Tag Estate Tax

New Portability Election for Surviving Spouses

0 comments By TRMoore Filed in Tax Tagged with September 30th, 2011 @ 4:44 pm

The Internal Revenue Service (IRS) is reminding estates of married individuals dying after 2010 that they must file an estate tax return to pass along their unused estate and gift tax exclusion amount to their surviving spouse.

Available for the first time this year, the new portability election allows estates of married taxpayers to pass along the unused part of their exclusion amount, normally $5 million in 2011, to their surviving spouse. Enacted last December, this provision eliminates the need for spouses to retitle property and create trusts solely to take full advantage of each spouse’s exclusion amount.

The IRS expects that most estates of people who are married will want to make the portability election, including people who are not required to file an estate tax return for some other reason. The only way to make the election is by properly and timely filing an estate tax return on Form 706. There are no special boxes to check or statements needed to make the election.

The first estate tax returns for estates eligible to make the portability election (because the date of death is after Dec. 31, 2010) are due as early as Monday, Oct. 3, 2011. This is because the estate tax return is due nine months after the date of death. Estates unable to meet this deadline can request an automatic six-month filing extension by filing Form 4768. The IRS emphasized that estates of those who died before 2011 are not eligible to make this election.

For more information, contact us.

2010 Estate Relief: IRS Extends Form 8939 Deadline

0 comments By TRMoore Filed in General, Tax Tagged with , , September 13th, 2011 @ 4:53 pm

The Internal Revenue Service announced today that large estates of people who died in 2010 will have until early next year to file various required returns and pay any estate taxes due. In addition, the IRS is providing penalty relief to certain beneficiaries of these estates on their 2010 federal income tax returns.

This relief is designed to give large estates, normally those exceeding $5 million, more time to comply with key tax law changes enacted late last year, and includes:

  • Large estates, opting out of the estate tax, now will have until Tuesday, Jan. 17, 2012, to file Form 8939. This special carryover basis form, required of estates making this choice, was previously due on Nov. 15, 2011. Because this is a change in the specified due date rather than an extension, no statement or form needs to be filed with the IRS to have this new due date apply.
  • 2010 estates that request an extension on Form 4768 will have until March 2012 to file their estate tax returns and pay any estate tax due. Normally, a six-month filing extension is automatically granted to estates filing this form, but extensions of time to pay are granted only for good cause. As a result, most 2010 estates that timely file Form 4768 will have until Monday, March 19, 2012, to file Form 706 or Form 706-NA. For estates of those dying late in 2010 (after Dec. 16, 2010, and before Jan. 1, 2011), the due date is 15 months after the date of death. No late-filing or late-payment penalties will be due, though interest still will be charged on any estate tax paid after the original due date.
  • Special penalty relief is provided to many individuals, estates and trusts that already filed a 2010 federal income tax return, or obtained an extension and plan to file by the Oct. 17, 2011, extended due date. Late-payment and negligence penalty relief applies to persons inheriting property from a decedent dying in 2010, who then sells the property in 2010 but improperly reports gain or loss because they did not know whether the estate made the carryover basis election.

Revised versions of the estate tax forms are now available on IRS.gov, and the carryover basis form will be released this fall.

For assistance with estate tax issues, contact us.

It’s a Great Time for Gifting – 8 Tax Facts to Consider

0 comments By TRMoore Filed in General, Tax Tagged with , , , May 17th, 2011 @ 9:52 am

With a still-sluggish economy and the depressed real estate values that remain, it’s an excellent time to consider a valuation on a closely held business interest for gifting to heirs and other family members. The two-year window under the current tax law that allows both gifting and generation-skipping transfer exemption limits up to $5 million, an opportunity for additional wealth transfer that hasn’t existed under previous tax laws. The IRS offers eight facts about tax on gifts:

  1. The gift tax applies when the value of the gifts you give a person other than your spouse exceeds the annual exclusion for the year. For 2010 and 2011, the annual exclusion is $13,000.
  2. Gift tax returns must be filed if you give someone, other than your spouse, money or property worth more than the annual exclusion for that year.
  3. Generally, the person who receives your gift will not have to pay any federal gift tax because of it. Also, that person will not have to pay income tax on the value of the gift received.
  4. Making a gift does not ordinarily affect your federal income tax. You cannot deduct the value of gifts you make (other than gifts that are deductible charitable contributions).
  5. The general rule is that any gift is a taxable gift. However, there are many exceptions, including:
    • Gifts that are not more than the annual exclusion for the calendar yea
    • Tuition or medical expenses you pay directly to a medical or educational institution for someon
    • Gifts to your spouse
    • Gifts to a political organization for its use
    • Gifts to charities
  6. You and your spouse can make a gift up to $26,000 to a third party without making a taxable gift. The gift can be considered as made one-half by you and one-half by your spouse. If you split a gift, you must file a gift tax return to show that you and your spouse agree to use gift splitting. You must file a Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, even if half of the split gift is less than the annual exclusion.
  7. You must file a gift tax return on Form 709, if any of the following apply:
    • You gave gifts to at least one person (other than your spouse) that are more than the annual exclusion for the yea
    • You and your spouse are splitting a gift
    • You gave someone (other than your spouse) a gift of a future interest that he or she cannot actually possess, enjoy or receive income from until some time in the future
    • You gave your spouse an interest in property that will terminate due to a future event
  8. You do not have to file a gift tax return to report gifts to political organizations and gifts made by paying someone’s tuition or medical expenses.

Contact us for more information.

Deadline for Filing Form 8939 Extended Beyond April 18; Guidance to Follow With New Deadline

0 comments By TRMoore Filed in Tax Tagged with , April 1st, 2011 @ 11:16 am

The Treasury Department and the Internal Revenue Service (IRS) today announced that Form 8939, Allocation of Increase in Basis for Property Acquired From a Decedent, is not due on April 18, 2011, and should not be filed with the final Form 1040 of persons who died in 2010. New guidance that announces the form due date will be issued at a later date, and Form 8939 will be released soon after guidance is issued. Form 8939 is an informational return used to establish basis for income tax purposes of property acquired from a person who died in 2010.

Under the Economic Growth and Tax Relief Reconciliation Act of 2001, the estate tax was repealed for persons who died in 2010. The executors of the estates of certain decedents who died in 2010 were previously required to file a Form 8939 relating to large transfers at death, which was due on the date of the decedent’s final Form 1040 or a later date specified in regulations issued by the Treasury Department.

Enacted in December of last year, the Tax Relief, Unemployment Insurance Reauthorization & Job Creation Act of 2010 reinstated the estate tax for persons who died in 2010. The law allows executors of the estates of decedents who died in 2010 to elect to have the rules of the estate tax not apply to the property of a decedent’s estate. This election is to be made at the time and in the manner prescribed by the Treasury Department.

Treasury and the IRS plan to issue future guidance that will provide a deadline for filing Form 8939 and for electing to have the estate tax rules not apply to the estates of persons who died in 2010. The prior deadline was April 18, which remains the deadline for filing a decedent’s final Form 1040 this filing season. The forthcoming guidance will also explain the manner in which an executor of an estate may elect to have the estate tax not apply.

A reasonable period of time for preparation and filing will be given between issuance of the guidance and the deadline for filing Form 8939 and for electing to have the estate tax rules not apply. The Form 8939 is not currently available, but will be made available soon after the guidance is issued. Both will be made available on IRS.gov.

Contact TR Moore & Company for more information or to discuss your specific estate tax concerns.

What You Need to Know About Estate Taxes

0 comments By TRMoore Filed in General, Tax Tagged with , , February 14th, 2011 @ 2:48 pm

If you are handling the disposition of an estate, you are probably already aware that there was an unexpected reprieve from taxes on the estates of those who died in 2010. But the estate tax is back in force this year, with estates greater than $5 million set to be taxed at the 35 percent rate.

While taxpayers surely are relieved there was no rate increase, they aren’t feeling the love for the tax-free threshold, with more than 60 percent of respondents in a recent CNBC poll voting for a threshold increase to $10 million or more. With the terms only temporary, the matter will be up for debate – and potential tax rate increases – again in two years.

Here is a rundown on some of the complexities related to the tax from the Texas Society of CPAs: 

1-Year Hiatus

Congress allowed the federal estate tax law to expire for 2010, meaning no taxes were due on the estates of anyone who died in 2010. That was good news for the families of numerous wealthy people—but it also meant many families at the more modest end of the income scale did not have to deal with estate taxes. In addition, the executors of estates of those who died last year did not have to file a tax return for the decedent’s estate with the Internal Revenue Service.

The Tax Burden Returns

On Dec. 17, 2010, President Obama signed into law the Tax Relief Act of 2010. In this bill, Congress reinstated the estate tax for decedents dying after Dec. 31, 2009. The new rules are only temporary and will sunset on Dec. 31, 2012.  Executors of deceased taxpayers must pay taxes on an estate greater than $5 million (there are considerations for surviving spouses, which should be discussed with your CPA). The estate tax will be based on the new 35 percent top rate.

In light of the rules that were in effect prior to the act, Congress afforded executors of decedents dying after Dec. 31, 2009, and before Jan. 1, 2011—such as the Steinbrenner Estate—the option to elect to not come under this newly revived estate tax. In this case, the estate would pay no estate tax as originally described above, but beneficiaries would be subject to the modified carryover basis rules.

Be Aware of All the Assets in Your Estate

Many don’t understand what kinds of assets make up their estates. There is a misconception that an estate consists solely of cash in the bank. You may be in for an unpleasant surprise, however, if you don’t consider the current value of all the assets in your estate. A parent who did not have a lot of cash on hand may have owned a home that has increased substantially in value over the years, especially if it’s located in an area with high or rising property values. Add in the value of a retirement account savings or other assets and the total may quickly jump to more than $5 million. That may also be the case with a small business that family members built from scratch into a thriving enterprise, especially if the company owns valuable property or equipment.  

In addition, while an estate may not be subject to a federal estate tax, the estate’s executor may still have to pay an estate tax at the state level, depending upon the appropriate state’s laws. Your CPA can help you in the accounting and valuation of your estate to determine whether your situation calls for undertaking some tax-savvy estate planning for both federal and state purposes. 

Estate taxes are complicated, so it’s wise to consult with a CPA about long-term estate plans. Contact us for more information.

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