The Year End is a Good Time to Review Your Estate Plan

As the holiday's approach and the calendar year comes to an end, it is a good time to review your current estate plan. The holidays often serve as a time for self-reflection, and by revisiting your estate plan, you can address any changes you need to make as a result of new circumstances in your life that occurred over the past year. Or, if you do not have an estate plan you may want to reflect on what your situation looks like, and create a plan for you and your family.

A few examples of life changes that could impact your estate are: Marriage, births, deaths, divorce, job changes, large purchases, receipt of a large inheritance or gift, sale of a business or business interest, or your need to start taking distributions from retirement. If any of these life events have occurred in the past year your previous estate plan may be outdated.

Taking the time to review your plan and confirm that your assets are properly titled, that your trust is funded, and the correct beneficiaries are named will ensure that your loved ones are provided for as you intended.

You may also consider creating a document that inventories all of your assets and their locations, various account numbers, information on retirement plans and insurance polices, and a list of your important contacts. This document will give you a refreshed perspective of your situation and will also be very helpful to the person(s) you appoint to administer your estate.  

It is important to review and update your estate planning documents. If you would like to have one of our attorneys review your current estate plan or if you have any questions, please feel free to contact Glick and Trostin, LLC at 312-346-8258.

Disclaimer: The materials on this website are provided for informational purposes only and do not constitute legal advice. Transmission of the information is not intended to create, and receipt does not constitute, an attorney-client relationship between any attorney and any other person, group or entity. No representations or warranties whatsoever, express or implied are given as to the accuracy or applicability of the information contained herein. No one should rely upon the information contained herein as constituting legal advice. The information may be modified or rendered incorrect by future legislative or judicial developments and may not be applicable to any individual reader's facts and circumstances.

Inherited Retirement Plans..the Hidden "Estate" Tax

Over the past few decades, as employers have moved away from pensions, and the concern about the funding of Social Security has increased, employees have been advised to put money away into their 401K, 403B, IRA etc. during their working years to save for retirement.  Many have heeded the advice and over the years have grown a nice nest egg for retirement.  

What many of these individuals are unaware of is that many types of retirement accounts are taxed when they are withdrawn.  Not only are the distributions from these plans taxable during life, but the beneficiaries who may receive a retirement plan as part of their inheritance will be taxed on future distributions. 

As the federal estate tax exclusion has increased over the past decade from $1 million to now $11.18 million before an estate is subject to estate tax, the majority of our clients are no longer concerned about estate tax consequences but rather the income tax impact on their tax-deferred plans.  Thankfully there are a few options to reduce the taxable effect on these distributions. 

1. During life, if the taxpayer has reached the age of 70 1/2, (s)he must begin taking Required Minimum Distributions ("RMDs").  This requires the taxpayer to withdraw a percentage of their total tax-deferred assets each year based upon his/her life expectancy.  One way to reduce the tax on these distributions is to make charitable contributions directly from an IRA to the charity by way of a Qualified Charitable Distribution ("QCD") (see blog post on June 27, 2017) on these distributions.  

2.  Inherited IRAs. Upon death, a retirement plan can be distributed in a number of ways.  Your plan may designate a beneficiary spouse, child, another person, charity, or trust.  How the plan will pay out to your beneficiary may also depend on whether you began taking RMDs during your lifetime. 

3. Charitable Bequests.  If your estate plan includes specific bequests to charities or other 501(c)(3) organizations, it is best to have the tax-deferred funds distributed to the charities so they can receive the assets that would otherwise be subject to tax.  The remaining non-retirement assets can then pass to other beneficiaries tax-free since most other assets would receive a step-up basis upon your passing and would result in little if any tax upon the sale.

It is important to review and update your estate planning documents. If you would like to have one of our attorneys review your current estate plan or if you have any questions, please feel free to contact Glick and Trostin, LLC at 312-346-8258.

Disclaimer: The materials on this website are provided for informational purposes only and do not constitute legal advice. Transmission of the information is not intended to create, and receipt does not constitute, an attorney-client relationship between any attorney and any other person, group or entity. No representations or warranties whatsoever, express or implied are given as to the accuracy or applicability of the information contained herein. No one should rely upon the information contained herein as constituting legal advice. The information may be modified or rendered incorrect by future legislative or judicial developments and may not be applicable to any individual reader's facts and circumstances.

Make Sure You Are Receiving Your Homeowners Exemption

When residents in Cook County receive their Property Tax Assessment Notices, they may be startled to see the increase in their property value.  Property taxes seem to be increasing every year and challenging and appealing the assessments can be difficult for many residents.  One property tax reduction that you may not be taking advantage of is the homeowner's exemption.

When I meet with a new client for tax and/or estate planning matters, one of the first items I check to see is whether they are receiving a homeowner's exemption on their residence if they own their home. This exemption is calculated and taken on the property tax bill. Taxpayers whose single-family home, townhouse, condominium, co-op or apartment building (up to six units) is their primary residence can save $250 to $2,000 per year, depending on local tax rates and assessment increases. 

Those who are over 65 years of age may also be entitled to a Senior Exemption or Senior Freeze on their property taxes as well.

If you are a resident in Cook County, first, check to see if you are currently taking the homeowner's exemption with your County Assessor or Treasurer:

Cook County Treasurer Exemption Search

Cook County Assessor Exemption Search

You can search your property by PIN on the Cook County Treasurer's website or by the address on the Assessor's webiste.

Exemption forms are available on the Cook County Assessor's website if you find that no exemption was taken. Even if you have lived in the property for a number of years and have not claimed the exemption, you can file Certificate of Error forms to request a refund for the Homeowners and/or Senior Exemption the years you qualify. 

Of course, this exemption is not limited to Cook County or the State of Illinois. Contact your local Property Tax Assessor or Treasurer to confirm that you are receiving all credits for being a homeowner in your state.

If you have any questions about tax and estate planning, please feel free to contact Glick and Trostin, LLC at 312-346-8258.

Disclaimer: The materials on this website are provided for informational purposes only and do not constitute legal advice.  Transmission of the information is not intended to create, and receipt does not constitute, an attorney-client relationship between any attorney and any other person, group or entity. No representations or warranties whatsoever, express or implied are given as to the accuracy or applicability of the information contained herein.  No one should rely upon the information contained herein as constituting legal advice.  The information may be modified or rendered incorrect by future legislative or judicial developments and may not be applicable to any individual reader's facts and circumstances.

Did You Forget to Report Your HSA Distributions?

As the summer heats up, many taxpayers will begin to receive notices from the Internal Revenue Service (IRS) that they owe money for unreported income.  One of those unreported items may be distributions made from a Health Savings Account (HSA).  This is a common item that is missed by taxpayers when filing their income tax returns.  

While HSAs are a great option for individuals to save funds for qualified medical expenses, distributions that are taken must be reported each year on their individual income tax return (Form 1040).  The HSA administrator, usually a bank, issues a form 1099-SA reporting the amount distributed from the HSA.  If these funds were used for qualified medical purposes, the distributions are tax-free.  

Unfortunately, if a taxpayer does not report the distribution on their 1040, the IRS will eventually notice the missing information and default the distribution as being taxable.  This results in the IRS mailing the taxpayer a notice letter stating that they underreported their income for the tax year at issue along, with a tax due on the amount.

Most taxpayers utilize the distributions for medical expenses and their 1040 will need to be amended for the year in question to remove the additional tax.

If you have any questions relating to tax planning, please feel free to contact Glick and Trostin, LLC at 312-346-8258.

Disclaimer: The materials on this website are provided for informational purposes only and do not constitute legal advice. Transmission of the information is not intended to create, and receipt does not constitute, an attorney-client relationship between any attorney and any other person, group or entity. No representations or warranties whatsoever, express or implied are given as to the accuracy or applicability of the information contained herein. No one should rely upon the information contained herein as constituting legal advice. The information may be modified or rendered incorrect by future legislative or judicial developments and may not be applicable to any individual reader's facts and circumstances. 

Don't Be Shocked Next Tax Season, Review Your Tax Withholdings Now

The Tax Law and Jobs Act was passed at the end of 2017 that resulted in a number of changes in the tax code taking place starting in 2018.  Many of those adjustments created a pleasant surprise to W-2 employees. Paychecks were a little higher due to the lower tax brackets and the resulting tax withholding calculations. 

What might be more of shock to some of those employees is the tax liability they may owe when they file their taxes next year.  This is due to the fact that the withholding calculator that many employers use in determining what should be withheld for federal income taxes is based on the exemptions taken when you file your W-4 with your employer.  As our tax laws have been fairly consistent over the past three decades, individuals who see a fairly consistent income from year to year can usually expect their tax liability to be consistent. 

However, with the changes to the standard deduction and limitations on the state and local taxes, many individuals who previously itemized will no longer itemize going forward.  It is estimated that 90% of taxpayers will take the standard deduction in 2018.  

The other shift is that depending on the individuals withholding calculation, a taxpayer may see a savings in their total income tax but as their withholding was reduced each pay period, they end up with a large tax liability when they file their taxes. The result could be a fairly sizeable tax liability from the prior year.

To avoid this painful surprise next year, it is best to review your tax withholdings now so that you can adjust them and catch up on any shortage that is found. 

If you have any questions about tax planning, please feel free to contact Glick and Trostin, LLC at 312-346-8258. 

Disclaimer: The materials on this website are provided for informational purposes only and do not constitute legal advice. Transmission of the information is not intended to create, and receipt does not constitute, an attorney-client relationship between any attorney and any other person, group or entity. No representations or warranties whatsoever, express or implied are given as to the accuracy or applicability of the information contained herein. No one should rely upon the information contained herein as constituting legal advice. The information may be modified or rendered incorrect by future legislative or judicial developments and may not be applicable to any individual reader's facts and circumstances.

Double Check Your Paycheck Tax Withholding

In the next few weeks, you will likely see a little extra in your paycheck from work.  This is due to the Tax Bill that was passed at the end of the year.  Due to the reduced tax bracket rates, the Treasury Department has announced changes to the withholding tables that employers use to calculate the tax to be withheld for federal income taxes from your paycheck.

With the updated tables, employers may utilize the previous W-4 that you submitted to them.  What this doesn't take into consideration is the increase in the standard deduction and the elimination of the personal exemptions.  Therefore you will want to make sure that any adjustments in withholding will not leave a larger than expected tax bill when you file your taxes in 2019.

If you have any questions related tax planning, please feel free to contact Glick and Trostin, LLC at 312-346-8258.

Disclaimer: The materials on this website are provided for informational purposes only and do not constitute legal advice. Transmission of the information is not intended to create, and receipt does not constitute, an attorney-client relationship between any attorney and any other person, group or entity. No representations or warranties whatsoever, express or implied are given as to the accuracy or applicability of the information contained herein. No one should rely upon the information contained herein as constituting legal advice. The information may be modified or rendered incorrect by future legislative or judicial developments and may not be applicable to any individual reader's facts and circumstances.

Understanding Tax Brackets

I have had a number of clients ask me if they should stop earning income to make sure they don't enter the next tax bracket as they fear it will affect their total tax liability.  The fear comes from the belief that if they go from the 24% tax bracket to the 28% tax bracket, all of their income will now be taxed at 28%.  This is an all too common misconception and hopefully, this blog will help explain how income is taxed in the United States.

In the United States, we have graduated income tax brackets.  Beginning in 2018, individual income taxpayers will have 7 tax brackets (10%, 12%, 22%, 24%, 32%, 35% and 37%).  Below is the tax table for Married Individuals Filing Jointly.

When we speak of tax rates, there are two different definitions.

Marginal tax rate: this is the tax bracket at which your last dollar of income was taxed.  So if in 2018 you make $78,000, your marginal tax rate would be 22%.

Effective tax rate: this is the actual average tax rate you pay on your total income.  As you pay a different tax rate as you increase your income, your average tax will be less.

For example.  If a married couple has $78,000 of taxable income, the first $19,050 is taxed at 10%, $19,051 to $77,400 is taxed at 12% and the first $599 is taxed at 22%.  Therefore, the total tax on $78,000 would be $9,039 or an effective tax rate of 11.6%.

So continue to earn income without too much concern about taxes.  Jumping into the next tax bracket will only affect your additional income.

If you have any questions related tax planning, please feel free to contact Glick and Trostin, LLC at 312-346-8258.

Disclaimer: The materials on this website are provided for informational purposes only and do not constitute legal advice. Transmission of the information is not intended to create, and receipt does not constitute, an attorney-client relationship between any attorney and any other person, group or entity. No representations or warranties whatsoever, express or implied are given as to the accuracy or applicability of the information contained herein. No one should rely upon the information contained herein as constituting legal advice. The information may be modified or rendered incorrect by future legislative or judicial developments and may not be applicable to any individual reader's facts and circumstances.