Tax

How does the UltraTrust irrevocable trust protect your assets? The importance of creating a solid irrevocable trust versus other irrevocable trusts.   You cringe every time that you give your child the keys to the car because you know they don’t always make the best decisions, so what makes your financial advisor think that you could trust them with $5.12 million dollars? You’ve heard about the Lifetime Gift Tax Exemption (GTE) of $5,120,000 ($10,240,000 for a couple) that turns into a pumpkin at midnight on December 31st, 2012; exemption moves to $1,000,000 in 2013 ($2,000,000 for a couple). You have read articles about giving away your money this year or the gift tax and estate tax will eat up a significant portion that you wanted to be there for your children and grandchildren.   Calculate if you need you need to do planning     You would gladly take advantage of this situation, but images of your son in a Ferrari and your daughter living in a 4 bedroom loft in Paris are running through your head. Really, “these tax accountants and attorneys should look up from their spreadsheets once in a while and realize that these are real families out there, not just numbers,” you think to yourself. Of course, transferring all those assets tax free makes sense on paper, but could you trust your child to resist the temptation to spend it while struggling through college and entry level character building positions? Even great kids can get themselves in a world of trouble with that kind of access to money.   Thankfully, there is another option. “You can transfer your assets for the benefit of your children, control how they spend it and still qualify for the Lifetime Gift Tax Exemption,” states Rocco Beatrice, Sr. of Estate Street Partners, LLC, “If there is one thing you should do this year, take advantage of the Lifetime Gift Tax Exemption, because this level of exemption will not come around again, and if it does, by that time $5 million dollars won’t be worth $5 million dollars anymore.”   Transfer Assets with all the Tax Benefits and Asset Protection but Still Keep Control   How can you transfer your assets and still keep control? The UltraTrust irrevocable trust will do just that. Irrevocable sounds a little scary, but irrevocable is where the advantages exist. Think of the UltraTrust irrevocable trust as a vault and the trustee as a teller behind bulletproof glass. You put your assets in the vault and write specific instructions to the teller as to whom, when and for what reason to give those assets out. Here are some examples of how it works. One of your beneficiaries (persons who benefit from the trust) goes to the teller and says that they need money for college. The teller looks at his instructions and sees that he can give money for college, but only directly to the college and cuts a check to the university for the amount of tuition. The same beneficiary returns and says, I need money for a Ferrari. The teller looks at his instructions and sees that he can give money for moderately priced transportation and offers to purchase a Honda Accord owned by the trust for the child’s benefit to use.   This trust can also protect the assets even if things go badly. For example, your daughter comes to the teller and says that she invested in Ostrich’s, that they all passed away because of the unusually long winter and now the bank is foreclosing on the farm wanting $40,000. The teller looks at his instructions, sees a “spendthrift clause” that says he cannot pay debts under duress. He says no to your daughter and when the bank comes knocking on the window, he says no to them too. Here is another example. Your son gets married and several years later, his wife decides she wants to “find herself” and files for divorce. She asks the court to force the teller to give her half of the trust. The teller gives the judge his instructions which say that spouses are entitled to nothing from the vault and the judge rules that the teller not only doesn’t have to give her anything, but can’t give her anything even if he wanted to. You just saved over 2 million dollars that might have gone to the daughter-in-law you never wanted.   The UltraTrust Irrevocable Trust Compared to Other Irrevocable Trusts   Understand how it works now? Now you need to find someone who has experience setting up these irrevocable trusts. “Not every trust is the same. Some trusts say they are irrevocable, but creditors can still get into them. Some leave out spendthrift clauses. If you are going put a million dollars in a trust, you want to make sure it is done right,” urges Mr. Beatrice, “Trusts such as the UltraTrust® irrevocable trust are very sophisticated instruments designed to make sure your assets are safe and used the way you want them to be used. Good trusts have various levels of protection such as spendthrift clauses, trust protectors and precise instructions.”   So, take advantage of the current $5.12M dollar gift tax exemption without worrying about what your kids are going to do with all that money. You get to control your money even if something happens to you. A will doesn’t offer that kind of control and safety. You can only get that kind of bulletproof protection and control with a solid Ultra Trust irrevocable trust. So, instead of thinking you can’t transfer anything without risking disaster, you should be thinking the UltraTrust irrevocable trust will not only give you that tax relief, but will also take care of your children if something should happen to you.

Many business owners do not even consider the possibility of being audited. You should always prepare for this to happen. There are some red flags that could trigger an audit. If you are aware of these and can avoid them, you could also deter an audit.   Why am I audited by the IRS?: 8 Invitations to an IRS Audit   Due to the current federal deficit, there is a $300 billion gap between the amount that we pay in taxes and the amount the IRS believes we should have paid. To close this gap, the IRS is conducting more audits, trying to find that extra tax money and mistakes that you may have made when filing.   The IRS has posted a job that is titled Internal Revenue Agent (Abusive Transactions Group) The job description for this position states, “Agents of the Abusive Transactions Group will be conducting examinations of individuals, sole proprietorships, small corporations, partnerships and fiduciaries. This group specifically goes after taxpayers who generally have higher incomes than most taxpayers, need to file more tax forms, and generally need to rely more on paid tax preparers.”   You may make the mistake of believing you will not be targeted for an audit because you are not wealthy, do not have an accountant filing your forms or do not operate a cash business. Even though you engage in none of these, you are still a target. In fact, tax return audits doubled from 2000 to 2009. During the same time period, enforcement earnings increased by 50 percent.   Unfortunately, not every taxpayer is treated impartially with regards to the potentiality of an audit. Of businesses that have less than $10 million in assets, one in every hundred or 1% will be audited by the IRS. For those with $10-$50 million in assets, that number jumps to ten out of every hundred businesses or 10% that are audited. When the business has more than $250 million in assets, they have a 1 in 4 chance or 25% of being audited.   There are certain industries that will be targeted more than others. Cash businesses are always on the top of the list. You may be surprised at the target groups of the IRS. There are auditor guidebooks for many industries, including veterinarians, Laundromats, car dealers, ministers and many more. There are specific auditing strategies for the IRS in the Retailer Guide which are aimed at e-commerce businesses, direct sellers, pizza shops, mobile food vendors and gas stations.   It is important for you to be aware of the red flags that could lead to an IRS audit.   1. Math Errors or Calculation Errors Submitted to the IRS   Always double check your numbers. Math errors are the leading cause of IRS audits.   2. Unusually High Itemized Deductions   The IRS can easily determine what your deductions should be. If your itemized deductions are not in line with your income, you will be a target for an audit.   3. Self-Employed / Schedule C Taxpayers   Most small businesses are suspected changing their expenses. Take caution when taking a home office deduction, have shown a loss for several years in a row and prepare your own taxes.   4. Submitting many 1099s to the IRS   The IRS began a three-year initiative in 2010 to crack down on the misclassification of contractors. In hopes of adding money to the depleted Treasury coffers, many businesses are targets for an audit. Never misclassify an employee as a contractor. If you are not certain seek a CPA’s advice for assistance. You will never be sorry you did.   5. Unreported Income to IRS   Always report your earned income. The IRS will know if you are not including income and you have received a 1099. Other sources of income must also be reported, such as alimony.   6. Previously Audited by the IRS   If you owed fines and taxes and have been audited in the past, you are still a target. Most people believe they will not get audited twice, but this is far from the truth.   7. Shareholder of a Company   If you invest in a partnership or a corporation that is being investigated by the IRS, they could come after you personally as well.   8. Disgruntled Former Employees   Former unhappy employees are the biggest informants. Many people will report another to the IRS for payback. However, the IRS is also allowed to pay informants a reward for reporting someone. The informant can actually receive as much as 30% of what the IRS collects from the audit.

Small business owners have five options available to help settle tax issues that could arise with the IRS. These methods may not all work for every business, but as an owner, you should know that there are options to resolve tax issues.   As a small business owner (SBO), you most likely will not enjoy any audits from the IRS. Things can become intimidating when the business owner is issued a letter for a tax audit or it addresses another tax concern.     5 Outcomes for Tax Issues with the IRS   Amy Lynn Keimasch, the head of Border 7 Studios recently had an experience with the IRS. She states, “We recently received an outstanding balance from the IRS for an amount just under $3,000 for the year of 2008. As a small business and while dealing with our current taxes for 2009, this was an unexpected e-mail. They sent us the notice because the IRS stated they did not receive our K-1’s and sent us back our entire 2008 tax returns. The K-1 was in the Tax Return and so we sent them a letter letting them know and re-sent our tax return. After speaking with some representatives at the IRS, they said that they didn’t receive our letter.”   Her situation was unsettled for a number of months. The IRS could have made various decisions on whether the company would have to pay the $3,000 tax adjustment which the form K-1 would have annuled. The issue was finally resolved. Keimasch explained that is took a few months and a lot of talking to representatives. The case originally had no prospect of resolution and it appeared as though the company would have to pay the $3000. Things changed for Keimasch while speaking to a representative who disgarded the $3000 tax fee since this was the first tax return sent for the company.   By being familiar with some of the possible outcomes from the IRS, you can make having to deal with the agency a little easier. Always keep an open line of communication with the IRS with any tax issues and try and resolve the situation quickly. If there is a disagreement regarding your taxes, the IRS could use some less desirable means to resolve the issue. Solving any tax issue with the IRS will allow you to reach one of the following five conclusions:   1. Resolution Without Headaches with IRS   When the IRS has all of the information they need, they may simply find the result is in the favor of the taxpayer. When locating certain tax issues and then resolving them, the IRS is not infallible. In addition, the IRS handles tens and millions of tax filings and it is not uncommon for a piece of tax filing to be misplaced. If you learn of a tax problem, know that the situation can usually be remedied and the result could possibly be a nice tax refund.   2. IRS Lump Sum Payments   Many tax issues of a business owner will be about how much tax the IRS thinks is owed. Resolving your tax problems could be as simple as paying the tax to the IRS for all taxes owed including the accumulated penalties. Of course, this is not an ideal situation, but it can get rid of the tax problem. To prevent any further penalties or interest charges, if you can afford it then it’s best to just pay your taxes as a lump sum payment.   3. Payment Plans to the IRS   You may have tax charges that you cannot afford as one lump sum. To resolve this, you can create a payment plan or agreement of payment installations over a period of time with the IRS. When requesting this, you will be able to set the date on which you will make the payment and propose a monthly amount. The IRS will either accept or deny the request. When paying on a payment plan, you will also incur interest. When you owe up to $25,000 in taxes, interest and penalties, you will usually qualify for a payment plan. Higher liabilities may also be authorized for payment plans but more paperwork will be involved.   4. What is “Offer in Compromise” with the IRS?   Should the IRS claim you owe money, a settlement may be accepted. One of the settlement agreements is called an “offer in compromise.” This agreement will settle the stipulations of the repayment as well as the amount. You must meet one of the following three criteria for the IRS to agree to this arrangement: (1) the IRS does not believe you can pay the amount in a lump sum or payment plan. This is called the “doubt as to collectability”; (2) the IRS does not believe the determined liability and penalties are accurate, in which case, the IRS will accept an agreement instead of re-assesing tax liabilities and penalties. This is called “doubt as to liability.”; and (3) the offer could be accepted if you successfully defend your case that the imposed tax is not impartial or that paying the tax would create a personal and financial destitution.   5. Appealing to the IRS   You can appeal the final decision of the IRS and receive the Taxpayer Advocate Service which will help you resolve tax issues that cannot be resolved by using normal IRS methods. The Taxpayer Advocate Service is an independent panel part of the IRS that helps resolve tax problems that cannot be resolved when dealing directly with the IRS and also ensures that all individuals have equitable treatment.

About real estate tax. Role of property assessor and real estate tax maps. What is the Homestead real estate tax exemption? What are the real estate tax penalties? Discuss estate tax lien and affidavit to remove the tax.   The history of real estate tax and property tax can be traced back to Colonial America. Land was taxed on a per-acre basis until the nineteenth century when uniformity clauses were adopted to help protect settlers. The uniformity clauses now require that property be taxed according to its value.   Illinois was the first state to adopt this clause, and some states such as Tennessee adopted additional provisions that exempted products produced from the soil and up to one thousand dollars of personal property. Elected officials would assess the market value of the property, collect taxes due, and turn the money over to the proper government (school districts, special districts for fire prevention, irrigation, etc.).   It wasn’t until 1907 that the National Tax Association was founded, and declared that trained professionals perform all assessments of real estate for tax purposes. This regulation curtailed favoritism and promoted equality.   Property Assessor and Real Estate Tax Maps   In the twenty-first century, state governments depend more on income and sales taxes than on property taxes for funding. Local governments still rely on a small percentage of property taxes to generate revenue. The tax assessment is based on the value of the building and the value of the land it occupies. The assessor maintains accurate “tax maps” which identify individual properties to ensure they are not taxed more than once.   Any improvements made to the structure or land will be noted on these maps. Methods used to calculate value of property have changed since colonial times. Assessors may now choose between the income approach, market value, or replacement cost. All values determined by the assessor are subject to a “second opinion” via administrative or judicial review. Once the value of the property is agreed upon, the assessor will multiply this value by the established tax rate to calculate how much you owe in taxes.   Homestead Real Estate Tax Exemption   Some states have passed laws to provide homestead exemptions to put limitations on how high property taxes may be raised. This exemption is only available to residents of these states in which the property in question is the primary residence. You cannot use a rental property or second home in a different state as your “primary residence” to receive this tax break. Once the property is sold, the exemption is removed and property taxes may rise for the new owner based on the purchase price of the home.   Delinquent Real Estate Tax Penalties (April 1st)   Failure to pay your taxes by April 1st each year will result in a delinquent real estate tax. Penalties for delinquent taxes may vary by state. In some states you will be charged a ten percent penalty on all unpaid taxes and will be charged an additional administrative processing fee.   If after the beginning of June you still have not paid your delinquent real estate taxes, your property will become tax defaulted. At this time you will begin to accrue additional penalties for each month that your taxes remain unpaid. If you continue to refuse paying delinquent taxes, the Tax Collector may appeal to the Court to seize and sell your property.   Lien on Property and Tax Certificates   A lien may be placed on the house through the purchase of a tax certificate, and the owner can only remove the lien by paying the required taxes due. After a period of two years, the holder of the tax certificate may request a tax deed application. This application allows the certificate holder to sell your property at a public auction. The only way to prevent losing your property is to pay all delinquent taxes and applicable fees that have accumulated.   Estate Tax Lien and Affidavit to Remove Tax   Some states such as Massachusetts will put an estate tax lien on property after the death of the owner, or anyone else who may have had a legal interest in the property (i.e. spouse). This usually occurs in the absence of probate and when the gross estate value does not exceed $1.5 million. Estates worth more than this limit will be subjected to federal estate tax filing.   Barring the above exceptions, an estate tax lien may be removed by filing an Affidavit. The Affidavit may be filed by an Executor or anyone in possession of the deceased’s property (i.e. spouse). An Affidavit must contain key information such as:   Full name and date of death for the deceased Documentation that the estate does not require federal estate state filing The identity and title of the person signing the Affidavit and the form must be notarized The death certificate Any applicable recording fees for the Affidavit and death certificate   Read more articles on hiding your assets, how the rich hide their assets, offshore asset protection, getting sued and hiding assets, frivolous lawsuits, grantor trusts, and estate planning and trust, Medicaid estate planning:   Hide My Assets How the Rich Hide Their Assets Getting Sued and Hiding Assets Offshore Asset Protection Frivolous Lawsuits What is a Grantor Trust Estate Planning and Trusts Medicaid Estate Planning How to Hide Your Assets

Tax-Sheltered Annuity (TSA), also known as a 403(b), is an alternative retirement savings plan. Not everyone can participate in this plan, and it is restricted to those who are employed by educational, cultural, or non-profit organizations such as religious groups (also known as 501 (c)(3) organizations).   Contributions to a Tax-Sheltered Annuity are done through a payroll deduction and are therefore taken out pre-tax. This feature of a Tax-Sheltered Annuity is very beneficial since your contributions are not seen as income and you may pay less federal tax at the end of the year. A Tax-Sheltered Annuity is also tax deferred during the accumulation phase. This means you will not pay any taxes on the amount you contribute or the interest earned until you begin the withdrawal phase.   If your plan allows, you may elect to contribute post-tax money to your Tax-Sheltered Annuity by using your paycheck. Any money you contribute post-tax must be declared on your income tax return and is not subject to the tax-deferred exemption. When selecting a Tax-Sheltered Annuity you may choose between fixed and variable, or a combination of the two.   It is possible to take loans from your Tax-Sheltered Annuity, but these loans are limited to the lesser of $50,000 or fifty percent of your vested amount. Another feature of a Tax-Sheltered Annuity is the ability to rollover funds into other investment options. For example, it is possible to use your 403(b) to fund your 401(k), Individual Retirement Account (IRA), or another 403(b).   It is important to check any contribution limits or rules established by the new plan administrator before committing to a rollover. If you die before receiving payments, your beneficiaries are entitled to similar options using your Tax-Sheltered Annuity. A spouse is entitled to all of the aforementioned options, while a non-spouse is prohibited from using your annuity money to fund an IRA. A non-spouse beneficiary is only able to transfer funds from one 403(b) to another.   Contribution Limits of a Tax-Sheltered Annuity   Unlike a regular deferred annuity, there are maximum contribution limits determined by the Internal Revenue Service (IRS) for each year. Beginning in 2006 the maximum personal (elective) contribution limit was increased to $15,000 per year, up from $14,000 in 2005. Also in 2006, your employer (non-elective) may choose to contribute to your Tax-Sheltered Annuity with a combined maximum contribution limit of $ 44,000.   You may be able to contribute up to $5000 more per year if you are age 50 or older and an additional $3000 per year if you have been with the same company for more than fifteen years. Failure to comply with these contribution limits can result in additional taxes and penalties for both the employee and contributing employer.   Tax Penalties of a Tax-Sheltered Annuity and Age Regulations   As with the deferred annuity, a Tax-Sheltered Annuity is used to supplement retirement income. If you decide to withdraw money prior to age 59 ½ you will be subject to a ten percent penalty by the IRS in addition to the standard income tax. There are a few exceptions to paying this penalty, although specific criteria must be met.   If you leave the service, encounter extreme and immediate financial hardship, or become disabled you can avoid paying the ten percent penalty. Although the ten percent penalty is not enforced in these cases, you are still responsible for paying income tax on the money you withdraw. You must begin taking minimum payments from your Tax-Sheltered Annuity in either the same year as your retire or by age 70 ½, whichever comes first.   Failure to do so will result in a fifty percent excise tax on the money you should be receiving. The only exception to this age restriction pertains to all contributions made to a Tax-Sheltered Annuity prior to January 1, 1987. Anyone who paid into a Tax-Sheltered Annuity before this date is allowed to defer withdrawal until age 75. If you die before the withdrawal period your beneficiaries may receive payouts from your Tax-Sheltered Annuity without paying the ten percent penalty, but they are still responsible for the income taxes.   Regulations on tax compliance change every few years to accommodate inflation rates, and it is important to familiarize yourself with these changes to avoid penalties from the IRS. Helpful resources including articles, worksheets, and an updated FAQ page can be located at www.irs.gov: Tax-Sheltered Annuity or call Estate Street Partners toll-free at 888-938-5872.   Read more articles on: Types of Annuities Annuity Payment Options: Income for Life, Joint Survivor, Annuity Cons Charitable Gift Annuity Private Annuity Trust: Ensured Installment Sale (Structured Sale) Frivolous Lawsuits Terri Schiavo: terminal patient Anna Nicole Dies without a Will Will Contest: What is it? Anna Nicole Smith’s Baby Daughter and her Will How to Hide Your Assets