Why You May Want to Make Year-End Charitable Donations

The new tax law has been forecasted to result in $21 billion less in charitable giving in the coming year.  As an estimated, 95% of Americans will now take the standard deduction rather than itemize, few will see a tax advantage for charitable giving in the coming years. Therefore, it might be beneficial to make your charitable donations before December 31st.  

Charitable donations can include in-kind donations to the Salvation Army or Goodwill, as well as monetary donations to religious and other nonprofit organizations that qualify as 501(c)3 organizations under the IRS code. 

Another popular donation is a yearly membership. Some or all of the costs of memberships to organizations that qualify as nonprofit 501(c)3 organizations such as the Chicago Botanic Gardens, Children's Museum, Shedd Aquarium, and Lincoln Park Zoo among many others can be tax deductible. Often times, the cost of a family membership can pay for itself in as few as two visits for a family of four.  

Just remember to keep your receipts for these expenses in a safe place so that you can provide documentation for the tax deduction when you file your income taxes.

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.

            

If you have any questions regarding your personal taxes and other exemptions you may qualify for, please feel free to contact Glick and Trostin, LLC at 312-346-8258.

The New 20% Deduction on Pass-Through income, What is It? And does it affect you?

There are many intricacies of the new Tax Act that will be discussed and analyzed over the coming weeks and months.  While some of the changes will allow for a tax reduction for "pass-through" entities, the complexities of the tax bill should be discussed with your tax advisor to make sure you understand how it affects you before you make any significant financial or employment changes.  For now, here are some of the guidelines that you should be aware of for the 20 percent deduction on pass-through businesses:

First, pass-throughs include sole proprietorships, partnerships, limited liability companies and S-corporations.  As long as the income of the business flows from the business and is reported on the taxpayer's individual income tax return, you are likely a pass-through entity. 

Second, if your taxable income is under $315,000 (for a married-filing-joint return), or $157,500 for a single person, beginning January 1, 2018, you may qualify to reduce your net domestic “qualified business income” with a 20% deduction. 

For purposes of this article, “qualified business income” means ordinary operating income of a trade or business, but would generally exclude capital gains/losses from trading businesses.  “Net” means qualified domestic business income less allowable deductions.

Your qualified business income may be active or passive, so it may include real estate activities.  Further, under the passive income category, dividends from REITs (Real Estate Investment Trusts) or qualified publicly traded partnerships (but not including capital gains or capital dividends) would qualify.

The 20% deduction will be taken AFTER arriving at adjusted gross income, but before arriving at taxable income.  But keep in mind that net qualified business income would still be subject to Self-Employment taxes and/or Net Investment Taxes, as applicable, before the deduction.

With that said, here is an example:

Rose is a single independent consultant who earns $100,000 a year after expenses.  Since Rose is a sole proprietor, she takes the money from her business as income rather than a salary.  This is what is known as "pass-through" income and it is taxed at personal income rates and is also subject to self-employment taxes.

If Rose takes the standard deduction of $12,000, her taxable income would be $88,000 ($100,000 - $12,000). She, therefore, qualifies to take the business deduction. She would then deduct 20% of her pass-through business income $100,000 x 20% = $20,000.  Her new taxable income would be $68,000 ($100,000 - $12,000 - $20,000).

Phase out rules for the deduction will apply to taxpayers with income between $315,000 and $415,000 for a joint return, and between $157,500 and $207,500 for a single person.

Finally, For taxpayers over these limits, income from service businesses will be strictly limited as to what will be considered qualified business income.  Most service business, other than engineering or architectural services, fall under the definition of being a “specified service trade or business.” If you fall under this definition, you do not qualify for the deduction if your taxable income is in excess of the limits.

The pass-through tax rules are new and can be complex, it is advisable to consult with your tax advisor to ensure that you are planning accordingly with the new tax law in mind.

If you have any questions related to how you and your business might plan ahead for tax efficiencies under the new tax laws, 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.

Prepay your Property Taxes for 2017 Tax Deduction

With the likely passage of the Tax Cuts and Jobs Act, it is estimated that the majority of taxpayers who currently itemize their deductions will take the standard deduction for the tax year 2018.  

The reason for this change will be capping of State and Local Tax and Property tax deductions at $10,000.  A single individual will now have a standard deduction of $12,000; head of household $18,000; and a married couple filing jointly $24,000.  A single individual may still be able to itemize although it will be more difficult to exceed the standard deduction for head of household and married couples.

Due to this limitation for some, the payment of property taxes and income taxes may not be utilized in 2018.  Therefore it will benefit taxpayers who will be capped at $10,000 to make their first installment of their 2018 property tax bill by December 31, 2017 in order to include in their 2017 deductions.

If your mortgage company makes the property tax payment through escrow, you will want to notify them if you do make a payment so that the tax bill isn't paid twice. Further, if you are looking at making charitable contributions, it may benefit you to make those contributions before the end of the year as well. It is best to discuss this with your tax preparer to determine if it will be a benefit to you.

You can contact your County Treasurer to request to pay your first installment before December 31st or you can obtain your first installment property tax bill for the following counties in Illinois:

Cook County

Lake County

DuPage County

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

Other Topics:

Are You Missing the Homeowners Exemption

Qualified Charitable Distributions From Your IRA RMDs

Charitable Giving to 501(c)(3) Organizations

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.

Year-End Gifting

With the holiday season approaching, people may be looking to make gifts to family and loved ones beyond the typical holiday gift. Gifts can come in all sizes and shapes and some may wish to make a more substantial gift than a new sweater.  An individual can make a lifetime gifts of up to $5,450,000 without ever having to pay gift tax.  While most individuals would never imagine making gifts of such amounts without winning the lottery, Gift Tax Returns are required for any gifts made over the annual exclusion amount ($14,000 in 2017 and $15,000 in 2018). 

Each year you are allowed to gift up to a certain amount per an individual without having to report the gift on a gift tax return--the annual exclusion. In 2017 the exclusion amount was $14,000 and that the amount will be increased to $15,000 in 2018. Couples can gift up to $28,000 per an individual in 2017 without having to report it on their taxes, an option known as gift splitting.

Education Exclusion: You may pay for education expenses of an individual and they do not count towards the annual exclusion as long as they 1) are paid directly to the institution providing the education, and 2) must be for tuition only. 

Medical Exclusion: You may also pay for medical expenses for someone and not have it count towards your annual exclusion as long as the payments are 1) made directly to the medical provider, and 2) the medical expenses qualify under the "medical care" requirement for deductions for income tax purposes. 

Downpayment for a home: A common gifting scenario is a parent or grandparent helping out with the down payment for a home so that the gift recipient does not have to pay mortgage premium insurance.  This may require a gift letter but can be a significant assistance for someone looking to purchase their first home. (These gifts are subject to the same gift tax laws and do not qualify for a special exclusion.)

If you wish to gift more than $14,000 to a person but do not want the added hassle of filing a gift tax return, the 4th quarter (end of the year) provides you with an opportunity to make two gifts, one at the end of 2017 and one at the beginning of 2018. By doing this, you can gift up to $29,000 (or $58,000 if a married couple) to another person without having to file a gift tax return.

If you gift to any one person an amount over the annual exclusion in a given year, you will have to file a federal gift tax return (Form 709). This will begin a lifelong, running total to keep track of gifts that you make that are over the annual exclusion. Once you have made gifts exceeding the amount you are allowed to give away in your lifetime ($5,450,000 in 2017 per the Internal Revenue Service), you will then owe a gift tax on the excess amount.

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

Other Topics:

Do I Owe on an Inheritance or Gift?
Qualified Charitable Distributions From Your IRA RMDs
Charitable Giving to 501(c)(3) Organizations

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.

Estate Planning During and After Divorce

Divorce can be a painful and difficult process for you and your family. Once the big decision to go separate ways has been made, there are more decisions and seemingly endless paperwork separating and re-titling assets, selling or refinancing the family home and/or relocating to a new one, custody issues if there are minor children, college expenses for older children... These tasks and more must be completed to be able to move on with your lives.

Often forgotten after everything is settled are changes that need to be made to your beneficiaries and estate planning documents. No matter how well your relationship is with your ex-spouse, most people would agree that their ex-spouse is the last person they want to inherit when they die or to have that person make life and death decisions for them. Unfortunately, that is exactly what can happen if your estate planning documents are not updated. Below is a list of items to review and update to ensure that the correct person/people are named.

Beneficiaries on Retirement Plans and Insurance Policies

Even if you never created an estate plan while you were married, you may likely have a retirement plan or life insurance policy.  Many times the named beneficiary on those accounts is your spouse. After a divorce, your spouse is not likely the beneficiary you would like named unless required pursuant the divorce decree.  As these plans are contracts, the named beneficiary benefits upon your passing unless you update the policy or plan documents accordingly.  

Power of Attorney for Healthcare and Property

As most people will not want their former spouse to have authority over end-of-life decisions or access to medical records it is, therefore, important for someone going through a divorce to update their power of attorney documents.  Most importantly for someone going through a divorce or soon thereafter, is to make sure their power of attorney for property is updated.  The POA for property could allow an ex to have access to bank, brokerage and retirement accounts, or possibly make financial transactions without your consent.  If a client does not have a health care or property POA, it is encouraged that they prepare one so that they can name a trusted individual.

Executor and Trustee
Similar to your health care and property POA documents, revising your will and revocable trust should be at the top of your list.  Most people probably don't want to leave everything to an ex-spouse and will want to revise their will and trust to provide for their children, parents, siblings, and/or charities.

The ex-spouse is also likely named as Executor and Trustee in these documents,  you will want to name someone else for these positions as well as naming a guardian and successor guardian for your children.

It is important to review and update your estate planning documents accordingly after a life-changing situation. 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.

Protect Rental Property Assets with an LLC

Real Estate has always been considered a safe investment since the supply is finite and the demand grows with the population.  Even though we have seen some swings in the real estate market over the past decade, the theory still is held true by many.  Purchasing a rental property is a common investment as individuals look to diversify their portfolio with reducing their risk in the stock market. Oftentimes individuals will buy their first home and keep it as a rental when they purchase their next home.

One downside to owning rental property is that you are at the risk for the liability arising out of any accident that might occur on your property.  If the property is in your name alone, a lawsuit could expose your other assets to this risk.  This is why it is advisable to place rental properties into a limited liability company ("LLC") to limit the liability exposure.  Having an LLC provides an owner with a legal veil that will usually protect the owner's other personal assets from legal claims and limit what could be recovered in a lawsuit.

Most states have enacted Limited Liability Statutes.  Since LLCs are governed by state law, it is important to understand the filing and annual reporting requirements within the state and how to effectively transfer title of the assets into the LLC.

An LLC has the advantage of pass-through taxation.  This means that the LLC will file either as a partnership if there are 2 or more members (owners) or report the earnings directly on your individual tax return (Schedule E) if you are the sole owner. This avoids double taxation as corporations have to file a corporate tax return and then each individual owner files his/her earnings on an individual return, resulting in double taxation.  You can avoid this by forming an LLC.

If you have any questions about business entities and 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.

Illinois Probate law Frequently Asked Questions

The probate process can be confusing and complicated for many who are trying to navigate issues that may come up at the end of the life of a loved one.  A good probate attorney is one who is willing to walk a client through the process, address common issues and assist with strategic planning for an estate. Below are answers to common questions that we receive from clients who are attempting to understand the probate process in Illinois.

What is Probate?

Almost everyone leaves assets behind when they pass away.  Some individuals will plan extensively for the distribution of their assets, while others leave little direction behind.  The process to determine the distribution of assets after someone's passing is called probate.  Whether there was a Will or not, legal assistance can help tremendously when going through this process.

How Long Does Probate Take in Illinois?
Every case involves different sets of facts and circumstances so there is not a standard timeline for probate proceedings.  Thankfully, we do have an approximate minimal time period as Illinois law requires the executor or administrator of the estate to file notice to creditors and run an official notice in a local newspaper.  Upon such notice, creditors have six (6) months to file claims.  Once the six month period expires, if there are no other matters before the probate court, the estate may close.

When is Probate Required in Illinois?
Probate is not always required in Illinois, and when it is required it is determined by the amount of property being passed through the estate*. However, probate is not required for assets like life insurance, retirement accounts and other assets that have assigned beneficiaries.  These types of assets go directly to the named beneficiary after the decedent's death.  

*If an individual passes away with real and personal assets that are greater than $100,000 in value, the estate must go through probate with a judge overseeing the distribution of the assets.

What is a "Small Estate" in Illinois?
Under 755 ILCS 5/25-1, there is an exemption for smaller estates in Illinois to avoid probate.  If an individual passes away with assets under $100,000, the use of a Small Estate Affidavit may allow a representative of the estate to collect assets and pay creditors without the need of going through the probate process in court.  It is important to seek advice as without the probate process and notice to creditors, creditors may have up to two (2) years to file claims against the estate.

How to Avoid Probate in Illinois?
Many individuals think having a Will will help avoid the probate process.  While it may help make the probate process proceed a little faster, it does not avoid the probate requirement.  Individuals may plan to put assets in joint accounts with individuals they would like to inherit their assets or name beneficiaries on certain accounts.  Another common planning technique is titling assets in a Living Trust in combination with a Will.  Discussing a Trust with an attorney will help to understand the process of retitling assets and making sure that the objectives of the estate plan are met.

How much will the Probate Process Cost in Illinois?
There are numerous variables in the probate process so the total cost will vary case by case.  There will be certain fixed costs of the probate process such as filing fees and Notice to Creditors; however,  the planning put into place by the decedent may help reduce the time and expenses needed to administer an estate. Discussing the process with an attorney beforehand and understanding the requirements and potential issues will hopefully provide you with an approximate cost.

What does "Testate" and "Intestate" mean?
In Illinois, if someone passes away with a valid Will at the time of their death, then that person is said to have died "testate" and their assets will be distributed according to their Will.  If someone passes away without a Will, then they are deemed to have died "intestate" and their assets will be distributed according to the laws of Illinois under the intestacy statute 755 ILCS 5/2-1

What are "heirs" and "legatees"?
If a decedent leaves a valid Will in Illinois leaving assets to a specific person, then that person is referred to as a "legatee".  If an individual is inheriting under the laws of intestacy in Illinois or by relation to the decedent, then that person is considered an "heir".

How are Creditors Paid after Death?
A decedent's final expenses must be paid before their assets may be distributed to beneficiaries. The creditors are paid from the estate's assets and those assets alone. There is no liability on the executor, administrator or heirs personally.  If the estate goes through probate, creditors have up to six (6) months to make claims under 755 ILCS 5/18-3 on the estate as long as notice is properly given.  If the estate does not go through probate, creditors have up to two (2) years to make a claim.

Once claims are filed, they are paid in order of priority under 755 ILCS 5/18/-10.
1.  Funeral and burial expenses, statutory custodial claims, and expenses of the administration;
2.  Surviving spouse's award or child's award;
3.  Debts due the United States;
4. Money due employees of the decedent of not more than $800 for each claimant for services rendered within four months prior to the decedent's death and expenses attending the last illness;
5.  Money and property received or held in trust by decedent which cannot be identified or traced;
6. Debts due the State of Illinois and any county, township, city, town, village or school district located within Illinois; and
7.  All other claims.

How is Property Transferred in Illinois after Death?
Once all claims and expenses have been paid, then the estate may begin distribution to the heirs and legatees of the decedent.  The distribution may also be delayed if assets need to be sold such as a home or other property in order to allow for distribution to the heirs and legatees.

If you have any questions about probate or creating an estate plan, please feel free to contact Glick and Trostin, LLC at 312-346-8258. To read more about essential estate planning documents, please click here.

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.

What to do about IRS Tax Debt

Having a tax debt can feel like a dark cloud is following you everywhere you go. Fear that the IRS could levy your bank accounts, attach liens or worse: Prison. Thankfully, if you are willing to work with the IRS in attempting to resolve your outstanding tax debt, you can keep the collection activity at bay.

The key to resolving a tax liability is to respond to the IRS as quickly as possible when you receive notification that you owe taxes. Today, individuals who have outstanding tax liabilities will begin to receive notices or correspondence by mail (the IRS will never contact you by phone). Unfortunately, many of the clients who contact our office have ignored those letters and do not reach out to the IRS to begin resolving their tax issues until the IRS finally starts to collect the outstanding debt by garnishing wages, levying bank accounts or filing a lien. 

A tax professional can help you through the administrative process of working with the IRS and advise on what actions should be taken to succeed in resolving your situation and halting all garnishment and levy activities.

First, the IRS requires that taxpayers are compliant and current with all tax return filings.  This means that all missing tax returns must be filed with the IRS before the IRS will even begin to discuss stopping collections for any other year. If a tax return was not filed by the taxpayer, the IRS can file a return on your behalf; this is referred to as a substitute for return. As the IRS does not have complete visibility into your deductions, the tax assessed in a substitute for return usually results in the worst case scenario.  Therefore filing your actual tax return can likely reduce the assessed tax liability. 

Secondly, the IRS will request copies of your bank statements and request a Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals. This information will report to the IRS all assets, income, debt, and expenses for your household. The purpose of this form is to determine if you have the ability to make payments on your tax liabilities and if so, how much. 

Once you are tax filing compliant and you provide your financial information, you and your tax advisor can review your options for resolving your tax debt. The four options are: pay the full tax liability, enter into an installment plan, request an Offer in Compromise, or do nothing. 

By paying off the full tax liability, you would put an end to all collection and levies would be released. This is obviously the quickest resolution although for many it is unrealistic depending on the tax liability and the ability to pay. 

Doing nothing is the simplest response: you simply allow the IRS to continue to take collection action against you until the statute of limitations period ends on the collection of tax debt (10 years from the date of filing). 

Entering into an installment plan is the most common action taken. The IRS will review your income and expenses and request a monthly payment to be made until the taxes are paid or the statute of limitations for collection has expired.

Finally, the option that many people have heard about is the Offer in Compromise. This option allows the taxpayer to offer a lump sum payment in exchange for having the total tax liability released. This is the most attractive option for many when they contact our office as they believe they can obtain a resolution with paying pennies on the dollar. Unfortunately, the IRS is very strict about accepting an Offer and it weighs numerous factors into its decision such as age, health, total assets, total debt and prior compliance.

If you have any questions about resolving a tax liability, please feel free to contact Glick and Trostin, LLC at 312-346-8258. To read more about essential estate planning documents, please click here.

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.

Check to See if you are Entitled to a Red-Light Camera Refund

As many drivers in and around the City of Chicago know, red-light cameras have been installed on many of the intersections we navigate.  Unfortunately, many of us know all too well of how they work. You may have received a violation notice in the mail soon after seeing the flash of the camera as you went through an intersection.

In July of this year, the Chicago City Council approved a $38.75 million settlement of two class-action lawsuits that claimed the City failed to provide drivers adequate notice of a red-light camera violation before finding them guilty and imposing a late fee on the ticket.

Now the city has begun sending out notices on the settlement terms as well as instructions on how to submit a claim to the drivers who qualify for a refund or forgiveness of any unpaid tickets.  

Rather than wait for the notice in the mail, you can check the City of Chicago website to locate any tickets you may have received by searching by license plate, driver's license number, and other information. 

Then you may enter the ticket information on the Online Claim Submission to see if you qualify for a refund.

Individuals with eligible tickets have until December 11, 2017 to file a claim with the City of Chicago.  Claims will begin paying out the beginning of August 2018. 

Glick and Trostin, LLC is a tax and estate planning firm located in Chicago, Illinois and can be contacted 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.

Family Memberships as Tax Deductions

As the days get shorter and cooler, taking your kids outdoors might not always be an option. You may be in need of something to keep your kids active and entertained. Did you know that some or all of the costs of memberships to organizations that qualify as nonprofit 501(c)3 organizations such as the Chicago Botanic Gardens, Children's Museum, Shedd Aquarium, and Brookfield Zoo can be tax deductible.  Often times, the cost of a family membership can pay for itself in as few as two visits for a family of four.  

If you are looking for possible holiday gifts for loved ones, a membership can be a great present and provide yourself with an additional charitable deduction at the end of the year.  Further, grandparents can utilize their RMDs from IRA's with a Qualified Charitable Distribution. 

Just remember to keep your receipts for these expenses in a safe place so that you can reap the tax benefits when you file in the next calendar year.

            

If you have any questions regarding your personal taxes and other exemptions you may qualify for, 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.

Qualified Charitable Distribution ("QCD") From your IRA RMDs

As individuals invest in their retirement funds, over the years these accounts can become one of the largest assets at the time of retirement.  At age 70 1/2, you must begin to take Required Minimum Distributions ("RMD") from these accounts based on your life expectancy.  These income distributions are taxable and can cause an individual to move into a higher tax bracket or increase their Medicare premium expenses.

A great way to offset some of this taxable income is to use a portion of your IRA RMD to donate to qualified charitable 501(c)(3) organizations ("Qualified Charities"). These donations are called Qualified Charitable Distributions ("QCD").

How To Make A QCD: To make a QCD, the funds must go directly from your IRA to a Qualified Charity.  At your request, your IRA administrator will make a distribution directly to the Qualified Charity to satisfy your RMD. At tax time you will receive a 1099-R from your IRA showing the full amount of your distribution.  Your tax preparer will then enter the amount of the RMD that went to Qualified Charities through a QCD. The QCD will reduce the taxable portion of the 1099-R.

Example:  Lisa is 72 years old, lives on a combination of $25,000/year of Social Security and another $25,000/year of interest income from her portfolio, and has a $3,400 RMD this year. In addition, Lisa donates each week to her church and takes the deduction on her Schedule A to offset the tax consequences of her RMD. She would like to assess the tax savings benefit if she simply did a Qualified Charitable Distribution directly from her IRA to the church to satisfy her RMD obligation.

By allocating Lisa's RMD to a QCD, her AGI would result in $25,000 (ordinary income) + $7,475 (the taxable portion of her Social Security) = $32,475. Since Lisa has only $6,000 of itemized deductions, she instead claims the $7,850 standard deduction (including the additional amount for being over age 65), and also receives a $4,050 personal exemption, which brings her taxable income down to $20,575. Based on the 2016 individual tax tables, this puts Lisa in the 15% tax bracket, with a total tax liability of $2,622.50.

In contrast, if Lisa were to take the $3,400 RMD directly, her income would increase by $3,400. In addition, the higher income would also increase the taxability of her Social Security from $7,475 to $10,365. The subsequent $3,400 donation to her church would produce a $3,400 tax deduction, bringing her total tax deductions to $9,400 (although she already had a $7,850 standard deduction, only the last $1,550 produces any tax savings). Thus, Lisa’s final taxable income is $38,765 – $9,400 – $4,050 = $25,315, which produces a tax liability of $3,333.50.

Benefits: The bottom line for Lisa is the saving in taxes of $711 by simply allocating the deduction straight from the RMD instead of receiving the RMD herself.  Depending on your income, you may also avoid the Medicare high-income surcharge, which increases your Part B and Part D premiums based on your AGI.

Tips for QCDs: To make a QCD, we recommend contacting the charitable organizations first to obtain the correct address and mailing information to make your gift. You will then need to obtain an application from your financial planner or IRA Administrator to make an RMD distribution by checking the QCD box (with no taxes withheld) and provide the information for the charitable organization. The application should have your name and address on it so the charity knows who to send the acknowledgment letter to and state that no goods or services were received for the donation.  Any donations over $250 require a written receipt from the charity. Come tax time, provide the 1099-R along with the QCD information to your tax preparer.

If you have any questions about Qualified Charitable Distributions and other 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.

When Should I Update My Estate Planning Documents?

You may be part of the 42% of the population that has created an estate plan. However, did you know that it is recommended that estate plans be updated at least every 3-5 years? Since signing your documents, circumstances in your life could have changed, making parts of your plan outdated or obsolete. No, you did not waste your time creating your initial plan--you made your wishes known in legal documents that were ready if you needed them. It is important to remember though, that documents making up an estate plan are affected by changes in the law as well as personal events (i.e. marriage(s), birth, moving, divorce, and death). Significant events can change a person's priorities and relationships with others, leading many to adjust their estate plans as well as retirement and/or life-insurance plans over the course of their life.    

The good news is that once you get past the first step of initially creating your estate planning documents (i.e. Will, Trust, Powers of Attorney, Living Will), it is relatively easy to update your documents as changes occur. The following are the common estate planning documents and a recommendation as to when you should update them:

Basic Will
·  Purpose: Directs the distribution of your assets and appoints a guardian for any minor children after your death.
·  When to update: After a change in your family status such as marriage, births, divorce, and death. As you have more children or your children get older, the guardians that you chose initially may no longer be the right options for your family. After a divorce or remarriage, your Will should be rewritten to remove or correct your spouse's information. If you previously had set up equal inheritances for a group of people (i.e. your children), you may now have reasons to leave more or less to certain people, e.g. one person's lack of financial need for the inheritance. You may also want to consider making changes if you are planning to provide for grandchildren or someone with a disability, if your assets substantially increase or decrease, or if you are no longer in possession of items or funds that you previously designated to be left to specific people.
·  How: Smaller changes can be made to a Will through the use of a Codicil or the entire Will can be rewritten with the necessary changes included. An important note—a Will and Codicils are filed at the time of your death, so any changes made to your will by the use of a Codicil will be visible to the public.

Declaration of Trust
·  Purpose:  Functions similar to a Will with some added benefits such as avoiding the court’s oversight of your estate (probate). A Trust is not made public like a Will is after your death, and assets can be distributed to your beneficiaries over time rather than all at once.
·  When to update: Similar to a Will but also update a Trust if you wish to change your Trustee or add a special needs provision.
·  How: Smaller changes can be made by amending your Trust or the entire document can be updated through a restatement of the Trust.

Powers of Attorney
·  Purpose: Names an agent to manage your financial affairs (Power of Attorney for Property) and an agent to make medical decisions for you (and your minor children) if you are unable to (Power of Attorney for Healthcare).
·  When to update: These documents should be updated every 3-5 years due to changes in personal information (addresses and phone numbers are listed in the documents), your wishes, and relationships with your agents. Additionally, the forms themselves and laws regarding the documents change from time to time. Institutions that require these documents such as banks and hospitals prefer to see more recent documents as they are considered to more accurately reflect the person’s current wishes.
·  How: These documents would be rewritten using updated formatting and information. 

Living Will
·  Purpose: Specifically directs your end-of-life instructions.
·  When to update: Generally not updated unless your wishes change or changes in the law.
·  How: The document would be rewritten with your updated wishes.

There are many factors to consider when creating your estate plan. As you age, people and possessions come into and out of your life and your personal values and preferences may change as well. It is important to remember to update your estate planning documents accordingly. 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.

Your Pet and Estate Planning

You may be one of the millions of people who considers their pet to be a part of the family. It is this way of thinking that leads pet owners to spend a combined $60 billion annually on their pets in the United States. There should be no surprise then that people often wish to make arrangements for their pets in estate planning documents so that their pets continue to be cared for even after the death of their human. While most of us cannot leave our pets a fortune (or a mansion as the case may be) we can make sure that they are provided for to the best of our abilities. 

It is important to remember however, in the eye of the law, pets are considered property of an individual like a piece of furniture. Unfortunately, this means that if people pass away without proper estate planning, pets may be left without a home and end up in shelters. Luckily, in Illinois, and most other states, you can make arrangements for your pets in your estate plan to ensure that they are taken care of for the rest of their lives.

There are a few different options when making arrangements for your pet.

·     Will: Allows you to name a caretaker for your pets after you have passed away. You can also bequest a one-time payment of funds to the individual for the pet’s care. This is a common planning technique as it is done in the same document and with similar considerations to naming a guardian for a child.

·      Pet Trust: Recognized by Illinois law, a Pet Trust allows you to name an individual to care for your pet in the event that you become incapacitated or pass away. You will choose a trustee who will oversee the assets to be distributed for the pet’s care. This document allows you provide funds over the life of your pet and plan for your pet’s final arrangements. This may be a good option for pets that come with special considerations such as long life-span, breeds that are prone to health issues, or those that need extra care (i.e. horses). Once the pet named in the trust is no longer living, the trust will terminate and any remaining funds will be distributed as you state in the trust.

If you have any questions about preparing a pet-friendly estate plan, please feel free to contact Glick and Trostin, LLC at 312-346-8258. To read more about essential estate planning documents, please click here.

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.

Do I Owe Taxes on an Inheritance or Gift?

People receive assets from their loved ones all the time in the form of an outright gift or an inheritance under a will. Many individuals question whether there is a tax on the gift or inheritance, and the simple answer is no (unless you live in Maryland or New Jersey). 

But what happens when the asset you received is sold by you? It is important to understand your cost basis in the transferred asset. How the asset is passed to you determines the cost basis you will take in the asset for tax purposes.

Cost basis is the value that is assigned to the asset when it changes hands. Knowing the cost basis is important for the purposes of calculating your gain or loss when you eventually decide to sell the asset. The gain or loss resulting from the sale of the asset has to be reported on your income tax return. The gain or loss is equal to the difference between the cost basis and selling price of the asset.

When an individual gifts an asset to you during their lifetime, it is an outright gift, and your cost basis in the asset is equal to the giver’s (the individual giving the gift) cost basis. In other words, your cost basis is the amount the giver paid for the asset* when the giver bought it or acquired it. If the asset has appreciated in value before it was gifted to you, there is no recognition of any gain when the asset changes hand. Gain will be recognized and taxable upon the sale or other disposition of the appreciated asset.

For example, if A has stock that he bought for $100 in 2010 and gives it to his daughter B in 2017 when it is worth $200, B’s cost basis in the stock for tax purposes is $100. Since she received this as a gift she takes her father’s basis in the stock. She is not taxed on the appreciation in value when the stock changes hands. Years later when she sells it and the fair market value of the stock is $250, her capital gain will be $250 - $100 = $150. B will be taxed on capital gain of $150 when she sells the stock.

Alternatively, if you receive the asset as an inheritance, you receive a cost basis in the asset equal to the fair market value of the asset on the date of the person’s death. Thus, you will receive what is called a stepped-up basis or increased cost basis in the asset.

For example, C has stock that he bought for $100 in 2010 and leaves it to his daughter D in his will. C dies in 2017 when the stock is worth $200 and D inherits the stock. D’s cost basis in the stock for tax purposes is $200, the fair market value at the date of death. This is what we call a stepped-up basis because the cost basis increased from $100 to $200. Again D is not taxed on the appreciation in value when the stock changes hands. Years later when D sells it and the fair market value of the stock is $250, her capital gain will be $250 - $200 = $50. D will only be taxed on capital gain of $50 when she sells the stock.

In sum, in the case of inheritances you need to know the value at the date-of-death and in the case of gifts you need to know the giver’s cost or what the giver paid for the asset. Thus, although you may not be taxed on the receipt of an inheritance or gift, it is important to learn about the cost-basis in the asset so that when you eventually sell it, you will know how to properly report the sale for tax purposes and pay the appropriate tax. If you have any questions about tax and estate planning, please feel free to contact Glick and Trostin, LLC at 312-346-8258.

*The giver may also have acquired the asset by gift or inheritance which would establish the basis. Cost basis may also be adjusted by other factors, such as depreciation, improvement, etc.

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.

New Parent Series Part V - Creating an Estate Plan

As a new parent, I imagine all of the things that my son will see and do as he grows up. Rarely do I think that I may not be around during all the wonderful milestones in life. For most people, planning for the time when you are not able to care for yourself or your family is something that you would rather not think about. Perhaps this is part of the reason why only 36% of parents with children under the age of 18 have a will according to Caring.com. Making your wishes known often provides people with peace of mind and will help your family know how to proceed. 

Creating an estate plan allows you to convey your wishes through the use of legal documents. These documents will speak for you regarding medical care for you and your children if you are unable to due to disability, what will be done with your finances, and how your estate should be distributed once you pass away. Additionally and perhaps most importantly for new parents, these documents allow you to name a guardian for your children. You are able to make amendments to your estate plan when needed as your family's needs generally change over time. The following are basic documents that should be included in a (new) parent's estate plan. 

• A Basic Will. A Will makes sure that your assets are passed on according to your wishes and allows an individual with children to name Guardians. If an individual does not have a Will, the laws of the state will control the distribution of the estate and the courts will decide who will raise the children. To help avoid court proceedings known as probate, you may also consider a Declaration of Trust which is a private document that functions similarly to a will but does not need to be filed with the Court.

• A Power of Attorney (POA) for Property. This document names a person as "agent" to act on your behalf in case of disability. The document covers financial matters (e.g., banking, bill paying, etc.) and can be broadly drafted or be quite limited.

• A Health Care Power of Attorney. The health care POA designates an individual to make important health care decisions on your behalf, when you are unable, due to a temporary or permanent disability. This document can also be used to name someone to make health care decisions for your children in the event that you are unable to do so. Individuals may also consider creating a Living Will which specifically directs end-of-life instructions.

• Beneficiary Designations. You should make sure appropriate beneficiaries are listed for all of your retirement accounts such as IRAs, 401(k) and life insurance policies. These assets go directly to named beneficiaries. If you do not have named beneficiaries, the assets will generally be distributed through your estate. Be sure to check older plans that may still name parents or ex-spouses that you may wish to update. (NOTE: When naming a minor, a guardianship proceeding may be required if the minor inherits, unless there is a trust.)

It is important to discuss these matters with your loved ones. An attorney can help answer questions that you may have, advise you on the best plan for your situation, and ensure that the documents are executed (signed) correctly. Creating your first estate plan can be an emotional process, yet the peace of mind in knowing that you have a plan in place can be reassuring. If you have any questions about preparing an estate planning or would like to begin the process, please feel free to contact Glick and Trostin, LLC at 312-346-8258.

To read the other posts in the New Parent Series, simply follow these links:

New Parent Series Part I - Dependent Issues and Tax Filing Status For You to Consider
New Parent Series Part II - Healthcare FSA's and HSA's
New Parent Series Part III - Child and Care Tax Credits
New Parent Series Part IV - Adoption Tax Credit and Benefits

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.

New Parent Series Part IV - Adoption Tax Credit and Benefits

Choosing to adopt a child is a rewarding and an amazing life changing event for both the child and the family. Unfortunately, the time and money invested in the adoption process can often be significant. Adoptive parents can spend years and invest over $30,000 into the process of adoption. To help alleviate some of the costs associated with an adoption, the Internal Revenue Service (IRS) offers two tax benefits that help families with the cost of adoption 1) a nonrefundable tax credit; and 2) an income exemption for those adoptive parents who are offered adoption assistance through their employers. 

Adoption Tax Credit:

In 2017, the IRS allows a $13,570 per child, dollar for dollar tax credit toward your income taxes for qualified adoption expenses you paid to adopt a child. To illustrate, if you have $13,570 in qualified expenses and a tax liability of $15,000, you can utilize the full $13,570 credit which reduces your tax liability to $1,430. If the credit exceeds your tax liability, you can roll forward the remaining credit for use toward offsetting your income taxes in the next year, for up to five years, until it is used.

If the adoption is from a foreign country, then the process must be finalized before you can claim the credit. If the adoption is not finalized, you are not eligible for this benefit. Expenses paid for a domestic adoption will be claimed in the year following that in which the expense was paid, if the adoption has not yet been finalized. In the year that the adoption is finalized you will be able to claim that year’s expenses plus those for the previous year. Even if the expenses are spread out over a few years, the maximum amount of $13,570 per child for the credit still applies.

Employer Provided Assistance:

If your employer provides assistance for adoptions, you may exclude what your employer reimburses to you, up to $13,570 from your gross income. If your employer offers adoption assistance, you first need to take the exclusion from your income before you can apply any additional qualified expenses toward the tax credit. Any money that applies toward the exclusion cannot also be applied toward the tax credit and vice versa—no double dipping!

For example, if you have $27,140 in qualified expenses and your employer reimburses you for $13,570—the maximum amount you can take as an exclusion from your income—you can apply the remaining $13,570 of qualified expenses toward the tax credit. In another example, if your qualified expenses total $10,000 and your employer provides a $5,000 reimbursement, then you will only be able to apply $5,000 toward the Adoption Tax Credit since expenses claimed for the exclusion cannot also be claimed for the tax credit.

As with the other credits that we have mentioned in this New Parent Series, there are some requirements that you have to meet to be eligible. The adoption must be of an eligible child meaning that they are under the age of 18 unless he/she is physically or emotionally unable to care for themselves. The child cannot be of the taxpayer’s spouse unless you live in a state in which a same-sex second parent or a co-parent can adopt their partner’s child. Qualified expenses approved by the IRS include adoption fees, court costs, attorney fees, and travel expenses. There may be other expenses directly related to an adoption that can be included as well.

Additionally, this credit and exclusion takes into consideration your modified adjusted gross income (MAGI) and phases out for taxpayers with a MAGI over $203,540.

As always, we recommend that you keep accurate and organized records of expenses that you will claim on your taxes but especially so when claiming this exemption and credit due to the high dollar amount. If you wish to learn more about this topic, additional information can be found in IRS Topic 607 – Adoption Credit and Adoption Assistance Programs, or check with your tax professional.

The next part in the series will discuss the importance of estate planning as a parent. In the meantime, if you have any questions regarding your personal taxes and how to report information relating to the Adoption Credit and adoption assistance, please feel free to contact Glick and Trostin, LLC at 312-346-8258. 

To read the other posts in the New Parent Series, simply follow these links:

New Parent Series Part I - Dependent Issues and Tax Filing Status For You to Consider
New Parent Series Part II - Healthcare FSA's and HSA's
New Parent Series Part III - Child and Care Tax Credits
New Parent Series Part V - Creating an Estate Pan

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.