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Category Archives: Taxes

What is capital gains tax?

Written on February 22, 2013 by Cooper, Adel & Associates in Taxes

Capital gains tax and its impact on real estate is one of the most widely-misunderstood nuances of modern tax law. Perhaps the most important concept related to capital gains tax is known as "tax basis" or "cost basis." This is the value of the property at the time you acquired it, usually the purchase price. This number becomes locked at that date and will not adjust as the property value appreciates over time.

If you plan to give property to your children or leave it to them when you pass away, the way in which these transactions are handled can result in major tax consequences for your children decades in the future. It is important to understand how estate planning strategies will affect your tax basis and discuss the options with a professional before embarking on a plan.

DISCLAIMER – Every case is different because every case is different. This blog does not give legal advice. This blog does not create an attorney client relationship. You are not permitted to rely on anything in this blog for any reason. This blog is an entirely personal endeavor. Every person's situation is different and requires an attorney to review the situation personally with you. No attorney-client relationship is created by this site. The use of the Internet, this blog or email for communication with this firm or any individual member of this firm does not establish an attorney-client relationship. Before we represent any client, the client and the attorney will sign a written retainer agreement. If you do not have a written, signed retainer agreement with us, we are not representing you and will not be taking any action on your behalf.

Estate Taxes, the Fiscal Cliff and the New Year

Written on January 17, 2013 by Cooper, Adel & Associates in Planning, Taxes

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By Attorney Ted Brown

Amid all the fanfare of Congress acting in the eleventh hour to stop a major income tax increase, many Americans have been left wondering what the Fiscal Cliff and the “deal” to avert it now means for their estates. The fear looming over the latter part of 2012 was that the Federal Gift and Estate tax limit would drop to $1 million.

As part of the Fiscal Cliff compromise, Congress agreed to extend the $5.12 million estate and gift tax exemption. They also added a provision that will allow the exemption amount to be adjusted for inflation each year. The tax rate for lifetime gifts or estates in excess of this amount is set at 40%.

Using inflation estimates for 2013, the current Federal estate and gift tax exemption is $5.25 million. This means that, just like last year, someone can either gift or pass away with up to that amount without owing gift or estate tax. More importantly, it means that someone who gifted the maximum last year ($5.12 million) now has an extra $130,000 unused exemption amount.

Congress agreed to make this extension “permanent,” meaning that no expiration date (or “cliff”) was included as part of the legislation this time. This does not mean that Congress cannot or will not change the limit downward at some point in the future. Essentially, it is permanent until Congress decides to change it.

The new year also brought a major change to the Ohio Estate Tax. Effective, January 1, 2013 the Ohio Estate Tax was officially repealed. This means that no Ohio Estate Tax filing is necessary for dates of death occurring on or after January 1, 2013. However, the tax will still apply to dates of death on or before December 31, 2012.

If a loved one passed away in 2012 and you would like to discuss the impact of the Ohio or Federal Estate Tax, please call our office.

The use of the Internet, this blog or email for communication with this firm or any individual member of this firm does not establish an attorney-client relationship. Before we represent any client, the client and the attorney will sign a written retainer agreement.
If you do not have a written, signed retainer agreement with us, we are not representing you and will not be taking any action on your behalf.

Ohio’s Fracking Tax May be Changing

Written on November 9, 2012 by Cooper, Adel & Associates in Taxes

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By Attorney Ted Brown

With the recent boom of oil and natural gas production in Ohio, it should be no surprise that the government is looking for its share of the action.

With the use of a new technique called hydraulic fracturing, or “fracking,” and new methods of horizontal drilling, oil companies have been able to reach previously unreachable pockets of oil and gas. For farmers and landowners alike this has created a new source of revenue in both lease income and higher per-acre value.

However, with higher income means higher taxes. Governor Kasich recently unveiled a plan to relieve the tax burden on farmers and pass it on to the oil companies. The Governor's plan calls for the increase in what is known as the “fracking tax,” or tax on the amount of oil or gas recovered from Ohio lands. This tax is paid by the driller, not the land owner, and would amount to between 1.5% to 4 % of the gross income the oil company generates from the sale of “liquids” extracted in Ohio.

In conjunction with this increase, Kasich will cut income taxes by around 5%, thereby allowing the average landowner to keep more of the lease income they receive.

The plan awaits the endorsement of the Ohio Farm Bureau Federation which is seeking additional information on the impact the plan will have on oil companies before giving its support. The fear is that the companies will merely pass the additional tax burden onto the consumer through higher prices or the landowner through lower lease rates.

Preplanning Can Reduce Estate Tax Liability for Heirs

Written on October 19, 2012 by Cooper, Adel & Associates in Taxes

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by Attorney Ted Brown

In 2007, an heiress passed away leaving an estate of just over 20 million dollars. The bulk of the estate was her shares of stock in the family hotel business. Facing an exorbitant estate tax bill, the family entered into a payment plan with the IRS to pay the tax over a period of years.

However, when the hotel went out of business a few years later the estate became insolvent and couldn't keep up with the payments. The IRS then promptly contacted the beneficiaries of the estate demanding payment. After several years of litigation, the IRS prevailed on its claim and collected the remaining tax from the children.

Unfortunately, this situation could have been prevented with the help of a special irrevocable trust. If you are holding onto a family business interest, the last thing you want is for that business to be sold to pay the tax expenses of your estate. However, that usually means giving up control of that business sooner than you would like. An irrevocable trust can be used in this situation to accomplish what Elder Law Attorneys call “controlled gifting.”

Controlled gifting allows an individual to reduce the size of their estate by gifting assets to a trust but stipulating that those assets cannot be distributed until after the owner's death. This is an advanced estate planning technique that can be used to save significant money in estate taxes and preserve hard-earned assets for the next generation. If you would like to discuss the appropriateness of this approach for your situation, call our offices for a free consultation.

IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this communication (or in any attachment) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this communication (or in any attachment).

Wait and See, Can Turn Into Wait and Pay

Written on October 15, 2012 by Cooper, Adel & Associates in Taxes

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By Dan Vu

In these last few months of 2012, Congress and the President are expected to come to an agreement on the future of the Federal Estate Tax in order to avoid the estate tax exemption reverting from a 5 million dollar exemption to a 1 million dollar exemption with a highest tax bracket set at 55%. Maybe the Republicans in Congress will compromise with President Obama and set the exemption at 3.5 million. Maybe they will get the President to agree to extend the 5 million exemption for another year. There is a wide array of opinions on what the agreement might look like. Because of this uncertainty, many of those with larger estates will simply choose to wait and see what happens. But what if an agreement is not reached? With the Presidential election being the only focus until November and with both parties taking firm partisan stances on taxes, it is not hard to imagine that an agreement will not be made before 2013. The effect would be that those with large estates who made the decision to wait will have lost their opportunity to make substantial gifts under the current 5 million exemption, an exemption level that is historically the highest this nation has ever seen and may never see again. This is why many Estate Planning Attorney's are advising their clients to make use of the 5 million exemption NOW and why 2012 has been dubbed the “greatest wealth transfer in our nation's history.” Of course this window to act is closing fast as the IRS rules require the transfer be completed before the end of the year in order to use this years exemption.

So my advice, if your estate as a single person is greater than 1 million dollars or for couples, more than 2 million dollars, go see a qualified Estate Planning Attorney to see if it makes sense for you to make use of the closing 5 million exemption. Also, do not under value your estate. Remember to include ALL property, real and personal, and what most people forget, also include the death benefit of your life insurance policies.

Estate Tax Liability

Written on August 15, 2012 by Cooper, Adel & Associates in Planning, Taxes

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By Attorney Keith Stevens

When Anna Smith died, she had an estate worth between $11 and $16 million, depending on who you asked. In May on 2012, twenty-one years after her death, a federal court held that the administrator of her trust and some of her beneficiaries are personally liable for the estate's outstanding taxes. What happened?

Once the dust settled after her death, most of Ms. Smith's assets were distributed to her trust and the IRS assessed her estate a tax bill of $6.8 million. The trustee (the person who administered the trust after her death) opted to pay the tax over a period of 10 years and began to make annual payments while distributing much of the trust property to the beneficiaries of the trust.

The problem came from the fact that the tax would be paid out of stock in State Line Hotels, which was worth more than $10 million when Ms. Smith passed away. In the early 2000s, State Line went bankrupt and the stock became worthless with $1.8 million in taxes still outstanding. The IRS sued everyone involved and after years of litigation the court found that certain parties—the trustee and the beneficiaries of Ms. Smith's life insurance policy—would have to pay back the shortfall themselves.

While most people do not have an estate the size of Ms. Smith's, if you are dealing with an estate tax obligation some of the lessons from her case are pertinent to you. You need to have patience and understand that a premature distribution can be harmful for the beneficiaries and the administrators. It also shows the importance of tax planning to try to lessen the burden on your successors.

For help navigating the maze of federal and state estate tax laws, either to plan ahead of time or to manage after death, contact an estate planning attorney at Cooper Adel & Associates, a Legal Professional Association.

Source: http://scholar.google.com/scholar_case?case=17532646241738940908&hl=en&lr=lang_en&as_sdt=2,39&as_vis=1&oi=scholaralrt

Seven Retirement Mistakes to Avoid

Written on August 10, 2012 by Cooper, Adel & Associates in Investments, Planning, Taxes

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By Melissa Reynard

According to Time.com, there are seven large mistakes you can make when planning for your retirement. These can be as simple as not planning correctly or as complicated as navigating your IRA's and other financial plans. And those seven are:

1. Assuming you have control over when you quit

You can't guarantee the age you're going to retire. There could be job loss, illness and other anomalies that make your retirement age sooner than what you thought.

2. Ignoring the Tax Impact of Distributions

You can have several types of retirement accounts. And with these accounts you should avoid taking early distributions. Cashing out when you switch jobs is rarely a good idea either.

3. Not Saving Enough for Medical Costs

It's hard to say what is going to happen in the future. From medications to doctor's bills, you may not be planning for many health issues. Having insurance will help, as will planning for a few unexpected emergencies.

4. Failing to Lock Up Lifetime Income

Sometimes pensions go away. Make sure you have a reliable income stream so that you can cover your fixed expenses for life.

5. Retiring Too Soon

Staying on the job just a few more years can help increase your retirement income. In fact, delaying Social Security benefits can increase your income about 8% for every year you wait.

6. Underestimating Longevity

You may live longer than you think. While most people would like to live a long healthy life, the usual thought is that they won't live as long as their grandparents. This isn't always true, make sure you plan for living far longer than you though, you could make it to a 100 and beyond!

7. Drawing Down Retirement Savings Too Rapidly

You don't want to live longer than your money lasts. Try to draw down no more than 4% of your assets a year. You have to make it last as long as you do.

Source:http://moneyland.time.com/2012/04/17/the-7-biggest-retirement-planning-mistakes/

Is my inheritance taxable as income?

Written on May 31, 2012 by Cooper, Adel & Associates in Taxes

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Attorney Ted Brown

As a probate and estate administration attorney at Cooper, Adel & Associates, I frequently deal with family members who have recently received, or about to receive, an inheritance from a relative. The prevailing question on everyone's mind is whether they need to report this inheritance on their taxes. The short answer is “no.” Under Section 61 of the Internal Revenue Code, an inheritance is not considered “income” and is therefore not taxable as such.

Generally, an inheritance is taxed as part of the State or Federal Estate Tax, which is typically calculated and paid before beneficiaries receive distributions. The Estate Tax is commonly known as the “death tax” or “inheritance tax.” Since the estate is taxed before the beneficiaries receive their share, anything going to them is not taxable.

However, as with any IRS rule, there are exceptions. The two biggest are tax-qualified retirement plans and the sale of inherited real estate. Distributions taken from tax-qualified plans (such as a traditional IRA or 401K) passed to a beneficiary are taxable as income to the beneficiary in the year they are taken. When real estate that was inherited is sold, the beneficiary will owe capital gains tax on the sale (unless it has been their primary residence for 2 of the last 5 years).

The other thing to keep in mind is that even though you may not have to report your inheritance on your income taxes, it may still be subject to the unpaid debts, claims and taxes of the decedent. This is why it is important for the Executor or Successor Trustee to make sure that all debts and expenses are paid before distributions are made.

Death and Taxes – An annual spring ritual reminds us to plan ahead to avoid costly end-of-life taxes

Written on May 2, 2012 by Cooper, Adel & Associates in In The News, Planning, Taxes

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Every year as tax time approaches, we dig for receipts, organize our bills and try to get the most out of our tax returns.While these items are important, many seniors

don’t take as much time to think about the looming tax issues down the road: estate taxes, gift taxes and the tax impact of healthcare costs. Families benefit when all of their tax issues are part of the same discussion and when multiple genera- tions work together with experts to find the best strategy. The good news is, like many of the more familiar annual taxes we pay, end-of-life taxes can be avoided or minimized with the right planning. Here are some of the areas seniors should be aware of, which affect both types of taxes.

Estate Taxes

The estate tax, often called the death tax, can be a significant burden for families that don’t plan ahead, and changes at the federal and state level make planning even more critical. At the end of 2012, the Ohio estate tax is currently set to expire and the federal threshold for estate tax eligibility is scheduled to drop from estates worth more than $5 million down to $1 million. Assuming these changes occur as planned, lowering the threshold will impact signifi- cantly more families. For now, the Ohio estate tax applies to those estates valued at $338,333 and up, and is assessed by calculating approximately 7% of property/asset value. The maximum federal estate tax is currently set at 35% of property/asset value.

Tips to reduce your family’s exposure/obligation:

• Stay informed—the Ohio estate tax, while currently set to expire, might ultimately make a comeback as its revenues contribute significantly to municipal budgets. Further, Congress may move the federal threshold for 2013 back closer to $5 million before year’s end;

• Minimize your federal estate tax obligation by gifting up to $5 million to family members between now and the end of 2012 (see details in the next section);

• Create a trust to manage the distribution of assets and maximize tax exemptions; and

• Ensure that your heirs have the ability to pay within nine months of death or they may incur significant penalties.

Gift Taxes

Gift tax is the federal tax assessed on the value of property gifted from one person to another (excluding your spouse) above the annual exclusion. There is a widespread perception that there is an upper limit (commonly thought to be $10,000) on how much you can give annually as a gift without incur- ring federal gift tax. The reality is more complex, but more for- giving: currently, you are not obligated to pay a gift tax unless the sum of all of your lifetime gifts totals more than $5 million, but next year it will go down to $1 million.

The annual exclusion amount, below which there is no need to file a tax form, is currently $13,000 per person per year. This means that, in effect, you can give up to $13,000 annually to as many people as you wish without any tax-related paperwork.

Tips to reduce your exposure/obligation:

• In the State of Ohio, any gifts made three years prior to death are pulled back into the estate so that any applicable estate tax must still be paid on those gifts. After those three years are up, the tax no longer applies;

• Exercise caution if you plan to apply for government benefits in a nursing home situation as gifts can potentially disqualify you from receiving government-sponsored nursing home benefits; and

• Whenever making gifts to others including family mem- bers, make sure that you are very conscious of the effects
of placing your assets into someone else’s name. Remember, when doing so you lose control and subject the assets to their potential liabilities.

Medical Expenses/In-Home Healthcare

If you have significant medical expenses, including those related to specialized in-home medical care, make sure that they are deducted from your annual income taxes. There are also ways to protect your family from bearing the long-term cost of this care, or having it eat into your estate:

Tips to reduce your exposure/obligation:

• Remember that you can deduct medical expenses– allowable expenses must exceed 7.5 percent of adjusted gross income before any benefit kicks in;

• Deductions go well beyond medications and insurance bills; items such as specialized medical equipment like wheel- chairs, dentures, premiums for long-term care insurance and many other items;

• Proceed carefully when hiring in-home healthcare assistance: direct hires (as opposed to employees contracted through a home healthcare specialist or similar agency)
may incur additional tax reporting and payment obligations through the employer (i.e. you or your family); and

• Check with your CPA to determine the specific medical deductions that apply to your situation.

The bottom line is that the best strategy to reduce your end-of-life taxes is to plan ahead to ensure that your financial and legal strategies are working in concert thereby reducing your exposure.While the tips above are a great way to
help you get started, it is always a good idea to consult
an experienced and trusted attorney who dedicates their practice to elder law to ensure that you are doing everything possible under the law to make certain that your tax burden is minimized, your assets are preserved and your family
is protected.

How the Uncertainty of Death and Gift Taxes May Affect You

Written on April 16, 2012 by Cooper, Adel & Associates in Taxes

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By Attorney Thom L. Cooper

When you think about April, tax season probably comes to mind. While the accounting world is thinking about April 15th and income taxes, the legislative changes and uncertainty surrounding the Federal Estate and Gift Tax are a greater worry for many of our clients. In a recent USA Today article, Sandra Block wrote a story about several taxes that are scheduled to change in the upcoming months and those who are most affected including an interview with our own Mitch Adel, Managing Partner of Cooper, Adel and Associates, to discuss tax uncertainty and how it affects seniors.

The Federal estate tax threshold is currently set to decrease from $5 million to $1 million on January 1, 2013. This decrease will dramatically affect families with highly appreciating real estate and/or securities. The amount of the lifetime Federal gift tax exemption will likely change next year as well. For the past two years, individuals in the know took advantage of a provision that allowed them to gift up to $5 million during their lifetime, in addition to their $13,000 per person annual exclusion. With gift and estate tax likely to change, you may wonder what you should do with your assets. Although there are a few proposed bills that lower the estate tax threshold to $3.5 million and one could argue that the Federal estate tax will not be a problem for most, should you take that chance? Is it wise to ignore the large gift tax exemption this year and risk that it may not drop to $1 million next year?

If you are considering gifting, even if you are not worried about the taxes, there are still some issues to consider. When you gift assets, you lose control and subject the gifted asset to the liabilities of the recipient. That asset may be at risk if the recipient is sued for divorce, is involved in a lawsuit or files bankruptcy. That asset may also become part of a spend down if the recipient or their spouse ends up in nursing home. Further, what if the recipient pre-deceases you and the assets transfer to your recipient’s heirs by way of the recipient’s estate plan?

These uncertainties make it imperative that you consider working with an experienced and trusted advisor to discuss your estate planning strategies to assure that all of the potential issues into account. We are already through the first quarter of the year. Timing is becoming more and more of an issue. Please call our office immediately and take advantage of a free one-hour consultation.

http://www.usatoday.com/money/perfi/taxes/story/2012-03-22/impact-of-tax-uncertainty-businesses-taxpayers/53708328/1