Hyden, Miron & Foster, PLLC Law Blog

Friday, September 4, 2015

Summer Tax Considerations Part 2

The summer is still going strong.  While we have already discussed some of the important tax considerations that come with this season of sunshine and swimming in our previous blog Summer Tax Considerations Part 1, we would like to note a few more.

Day Camps

Though day camp attendance is common for children during the summer months, many parents are unaware that the cost of day camp may qualify them for a federal tax credit. This is true if childcare is required while the responsible adult(s) is working or seeking work. In order to qualify for the Child and Dependent Care Credit, the following criteria must be met:

• The filing status of the client(s) must be single, married and filing jointly, head of household or a qualifying widow(er);          
• Day camp expenses must be for the care of a qualified person, usually a child aged 12 or under;   
• The care must have been provided so you – and your spouse if you are married filing jointly – could work or look for work;           
• If the credit is to be given to a couple filing a joint tax return, spouses must also be qualified;
• Spouses who are full-time students during the months involved qualify, as do spouses who are physically or mentally incapable of self-care;      
• The taxpayer must have earned income in the form of wages, tips, or self-employment; and
• Married couples must file a joint return, unless legally separated or living apart.

Day camps that specialize in a particular activity, such as soccer, drama, technology, may even be a qualifying expense. The tax credit for day camp is worth between 20 and 35 percent of allowable expenses, depending on income level. Total expenses during one year are limited to $3000 for one child or $6000 for two or more.

Certain types of childcare expenses are excluded from the tax credit, including overnight camps, summer school tutoring expenses, care provided by a spouse, by any person under the age of 19 or by anyone the taxpayer claims as a dependent.      

It is imperative that taxpayers keep receipts and records for their tax return filing, including the name, address and taxpayer ID number of the care provider. This information will have to be entered when they complete Form 2441 -- Child and Dependent Care Expenses.

Get a Jump on the Tax Extension Deadline

Just because October 15th is the last day to file tax returns for which you have requested an automatic six-month extension is no reason to endure the pressure inherent in waiting until the last minute. Assuming all the required tax documents are in your possession, you can use the generally quieter summer months to have your tax returns prepared and filed. Filing months before the autumn deadline can help to avoid unnecessary added stress as the school year begins.

If you are in need of assistance with a tax related matter, the Arkansas tax attorneys at Hyden, Miron & Foster, PLLC, can help.  Contact us at either (501) 482-1787 or (888) 770-1848 to schedule a consultation today.


Wednesday, September 2, 2015

Summer Tax Considerations Part 1

Summer brings with it barbeques, vacations and other fun in the sun.  But, did you know it also brings with it unique tax considerations? We have included a list of summer tax considerations below.

Vacation Home Rentals

Renting out vacation homes is a popular means of increasing income, but there are some significant tax implications to the practice, so it is best to be well-informed about laws regarding such rentals before becoming a temporary landlord. There are several variables to be considered, including length of rental time and whether the property is being used as a home, in order to determine tax responsibilities and allowable deductions. When using the property as a home and renting it out for fewer than 15 days annually, rental income does not have to be reported.  While qualified rental expenses can be deducted, if the property is being used as a home such deductions are limited to an amount not exceeding the rent received. 

College Tax Credits

It is important for families in which a member is heading off to, or back to, college, to be informed about education tax credits. For an eligible student, the American Opportunity Tax Credit (AOTC) may be up to $2500 per year for the first four years of higher education.  Since 40 percent of the AOTC is refundable, the taxpayer may be able to retrieve up to $1000 of the credit as a refund, whether or not the individual owes any taxes. 

The Lifetime Learning Credit (LLC) may enable the client to claim up to $2000 on his or her federal tax return, and the number of years this credit can be claimed is unlimited for an eligible student. Although only one type of education credit can be claimed per student per year, taxpayers may claim an AOTC for one student in the family and an LLC for another.  Expenses such as tuition fees may be included in assessing the tax credit. Most frequently, taxpayers are provided with a Form 1098-T -- Tuition Statement from the college or university to be used to report qualified expenses to the IRS.

Tax related matters are often confusing.  The experienced tax attorneys at the Arkansas firm of Hyden, Miron & Foster, PLLC, can help.  Contact us for a consultation by calling (501) 482-1787 or (888) 770-1848.


Tuesday, August 25, 2015

Establishing a Trust

Although establishing a trust is often associated with powerful or wealthy individuals, in reality many people can benefit from this useful estate planning instrument. Reasons for establishing a trust include the desire to:

• Have specific, personal wishes implemented, especially those regarding distribution to heirs; and
• Avoid the costly, public, and often prolonged process of probate.           

One of the most significant decisions to make concerning the management of a trust is the choice of a knowledgeable and dependable trustee. Though it may be tempting to assign this job to a close family member, there are several questions to be considered before taking this step, including:

• Does this person want the responsibility?  
• Does he or she have the necessary time available to manage your trust? 
• Is this person skilled and experienced in financial matters?         
• Will she or he be able to remain unbiased when carrying out your wishes?        
• Will making this person your trustee result in conflict within the family?          
• Are there other family members prepared to step in if the appointed trustee cannot complete the necessary tasks?

It is important to remember that it is possible to name a reliable financial institution as a trustee instead of an individual. One of the advantages of choosing a financial institution as trustee is the impartial expertise that the institution possesses.  Often, the decision to turn over management of one's trust to a skilled and neutral third party is tremendously reassuring, minimizing both financial and emotional concerns.

The skilled Arkansas estate planning attorneys at Hyden, Miron & Foster, PLLC, can assist you with all of your trust-related needs.  Contact us for a consultation by calling (501) 482-1787.


Tuesday, August 25, 2015

Estate Planning Tips for Blended Families

Estate planning is necessary at every major life milestone: birth, marriage, death of a beneficiary, divorce and remarriage. For blended families, there are special issues to consider to ensure that children, as well as the new spouse, are properly cared for.  If documents are incorrectly drafted, the situation can become especially complicated. Bearing in mind the needs of a new blended family, consider the following common scenario: 

Daniel (age 65) has two children from a prior marriage, Marian (age 40) and Emily (age 38). His second wife Beatrice (age 68) has one child from a prior marriage, Eric (age 36). Daniel and Beatrice have simple wills leaving their entire estate to the other with contingent gifts to the three children in equal shares. Daniel passes away first, leaving his entire estate to Beatrice. Over time, Beatrice moves away to be with her child and changes her will, leaving everything to Eric. Marian and Emily are now completely cut out of Daniel’s estate and have virtually no legal recourse against either Beatrice or Eric. 

As you can see, this scenario is far from unimaginable, and could easily impact any blended family with children. 

One of the most common goals of a testator with a blended family is to ensure both children and the surviving spouse are adequately provided for – which can be accomplished through the use of a relatively simple trust. One option is known as a Qualified Terminable Income Property (Q-TIP) trust. This type of trust allows for a surviving spouse to access income from trust property for his or her lifetime, while preserving the corpus for the benefit of the grantor’s adult children. This arrangement is often accompanied by a no-contest clause to prevent children and heirs from objecting to the arrangement after the testator has passed away. 

If you are concerned about your estate and would like to ensure that your wishes are adequately addressed, please do not hesitate to contact the Arkansas estate planning attorneys at Hyden, Miron & Foster, PLLC, today: (501) 482-1787. 


Monday, August 24, 2015

Who Pays Taxes On Insurance Proceeds Taxable to the Estate?

Under Federal law, when a beneficiary of an estate receives insurance proceeds taxable to the estate, the executor of the estate may be entitled to recover the portion of the estate tax attributable to the proceeds. (IRC §2206)  But what happens if the beneficiary refuses to turn over the funds?  

The executor may sue the beneficiary for payment— but not until the taxes are paid, according to the language of the Internal Revenue Code. One cannot force payment for taxes that are still owed.  The executor must first pay the taxes some other way and then try to get reimbursed from the beneficiary.       

Such a situation arose in a recent case, showing the perils of an estate plan involving warring siblings, where one was the executor of the estate and the other the recipient of insurance proceeds taxable to the estate.      

It is, of course, impossible to plan for every eventuality, but careful preparation may help avoid such problems. Here are several ways to minimize the risk of conflict in the settlement of an estate and the use of insurance proceeds.     

  • Choose executors and trustees who will be fair. While it is tempting to name your oldest child or a close relative, it may be safer to opt for professionals who stand above the fray and are able act impartially.
  • Talk to your heirs in advance.  It may be helpful to make your wishes clear, whether they involve an insurance policy or a sentimental object.   
  • Work closely with counsel. In confidential, private talks with your attorney, you may be able to address problems that would be difficult to discuss in the open.   
  • Revisit your estate plan periodically. It is important that your estate planning documents stay up-to-date on your financial situation and family dynamics.        

With effort and forethought, you may be able to prevent many disputes. Skilled counsel will help you identify potential problem areas.  The experienced estate and tax planning attorneys at Hyden, Miron & Foster, PLLC know that every family is unique.  We are committed to understanding your needs and helping you plan effectively.  Contact us at (501) 482-1787 for a confidential consultation. 


Monday, August 3, 2015

Common Rental Property Income Mistakes

By: Carrie Bumgardner

Entering the rental property market is a common way to increase your net worth as well as generate some passive income. If you are new to the landlord business, you may fall prey to some common income mistakes when you file your tax return. Knowing the most common mistakes is a good place to start.

1. Not declaring rent when it is received. Any rent received by a landlord must be declared in the year it is received. It is common to require a deposit and last month's rent. Even though the last month's rent is not due yet it must be declared when received.

2. Security deposits count as income if not returned. However, you may also have corresponding expenses if the funds are used to complete repairs.

3. Expenses paid by a tenant are income to the landlord. If your tenant fixes something on the property, the money spent by the tenant is income if the cost of the repair is deducted off the rent. Again, you may also have a corresponding deduction for the cost of the repairs.

4. Property and furnishings are depreciated differently. For property that is rented “furnished,” you may deduct the cost of the furnishings. Residential rental property is depreciated over 27½ years while furniture is depreciated over five (5) years.

5. Failing to document. Everything from your original lease agreement to the cost of replacing a lightbulb should be documented in writing. Not only does this ensure you will get credit for all your allowable deductions but is also protects you in the event of an Internal Revenue Service audit.

By avoiding these common mistakes you can dramatically reduce the chances of an error on your tax return. The best way to avoid these pitfalls is to have your return prepared by a tax professional.


Wednesday, June 24, 2015

IRS Issues Last-Minute Reminder for Taxpayers to Report Certain Foreign Bank and Financial Accounts

The Internal Revenue Service has issued the following reminder to anyone who has one or more bank or financial accounts located outside the United States, or signature authority over such accounts that they may need to file an FBAR by next Tuesday, June 30.

FBAR refers to Form 114, Report of Foreign Bank and Financial Accounts, which must be filed with the Financial Crimes Enforcement Network (FinCEN), a bureau of the Treasury Department. It is not a tax form and cannot be filed with the IRS. The form must be filed electronically and is only available online through the BSA E-Filing System website.

In general, the filing requirement applies to anyone who had an interest in, or signature or other authority over foreign financial accounts whose aggregate value exceeded $10,000 at any time during 2014. Because of this threshold, the IRS encourages taxpayers with foreign assets, even relatively small ones, to check if this filing requirement applies to them.

For more on filing requirements for the FBAR, see Current FBAR Guidance on IRS.gov and check out our previous blog post Do I need to file an FBAR? The IRS has also produced a free one-hour webinar explaining the FBAR requirement.

If you are uncertain of your filing obligations or have missed the filing deadline contact the attorneys at Hyden, Miron & Foster, PLLC. Call (501) 482-1787 for a consultation.


Wednesday, June 10, 2015

De minimis According to the IRS

Lawyers have a tendency to casually toss Latin phrases into everyday conversation. De minimis is one of those Latin phrases. It means “concerning minimal things.” The IRS allows employers to exclude the value of de minimis benefits provided to employees from the employees’ wages. A de minimis benefit is any property or service that employers provide to employees that has so little value that accounting for it would be unreasonable or administratively impracticable.  

In short, the government doesn’t want to force employers and employees to spend countless hours figuring out just how much the hotdogs each employee ate at the annual company picnic were worth, but it does want to ensure that employers aren’t able to disguise compensation as small side benefits and thereby get away with not paying taxes on it, so it adopted a policy of not taxing de minimis benefits.  

The IRS lists the following as examples of de minimis benefits:    

  •  Controlled, occasional employee use of photocopier  
  • Occasional snacks, coffee, doughnuts, etc.
  • Occasional tickets for entertainment events
  • Holiday gifts that have little monetary value
  • Occasional meal money or transportation expense for working overtime
  • Group-term life insurance for employee spouse or dependent with face value not more than $2,000
  • Flowers, fruit, books, etc., provided under special circumstances
  • Personal use of a cell phone provided by an employer primarily for business purposes

The key is the value and the frequency of the benefit, and it is very fact-specific, so it is important not to generalize based on the examples above.   

Something the IRS is very clear about is that cash and cash-like items such as gift cards can never be considered de minimis. This is because they are not difficult to account for, even in small amounts.       

If you have questions about the taxability of fringe benefits, please contact  experienced attorneys at Hyden, Miron & Foster, PLLC,  at 501.482.1787 or 888.770.1848. Our offices are conveniently located in Little Rock, Conway, and Hot Springs Village.

 


Thursday, June 4, 2015

Estate Planning With Your Pets in Mind

If you consider your pets to be part of your family, you might assume that your beloved Fido and Fluffy will be as well taken care of as a human should you become unable to care for them. Unfortunately, that assumption is wrong. Under the law, pets are considered property, and are treated no differently than your dining room table or television, unless you make special arrangements for them in your estate planning documents. At Hyden, Miron & Foster, PLLC, we can help clients in Arkansas make long-term care plans for their pets using a pet trust. 

A pet trust allows you to arrange for the care of your pet should you become incapacitated or pass away, as opposed to a will which only allows you to provide for your pet in the event of your death. We find that trusts are also more likely to be enforced in these types of situations. A pet trust can be a separate and distinct trust or can be included in a revocable trust that handles the disposition of your property.

In order to set up a pet trust, you will need to:         

• Put together a detailed description of the pets to be provided for. 

• Select someone to serve as your pet or pets’ guardian. You should talk with this person about your intentions to make sure they are on board with your plans. It is also wise to pick a successor guardian in case the original guardian is unable to care for your pets when the time comes. If the trust is created during your lifetime, you could serve as the initial guardian and then when you pass or become incapacitated the successor guardian would serve.

• Determine how much, if any, money or other assets you are going to place in the trust to financially provide for your pets. We can help you determine how much and what types of assets are best, based on our experience with these types of trusts. 

• If you are putting a substantial amount of resources in the trust, we recommend selecting a financial advisor for the trust. Placing someone other than the pet guardian in control of the finances to help ensure that there are multiple people looking out for the welfare of your pets.

• Decide who will receive the assets left in the trust after your pet(s) die. Some people devise the remaining trust estate to the pet guardian and financial advisor as compensation for their service. Others choose to donate any remaining assets to charities that support animal welfare, such as a local animal shelter, or leave the remaining assets to their family.           

If you would like to talk with someone on the estate planning team at Hyden, Miron & Foster, PLLC, about providing for your pets in this way, please call us today at (501)482-1787 or (800)467-8297. We would be happy to schedule consultation with you at one of our offices, conveniently located in Little Rock, Conway, and Hot Springs Village. 


Tuesday, May 26, 2015

How to Safely Share & Store Your Estate Planning Documents

I recently executed a trust, pour-over will, living will, and power of attorney. What is the best way to store these documents, and should I make copies? 


Congratulations on taking this important step toward a solid financial future for your family, loved ones and/or charities of your choice.  Now that your documents are signed, witnessed and notarized, what’s next?

Being that original estate planning documents are required in many scenarios, including opening an estate or utilizing a power of attorney, it is extremely important to keep these papers preserved in a secure location for safekeeping. The following explains some best practices post-execution, as well as suggestions on what to do if you have further questions about your estate plan or need to make a change in a certain area. 

Storage and preservation of documents

Many times, couples execute an estate plan when their children are young, and forget all about the documents for several decades. Depending on the type of paper used, these documents can begin to fade and wither, thereby inviting possible objections or skepticism when it comes time to register the will and administer the estate.

Estate planning documents should be stored in a cool, dry, preferably dark place, such as a filing cabinet or fireproof lock box. Keeping these documents in a storage unit or the basement is not the best idea, as mold, rodents, and the weather can introduce damage and destruction. 

Likewise, storing your documents in a safe deposit box is not always advised, as only the owners of the box will be able to access the documents in a time of need. If your documents are needed in an emergency situation, the bank will not allow just anyone to retrieve the contents of the box without express written authorization by all owners – which can introduce major inconvenience in an already-stressful situation. 

Sharing copies of your documents

As experienced estate planning attorneys, we always advise our clients to make copies of their powers of attorney, as it will be very important to ensure all agents are aware of their role. With regard to a living will (i.e., advance healthcare directive or healthcare power of attorney), be sure to provide a copy to all healthcare providers in the event important decisions must be made on your behalf. With regard to your power of attorney, be sure to distribute a copy to each of your agents, as well as to your bank and financial advisors. 

For more information about estate planning, or to make a change to an old estate plan, please contact the experienced will and trust attorneys at Hyden, Miron & Foster, PLLC, by calling (501) 482-1787. 


Wednesday, May 20, 2015

Medicaid Planning: 5 Tips to Consider in Planning for Long-Term Care Costs

One of the most misunderstood aspects of long-term care is whether coverage is offered by Medicare, and for how much. Below you’ll find several tips with regard to planning for long-term care, including qualifying for need-based coverage through the government’s Medicaid program. 

Tip #5: Medicare Will Not Cover Long-Term Care Costs: This is an important starting point for many seniors, and may come as a surprise. Medicare coverage for around-the-clock skilled nursing is generally only available for a maximum of 100 days, and is designed to effectuate proper healing post-surgery or after a debilitating fall. If coverage is needed beyond this time period, enrollees must either pay out-of-pocket, or consider other options. 

Tip #4: Medicaid Eligibility Planning Should Begin Today: As you consider your possible long-term care needs, the best time to start planning is today. An experienced elder law attorney can walk you through the financial steps necessary, whether you need care immediately or in 20 years. No matter your situation, don’t delay – the longer you wait to plan, the more you could lose in the long run. 

Tip #3: Qualifying for Medicaid Requires Financial Need: In general, an applicant qualifies for Medicaid once he or she has $2,000 or less in countable assets (not including the applicant’s home or vehicle).  There are also every strict income limitations. The maximum amount of income varies for each state.

Tip #2: An Irrevocable Trust May Help: An irrevocable trust may help protect assets from the costs of long-term care. Reason being, once an asset is irrevocably retitled into the name of a trust, the previous owner no longer has access to the asset, thereby reducing his total countable assets. 

Tip #1: Advance Planning is Necessary to Avoid the Look-Back Period: Whether you plan to transfer an asset outright to a family member, or into an irrevocable trust, the transfer must have occurred more than five years from the date of application for long-term care coverage through Medicaid. If the time span is any shorter, Medicaid will impose a penalty.

For more information about proper Medicaid planning, contact the elder law attorneys of Hyden, Miron & Foster, PLLC, by calling (501)482-1787 or (888)770-1848. 


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