avoid losses from bad debts. Please give us a call to set up a meeting.

Call us (228) 460-5243 or email us at info@perklawgroup.com to find our how your estate planning attorney can help you.

Legal disclaimer: The information in this article is provided for information purposes only and should not be construed as legal advice. Your should not act or refrain from acting on the basis of any content included in this article or on our website (www.perklawgroup.com) without seeking legal or professional advice.

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Why We All Need to Have an Estate Plan

Putting off estate planning is never a good idea. Life happens, and before you know it, “someday” arrives. Having an estate plan is advisable for everyone, says the South Florida Reporter in the article “Why Estate Planning is so Important.” It doesn’t matter if you are rich or poor—you need an estate plan. People with families who depend upon them, as well as singles who don’t, need an estate plan.

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What Do I Tell My Kids About Their Inheritance?

For some parents, it can be difficult to discuss family wealth with their children. You may worry that when your kid learns they’re going to inherit a chunk of money, they’ll drop out of college and devote all their time to their tan.

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Not a Little Black Book, but a Big Blue Binder
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Not a Little Black Book, but a Big Blue Binder

Life happens, when we’re not prepared. A woman is recovering at home from minor surgery when her older sister dies unexpectedly, thousands of miles away. She can’t fly from her home to her sister’s home for weeks. What will happen, asks Considerable in the article “This is the most helpful thing you can do for the people who love you” ? If you’re not prepared, the result is a mess for those you love.

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Estate Planning Hacks Create More Problems
Two Businesspeople Discussing About Solving Maze Over Wooden Desk In Office

Estate Planning Hacks Create More Problems

The estate planning attorney in this gentleman’s neighborhood isn’t worried about this rancher’s plan to avoid the “courtroom mumbo jumbo.” It’s not the first time someone thought they could make a short-cut work, and it won’t be the last. However, as described in the article “Estate planning workaround idea needs work” from My San Antonio, the problems this rancher will create for himself, his wife, and his children, will easily eclipse any savings in time or fees he thinks he may have avoided.

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Don’t Make These Estate Planning Basic Mistakes

Yes, death is the ultimate grim topic. However, it is an important one to discuss with your loved ones and your estate planning attorney. If you don’t have an estate plan in place, and one that is done correctly, you may doom your family to spending years and more money than you’d want on court proceedings and legal fees to settle your estate. You can prevent all this, by creating an estate plan with a qualified estate planning attorney. It is really that simple, says The San Diego Union-Tribune in the article “6 estate-planning mistakes to avoid.”

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