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Self-Employment Tax and K-1 Income: What You Need to Know

September 16, 2014

Filed under: Business Law,Business Planning,Income Tax Planning,LLCs — Tags: — Neel Shah @ 9:21 pm

What happens if you receive a K-1 from an LLC and there are self-employment earnings listed on line 14? Are you responsible for reporting those as subject to the self-employment tax? The self-employment tax is an additional payment of 15.3% to account for Medicare and Social Security. We’re taking a page from the Tax Times blog today to talk about this issue. For the most part, a taxpayer’s portion of ordinary income from partnerships (including LLC’s) reported on a K-1 is indeed subject to the self-employment tax. There are, of course, exceptions. This requires the assistance of an experienced team of accountants and tax attorneys, since the solution for you likely depends on your individual circumstances, the state of formation for the LLC and whether the LLC is taxed as a pass-through entity. In any case, it could be worth your while to discuss this issue with a trained professional to learn whether you are liable for the self-employment tax or not. To learn more about complicated tax issues and reporting of self-employment income, contact our offices at 732-521-9455 or through email at info@lawesq.net. Self-Employment Tax and K-1 Income: What You Need to Know

Especially For Those In N.J. & C.A.: Personal Tax Inversions to Avoid State Income Taxes

August 26, 2014

Filed under: Estate Taxes,Income Tax Planning,Trusts — Tags: — Neel Shah @ 6:36 pm

Take a look at the articles out there on either side of the issue and you’re likely to find compelling arguments for and against the use of corporate tax inversions. Some believe that tax inversions are not patriotic, but others see the issue as maximizing gains while “playing the rules” of the tax code game. Did you know that there’s a personal tax inversion you might be able to use to save hundreds of thousands (or more) on your state income taxes? It’s not right for everyone, but in the right situation can be a valuable tool.

In this situation, you can reap the benefits of having your assets located in a different jurisdiction, preferably one with no state income tax at all. A personal tax inversion, however, might be even simpler, because it doesn’t require you to transfer assets outside the country- just to another state. This can be done through a non-grantor trust. You are in some sense not really seen as the owner of the trust for tax purposes. Ensure that you work with an attorney who understands what, if any, gift tax implications there are of making such a move. The attorney drafting your paperwork should explain this to you and make you aware of whether you will be subject to gift taxes in exchange for giving up the burden of being hit with state income taxes. To learn more about non-grantor trusts, give us a call today at 732-521-9455 to get started.

Especially For Those In N.J. & C.A.: Personal Tax Inversions to Avoid State Income Taxes

 

 

 

 

 

 

 

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Do I Need a Trust?

August 5, 2014

Filed under: Estate Planning,Estate Taxes,Income Tax Planning,Probate,Trusts — Tags: , , , , — Neel Shah @ 3:32 am

As trusts have gotten more popular and evolved in type to appeal to a lot of people, so now you might be under the impression that you must have a trust. While it’s not for everyone, there are so many trusts out there that it’s very likely you could find one that will help you to meet your goals, including to protect your assets and minimize taxes.

Do I Need a Trust?

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Major liquid assets, setting up care for a child with special needs, and a variety of real estate ownership are a few of the reasons that people might initially turn to trusts. If you’re a resident of a state with a high state estate tax, income tax or probate costs, you’re likely to be concerned about the hit of taxes, too. This refers to situations where a federal estate tax is factored into your asset value, but an additional taxable event occurs at the state level. Without proper planning, you could find that the value of the assets you have worked so hard to build is extremely vulnerable to these taxes and costs.

Contact our offices today to learn more about how these trusts can help you. Send us a message at info@lawesq.net or call us 732-521-9455.

What is a Self-Settled Trust? Asset Protection & Tax Savings.

August 4, 2014

Filed under: Asset Protection Planning,DING,Income Tax Planning,NING — Tags: , , , — Neel Shah @ 3:22 am

Right now, gift and generation skipping transfer tax exemptions, set at $5.34 million each, have caused a resurgence in interest regarding self-settled trust. As of now, only fifteen states allow for these types of trusts: Alaska, Delaware, Hawaii, Mississippi, Missouri, Nevada, New Hampshire, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah, Virginia and Wyoming. Several of these states, including Delaware and Nevada, tend to be popular locations for DING/NING trust establishment when the trust creator lives in a high state income-tax and capital gains tax environment.

What is a Self-Settled Trust?  Asset Protection & Tax Savings.

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Under a self-settled trust, grantors may even be a beneficiary of an irrevocable trust that is established for their own family. As long as no assets are transferred fraudulently, no exception creditors, and no pre-existing arrangement between the trustee and grantor, a trust grantor can establish himself or herself as a beneficiary.

These trusts are most often used for domestic asset protection in four separate ways: a self-settled trust, spendthrift protection, modern discretionary trust protection, and the establishment of a limited liability company to shield and own trust property. In their most common form, self-settled trusts are used as an alternative to off-shore trusts. To learn more about trust creation and management that maximizes protection, email us at info@lawesq.net or contact us via phone at 732-521-9455.

Indian HSBC Client Found Guilty of Hiding Offshore Accounts

August 1, 2014

Filed under: Asset Protection Planning,Income Tax Planning — Tags: , , — Neel Shah @ 3:08 am

Offshore account taxpayer Ashvin Desai was recently sentenced to six months in prison in addition to six months of home confinement for not reporting foreign bank accounts on tax returns and FBAR filings. The medical device manufacturer had previously been convicted of hiding more than $8 million in foreign bank accounts.

Indian HSBC Client Found Guilty of Hiding Offshore Accounts

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In addition to being charged with tax evasion and tax perjury, he also pleaded guilty to failing to file an FBAR. The money from his offshore accounts were used to invest in CODs, where he earned interest rates up to nine percent. In addition to all the other charges and penalties for the efforts he took to hide the assets, he was also assessed a $14,229, 744.00 FBAR penalty. While these penalties may seem severe, he was actually very lucky in the sentencing, as he could have been facing 552 months in prison.

The government was forced to prove their case in court, but what sealed the deal was email proof that Desai was making efforts to conceal the money and how it was being transferred. While there are obvious lessons here about using email to share any kind of sensitive information, it’s also an opportunity to highlight the importance of proper FBAR filing. To ensure the proper compliance with FBAR, contact us today at info@lawesq.net or via phone at 732-521-9455.

When to Think About Charitable Remainder Unitrust Alternatives

July 18, 2014

Filed under: Charitable Giving,Income Tax Planning,Taxes,Trusts — Tags: , , , — Neel Shah @ 4:40 pm

For many individuals approaching estate planning, charitable giving is going to factor into the equation somehow. The most popular way of passing on assets currently is through a charitable remainder unitrust, but it’s not necessarily the best option for everyone, although last year nearly $90 billion was held in U.S. trusts of this type.

When to Think About Charitable Remainder Unitrust Alternatives
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Here are some of the most common reasons that you might want to use something other than this trust vehicle for your charitable giving:

  • Tax Savings Today: You want maximize your current tax deduction. A charitable lead trust could be a better alternative for this situation, since you get an immediate federal income tax deduction when the gift is made. The tax deduction equals the present value of the future income stream.
  • You want the gift to begin now: Under a charitable lead trust, the client will typically gift the assets directly to a charitable trust. That trust then makes regular payments for a specific number of years or for life. Under a remainder trust, though, the charity doesn’t get anything until the trust’s term is up.
  • You want to see regular payouts: This is there’s a difference between a charitable remainder annuity trust and a unitrust. The annuity trust guarantees equal payouts throughout the length of the term (such as every year), which gives the person setting up the trust confidence that payments are being made at regular intervals.

When it comes to charitable giving, you have options. Contact us today to learn more via email info@lawesq.net or 732-521-9455 to get started.

Saving Taxes: Is a DING Trust Right For Me?

July 15, 2014

Filed under: Income Tax Planning,Taxes — Tags: , , — Neel Shah @ 4:25 pm

Like a lot of business planning strategies, it’s best that you meet with a legal professional to discuss the best tactics for your situation. One of those strategies might be a DING (Delaware Incomplete Non-Grantor Trust), a tool that is growing in popularity for managing and minimizing both federal and state income taxes. Especially for those individuals living in states with high income taxes, a DING trust is a powerful strategy for making the most of your assets without being so negatively impacted by taxes.

Saving Taxes Is a DING Trust Right For Me
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In a DING trust, a person can transfer assets (including some business interests) that produce a high level of income into a trust without triggering a state or federal gift tax. The state income taxes are actually transferred from the resident’s home state to a state where trust income is not taxed. There are several jurisdictions that have been used in the past for this purpose include Nevada, Delaware, and Alaska.

This type of trust is a great choice for someone who has significant portfolios that generate income or those individuals that live in a high tax state concerned about the tax implications of their assets. This form of asset protection gives peace of mind and confidence to those who use it. As of right now, New Jersey does not tax trust income if there are no resident trustees. Therefore, assets held in a DING trust may be exempted from high state income taxes (8.975% in New Jersey). For special tax planning, contact us for more details at info@lawesq.net or over the phone at 732-521-9455 to get started.

Mid-Year Tax Planning Tips

June 20, 2014

Filed under: Income Tax Planning,Retirement Planning,Taxes — Tags: , , — Neel Shah @ 3:57 pm

While not much has come out in the first half of 2014 with regard to tax legislation, there are still some important tax planning opportunities to tap into. Mid-year is a great time to schedule in your financial and estate planning review to double-check that nothing has changed and to verify that you don’t need any additional components in your plan.

Mid-Year Tax Planning Tips
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Income tax planning usually involves a mix of three separate strategies: earning income that is received with favorable tax rates, like that which comes from qualified dividends or long-term capital gains, delaying the payment of tax by deferring income receipt to another year, and avoiding income bubbles that bump you up to another tax rate.

One way to reduce your tax obligations and contribute to your future is to ensure that you’re putting money (and enough of it) into a tax-qualified retirement plan. Doing so means that you are deferring taxes on earnings until you actually take the distributions out.

Finally, a great mid-year step to take is to verify that you are keeping good records. While most people make this promise to themselves after a hectic tax season in April, they tend to forget about it until tax time rolls around again next year. Instead, make sure you’ve kept track of your charitable deductions to date, any extra income, and other tax-related details. It’s also a great time to set up a meeting with your planner to discuss more options, especially if you have other goals you’d like to meet. To schedule your mid-year review, call us at 732-521-9455 or send an email requesting an appointment to info@lawesq.net.

Do you feel lucky? What is a Quick Draw Buy-Sell Agreement?

April 30, 2014

Filed under: Finances,Income Tax Planning,Inheritance Taxes,Insurance,Life Insurance,Small Business Owner,Taxes — Tags: , , , , , , , , — Neel Shah @ 8:52 am

Many business owners have a buy-sell arrangement set up for the future. It’s helpful to draw out these directions in advance, especially when there is the potential that future owners or part-owners might get gridlocked with one another. In these situations, buy-sell directions can help disputing parties move forward.

Do you feel lucky What is a Quick Draw Buy-Sell Agreement

It’s possible that you’ve already heard about a shotgun buy-sell arrangement, but a quick draw agreement is a bit different. Under a shotgun, the offering individual stipulates a price. The offerree then has the option to buy those shares or to sell their own shares to the offeror. The exact timing isn’t a major issue in this situation, since the offeree retains the option to either buy or sell. In some ways, this can even be seen as a disincentive to pull the trigger.

All that changes under a quick draw arrangement. Under a quick draw, either side can provide a notice to purchase the other’s shares at a price that is determined through an appraisal process. This can happen after a contractually defined “trigger event”, but the timing of the trigger pull is essential in quick draw. Simply put, timing is everything.

Under quick draw, buyer and seller designation is determined simply by who submits their notice to purchase the other’s shares first. A difference of even just minutes can determine who gets to buy and who gets to sell. This complex process was recently held up in Mintz v Pazer, in which the judge supported this out of the box buy-sell arrangement.

If you’d like to learn more about your buy-sell options and put a plan for the future in motion today, reach out to us at 732-521-9455 or email us at info@lawesq.net

Tax Avoidance Scheme for Wealthy: Move Assets Across State Borders

February 18, 2014

Filed under: DING,Income Tax Planning,NING,Taxes,Trusts — Neel Shah @ 10:00 am

Not all states are created equal when it comes to income taxes. As part of their estate planning and asset protection schemes, wealthy Americans are taking advantage of this inequality by moving billions of dollars’ worth of assets to newly created trusts in states that do not impose income taxes. A recent article discusses this tax avoidance scheme.

Income Tax

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The scheme is similar to that employed by large corporations that move operations or assets overseas to avoid or reduce taxes. Popular states for tax avoidance include Delaware and Nevada. The legislatures for both states have passed laws in order to make their state more appealing for wealthy Americans considering moving their trusts. While Nevada has no state income tax, Delaware allows out-of-state beneficiaries to avoid income tax liability.

Estate planners shifted their focus to income tax avoidance after Congress significantly narrowed the field of individuals who will be responsible for paying federal estate tax. Currently, federal estate taxes only apply to those who have an estate with a total value of $5.34 million.

However, this practice is not without scrutiny. Officials in the state of New York are particularly concerned, as this practice drains an estimated $150 million per year from the state. Recently, a New York tax commission recommended laws that would limit the use of out-of-state trusts.

To evaluate your options in setting up a trust, please contact us at 732-521-9455.

 

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Income Tax Planning While Planning Your Estate

October 15, 2013

Filed under: Estate Planning,Estate Taxes,Income Tax Planning — Neel Shah @ 9:00 am

Now that the American Taxpayer Relief Act of 2012 has bumped the federal estate tax exemption up to $5.25 million, a recent article explains that many individuals are now turning their energy to estate planning maneuvers that will reduce their income tax bills.

Most income tax planning strategies are aimed at individuals who have a high net worth, yet do not anticipate their estate to be valued at or above $5.25 million upon their death. One popular strategy is making a loan to a family member or friend in a lower tax bracket at a low interest rate. The borrower can invest the money and take out the dividends, interest, and capital gains. Eventually the borrower will pay the loan back and the lender will have his or her money back so he or she can pay for retirement or medical expenses.

Like the maneuver described above, income tax planning often involves the shifting of assets in order to reduce the income tax liability on those assets. Incorporating a trust into the strategy may also fortify the plan to protect against creditors and State Estate taxes.