Estate (Death) Tax Portability

Good article discussing the "portability" aspect of the estate (death) tax.

The “portability election” refers to the right of a surviving spouse to claim the unused portion of the federal estate tax exemption of their deceased spouse and add it to the balance of their own exemption. Since in 2015 the federal estate tax exemption is $5.43 million per person (the exemption changes every year since it is indexed for inflation), this means that a married couple can potentially pass on $10.68 million to their heirs free from federal estate taxes.

Even Professional Real Estate Agent Can't Get "Active" Losses

Under US tax code, rental real estate generates "passive" income unless proven otherwise.

One way to turn "passive" losses into "active" (more generally useful) losses is by being a real estate "professional".

However, even a professional real estate agent was not able to turn her rental losses into "active" losses because she did not devote enough time on the rental properties in question.

MBA Expenses May Be Tax Deductible

In (Kopaigora, TC Summ. Op. 2016-35), the Tax Court found that tuition and other expenses incurred at an executive MBA program may be tax deductible.

Critical in this case is the fact that the student did not enter a "new' profession as a result of his MBA.

An Executor of an Estate Must Pay Decedant's Income Taxes First

If you're the executor of an estate, you must pay back income taxes owed by the decedant before you can disperse assets to beneficiaries.

This is the finding of United States v. McNicol, No. 15-2214 (1st Cir. 2016).

At the time decedant's death, the decedant owed over $340,000 in unpaid federal income tax liabilities. Since these liabilities exceeded the value of his estate, the estate was insolvent.

Nevertheless, the estate's executor distributed assets to herself. The IRS sued for payment of the back income taxes, and the executor lost on appeal.

Don't Pay Children Large Bonuses in Your Family Business

If you run a family business, employing your children is a good way for them to earn money while effectively "shifting" income from your high bracket to the children's lower bracket.

However, the work must be "real", recorded, and at a reasonable pay rate.

In the case of Embroidery Express, LLC vs. Commissioner, Internal Revenue (T.C. Memo. 2016-136), the business owners paid their children relatively small wages during the year, but then gave the children very large bonuses at year end.

Social Security Disability Income not "Earned Income" Eligible for EITC

The EITC (Earned Income Tax Credit) is a "refundable tax credit" ("unconditional money") one can receive after a filing a tax return.

Generally, the EITC is meant to help low income folks who have earnings from a job or self employment.

In this case, (Eva Vellai-Palotay vs. The United States, Ct. of Fed. Claims), a woman who was receiving Social Security disability income sought an EITC tax refund on the basis of her disability income.

Good Records Help Part-Time Ski Instructor Prove She is a "Real Estate Professional"

If you have rental properties, your rental income is generally classified as "passive" unless you can prove you're a "real estate professional".

To be such a "real estate professional", you must work at least 750 hours per year on the properties, among other requirements.

2016 Republican Tax Plan Has "Territorial" Business Taxes

The House Republicans have released their tax plan in advance of the 2016 election.

One unique aspect of the plan is the move to a "territorial system" for business taxes.

Currently, the US is one of the few nations that taxes the earnings of individuals and businesses at a world-wide level. In other words, even if you, or a business, makes money in Europe, you'll pay American taxes on those earnings.

At least for businesses, House Republicans aim to change that :

IRS Re-Introduces More Secure Online Transcript Service

In the spring of 2015 the IRS suspended its "tax transcript" service due to security and privacy concerns. However, the tax transcript service is back online, so taxpayers can obtain copies of information the IRS has on the taxpayer.


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