Hyden, Miron & Foster, PLLC Law Blog

Friday, January 22, 2016

Planning for Incapacity

What estate planning documents will apply if you haven’t yet passed away but are unable to make decisions for yourself?


It is a common misconception that estate planning documents are only necessary in the event that an individual dies. However, a well designed estate plan will also make arrangements for the possibility of becoming incapacitated. There are a number of documents that describe your wishes should you become incapacitated or are close to death.

The first and most widely known of these documents is the durable power of attorney. A power of attorney is used to appoint another person to make decisions for you should you be unable to do so for yourself. A power of attorney can be appointed to make medical and financial decisions. These documents are flexible and allow you to give whatever powers you would like to the individual named as power of attorney. You can also elect to put the document into effect the day it is signed or at the time that you become incapacitated.

Another estate planning document that goes into effect if you become incapacitated is a living will. This document allows you to formalize your wishes regarding the type of treatment you should receive and any life-sustaining medical procedures you would like withdrawn at the end of your life. This document makes decisions easier for the loved ones who will be responsible for you at this time.

When executing advanced directives, such as a durable power of attorney or a living will, it is always important to also execute a HIPAA form as well. This Health Insurance Portability and Accountability Act form gives another the authority to access your medical records. This can save a lot of time and aggravation for those who will be responsible for your medical care.

In order to have a comprehensive estate plan, you should consult with an attorney that has expertise in preparing these documents as well as those that reflect your wishes after death, such as a will and/or trust.

Thursday, December 24, 2015

How Retirement Income Is Taxed

How does the IRS treat different types of retirement income?

 

Most people receive retirement income from various kinds of investments. State and federal taxation differ in the way they tax these investments, so it is important to consult with a skilled tax attorney in your state to make sure you are receiving the best possible advice. While taxation policies vary from state to state, , here is a list of federal income taxes pertaining to retirement income.

Social Security

Individuals who pay federal income tax on their benefits include:

  • Individual filers whose total income is greater than $25,000
  • Joint filers with a combined income greater than $32,000
  • Married couples who file separate tax returns

 

No one who pays federal income tax on Social Security benefits will be taxed more than 85 percent of his or her benefits.


Pensions

Assuming you have made no after-tax contributions toward your pension plan, your pension payments will be taxed as ordinary income. If you have made after-tax contributions, then your pension payments will be partially taxed. Qualified and nonqualified pensions are treated differently by the IRS..

Stock Dividends
Qualified dividends are typically taxed at your capital gains tax rate. To be recognized by the IRS as qualified, such dividends must be paid out by a company that trades on a regulated U.S. exchange or is eligible to receive certain benefits under the U.S. tax treaty. Some more specific regulations apply, and taxes are based on your tax bracket. Nonqualified dividends are taxed at a normal income tax rate, regardless of your tax bracket.

Real Estate Investment Trusts
Real estate investment trusts (REITs) are required to distribute at least 90 percent of their taxable income in the form of dividends to shareholders, so shareholders are ultimately liable for paying these taxes.

Master Limited Partnerships
Master limited partnerships (MLPs) are publicly traded partnerships that combine the tax partnership benefits with the liquidity of a publicly traded corporation. Despite their complexities, MLP distributions are usually tax-friendly for investors.

Bonds
Bonds can be classified as government, municipal, and corporate. Depending on the classification, taxation of bond income varies. Bond income is generally taxed as ordinary income. Government bonds (e.g. Treasury bills, notes, bonds) are only taxed at the federal level while tax-free municipal bonds are never taxed at the federal level. Corporate bonds are liable for federal, state, and local taxes.

IRA Withdrawals
Traditional IRA withdrawals are taxed as regular income, assuming your plan was funded with after-tax dollars. This tax treatment applies to contributions made by either you or your employer.

Roth IRA withdrawals are tax-free if you are at least 59.5 years of age and the account has been active for at least 5 years.

Annuity Withdrawals
With annuity withdrawals, all earnings and interest (gains) must be withdrawn before the principal amount is withdrawn. The gains portion of this withdrawal is taxed as ordinary income where the principal portion is not. Both IRAs and Annuities have penalties for early withdrawals.

You may also find tax relief in retirement when it comes to proceeds from real estate. Income generated from reverse mortgages is not taxable because it is considered  a loan advance and not income. Contingent on certain IRS requirements, gains made from the sale of a home may be tax-free if the gain is no more than $250,000 for single people ($500,000 for married couples) and the seller had lived in the home for at least 2 of the last 5 years leading up to the sale.

Because of the complexities of taxation relative to retirement income, it is very important to consult with a qualified tax attorney who knows all the ins and outs of how to use tax laws to your best advantage.


Monday, December 21, 2015

Tax Tips for the End of the Year

What can I do at year's end to positively affect my taxes?

This year is rapidly coming to a close and so the end of another tax year.  This is the best time to review your taxes to see if you qualify for  any  deductions and to make any contributions that will work toward your overall benefit.  Here are some tax tips that can help you get the most out of your taxes this year.

Standard v. Itemized Deductions

You should decide whether standard or itemized deductions are right for you.  If you know that your itemized deductions will add up to less next year, you might want to consider shifting some from this year to the next.

Miscellaneous Deductions

It is also necessary  to determine if your miscellaneous deductions add up to an amount close to 2% of your adjusted gross income.  If they do, you might want to obtain what you need to to meet the threshold. 

Flexible Spending Accounts

Many of us have a flexible spending account through our healthcare.  You want to use up all the money you are allotted otherwise you will lose it.  So, determine how much you have and go to doctors, get medications and get things like glasses and hearing aids.

Medical Deductions

If you are under 65 and your qualifying medical expenses are more than 10% of your adjusted gross income they may serve as a deduction.

Retirement Accounts

Determine how much you are allowed to contribute to your retirement account (IRA, 401(k) or 403(b)) for the year and see if you can meet this threshold.  You might be able to contribute up until mid-April but it is worth confirming so you don’t miss your opportunity.

Charitable Deductions and Gifts

If you are in the spirit of giving, now is a great time to donate to your favorite charity or charities.  Just be sure to get documentation of your donation so they can be used to support the amount you are deducting.  If you want to give away some money tax free, you can give up to $14,000 ($28,000 if you are married) to any one person during this or any other tax year.

If you are interested in personal tax planning, an  experienced Arkansas attorney can assist you.  


Saturday, October 31, 2015

IRS Get Transcript Data Breach

In May 2015 the IRS announced that hackers had gained access to approximately 100,000 tax accounts through IRS’ Get Transcript application. This data included Social Security information, birthdays and street addresses. The hackers had to have sufficient information about the victims as the IRS Get Transcript application has a multi-step authentication process. As a result, the IRS has disabled the Get Transcript application until they are able to strengthen the application’s security measures.

Through the Get Transcript application hackers could receive tax return transcripts, tax account transcripts, record of account transcripts, wage and income transcripts. The data obtained by the hackers varied depending on the type of transcript that was selected. A tax return transcript provides information from a taxpayer’s filed tax return. A tax account transcript shows any adjustments the taxpayer or IRS has made to the filed return. A record of account transcript combines the information from the tax return and tax account transcripts. A wage and income transcript contains information reported to the IRS, such as W-2s, 1099s and 1098s.

The IRS believes the attempts started in February and continued through mid-May. The hackers made approximately 200,000 attempts during this time period, with more than 100,000 of those successful in getting through the authentication process. The IRS stated that it will notify taxpayers if their information was obtained by the hackers. The IRS is offering free credit monitoring for affected taxpayers. Those taxpayers will be receiving specific instructions that tell them how to sign up for the credit monitoring. Also, the IRS has flagged those accounts for potential identity theft so that the taxpayers can be protected going forward. In regard to the other 100,000, the IRS will notify the taxpayers that thieves may have their personal information.

If you receive correspondence from regarding the transcript breach and are not sure if it is actually from the IRS, you should contact the IRS. Please note, correspondence from the IRS will not request personal information such as your social security number or credit card or financial information. However, the IRS asks that you do not call the IRS regarding the breach until you have received correspondence from the IRS, as the phone lines remain extremely busy due to staffing limitations.


Friday, October 30, 2015

Tax-Related Identity Theft

Tax-related identity theft can occur in two ways: 1) when thieves file a fake return under the victim’s social security number in order to receive a refund check; and 2) when thieves use stolen information to obtain employment, which makes it seem like the victim had more income than he or she actually earned. Tax-related identity theft is increasing at an alarming rate. In the IRS’s fiscal year for 2014, the IRS assigned more than 3,000 employees to work on identity theft cases. This assignment reduced the number of employees available to handle the IRS’s traditional workload.

How do I know if I am a victim of identity theft?

There are several indicators that you are a victim of identity theft. The main indicator is that you tried to file your tax return electronically, but the return is rejected because another return using your social security number has already been filed.

Other indicators include notices from the IRS regarding the following:

  • stating that you have wages from somewhere you have never worked; or
  • stating you have a balance due, refund offset notice, or have collection actions taking against you for a tax year when you didn’t file a return or receive a refund.

What do I need to do if I am a victim of identity theft?

If you are the victim of identity theft and a fraudulent tax return has been filed in your name, the process of filing your taxes and collecting a refund may be more lengthy and difficult. Identity theft victims have to wait at least six months to have their refunds restored. However, reduced IRS funding and staff levels could result in victims waiting even longer this year.

If someone has filed a false tax return under your social security number you need to do the following:

  • complete Form 14039 Identity Theft Affidavit;
  • print a paper copy of your tax return;
  • make a photocopy of at least one document to verify your identity (passport, driver’s license, Social Security card, or other valid federal or state government issued identification); and
  • mail your tax return, Form 14039 and photocopy of the document used to verify your identity to the IRS (using the appropriate address for your state).

If the IRS notifies you that you did not report all of your income on your tax return you will need to:

  • respond to the letter as soon as possible (explaining that you did not work at that business and that you believe you are a victim of identity theft);
  • complete Form 14039 Identity Theft Affidavit;
  • make a photocopy of at least one document to verify your identity (passport, driver’s license, Social Security card, or other valid federal or state government issued identification); and
  • mail your response, Form 14039 and photocopy of the document used to verify your identity to the IRS (using the appropriate address indicated on the IRS correspondence).

You can also contact the IRS’s Identity Protection Specialized Unit at 1 (800) 908-4490.

If you are a victim of identity theft the Federal Trade Commission recommends that you also take the following steps:

  • Report identity theft to the Federal Trade Commission at www.identitytheft.gov or the Federal Trade Commission Identity Theft Hotline at 1 (800) 438-4338.
  • Contact one of the major credit bureaus to place a fraud alert on your records

 

Credit Bureau Website

Phone Number

www.equifax.com

(800)525-6285

www.experian.com

(888) 397-3742

www.TransUnion.com

(800) 680-7289

 

What precautionary measures can I take to lessen the risk of identity theft?

The IRS recommends the following things that individuals can do to lessen the risk of identity theft:

  • check your credit report annually;
  • check your Social Security Administration earnings statement annually;
  • protect your personal computers by using anti-spam and anti-virus software and by using firewalls;
  • don’t routinely carry your Social Security card; and
  • don’t give a business your Social Security Number just because they ask for it. Only give your Social Security Number when it is absolutely necessary.

 

The IRS also recommends that you do not give personal information over the phone, through the mail or via the Internet unless you are the one who has initiated the contact or you are sure that you know to whom you are sending the information.

What is the IRS doing to combat tax related identity theft?

According to the IRS Global Identity Theft Report issued May 31, 2014, the IRS was able to stop more than 3.6 million returns filed by identity thieved in the 2014 filing season.

For the 2015 filing season the IRS has limited the number of direct deposit refunds to a single financial account or to three pre-paid debit cards. This will also stop tax preparers who improperly deposit client refunds into their own accounts.

The IRS has also created an Identity Protection Pin (IP PIN) that is assigned to victims of identity theft. Each year the victim receives a new IP PIN that is used to file their income tax return.

Thursday, September 17, 2015

Estate Planning for Unmarried Couples

Increasing numbers of couples in this country have made the decision not to marry. Older couples, most of whom have been divorced or widowed, and younger couples, who may be postponing marriage indefinitely, often decide to simply live together rather than to marry. Even same-sex couples, who have recently won the legal right to wed, often choose not to.

It is important for all individuals and couples to become informed about the legal consequences of their decisions concerning whether or not to marry. Several tax issues are at stake.  While legally married couples are permitted to leave their entire estate to the surviving spouse free of the burden of estate taxes, all others will have to pay tax over the exclusion amount. This amount is high -- $5.43 million in 2015-- but there are other inheritance benefits to being married.

In addition to inheritance advantages, married couples enjoy the legal benefits of:

  • Social Security
  • Immigration status
  • The right not to testify against one's spouse
  • Joint bankruptcy filing and protection
  • Surviving spouse benefits (victim's compensation)
  • Hospital visits
  • Healthcare decisions

Since there is no common-law marriage in Arkansas no matter how long a couple has lived together, a Probate Court will not recognize cohabiting couples as legally joined. This means that if one partner dies, the surviving partner is not entitled to any benefits without additional planning.  The "next of kin" of an unmarried partner can file for any property that is left behind, including the home that the remaining partner lives in, even if said partner has contributed to the maintenance of that property for many years.

Because the law, rather than loving commitment, governs estates and inheritance, it is extremely important that bonded couples who are unmarried investigate potential legal ramifications of their status and engage in careful estate planning. Generally for couples with estates under $100,000, a well-prepared will may be all that is necessary, while for couples with larger estates, it will probably be necessary to establish a Revocable Living Trust. In either case, designating agents to make financial and healthcare decisions if one partner is incapacitated are important. No matter how young or old, every couple should consult with an attorney familiar with estate planning and tax law to ensure the future protection of each partner.

If you reside in Arkansas and have any questions or concerns regarding estate planning or tax law, please don't hesitate to contact one of our experienced and skilled attorneys at Hyden, Miron & Foster, PLLC.  We can be reached at 501.482.1787 or 888.770.1848.


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. 


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