May marks the start of graduation season for college students across the country. To help recent grads save money and start building a solid financial future, they need look no further than the IRS for a range of tax savings.
Student Interest Loan Deduction
According to The College Board, the average student graduates from a public, four-year university with more than $25,000 in student loan debt. With often modest first-year salaries, repayment of the debt burden may be overwhelming. However, when a taxpayer’s modified adjusted gross income (MAGI) is less than $65,000 (or $130,000 for those filing joint returns), he or she may deduct student loan interest paid during the calendar year up to a maximum of $2,500. The deduction is reduced as MAGI increases up to $80,000 (or $160,000 for joint filers), at which point, a taxpayer may no longer claim the deduction. An additional restriction on the student interest loan deduction is that the taxpayer may no longer by claimed as a dependent on his or her parents tax returns.
Moving Expense Deduction
Recent college graduates who move more than 50 miles away from their most recent residences for a full-time job may write off unreimbursed, “reasonable” moving expenses. This may include costs incurred to pack belongings and transport them to a new residence as well as lodging required to complete the move.
Tax-Efficient Savings Plans
With the security of landing a full-time job, recent college graduates should not wait too long before considering how they will begin building a financial safety net for the future. Many companies offer 401(k) plans through which employees may elect to make automatic contributions of a portion of their salaries toward their retirement savings. With this simple set-it-and-forget-it approach to building a nest egg, contributions are made with pre-tax dollars and taxes are not due until money is withdrawn at retirement. In addition, many companies offer a 401(k) match, for which employers will make contributions that “match” those of employees, thereby increasing one’s savings opportunities. For 2015, employees may elect to defer up to $18,000 of their earnings into 401(k) plans.
When an employer does not offer a retirement-savings plan, college grads may consider establishing on their own an Individual Retirement Account (IRA), which enables them to make pre-tax contributions, up to $5,500 in 2015, and defer taxes on earnings, including income and gains. Taxes will be due when money is withdrawn from the IRA upon retirement, unless the plan is a Roth IRA, in which contributions are made after taxes, but withdrawals at retirement may be made free of taxes.
Flexible Spending Accounts (FSAs) enable workers to contribute pre-tax dollars to pay for certain out-of-pocket health care costs not covered by health insurance, including copayments and deductibles. For 2015, the maximum allowable contribution to an FSA is $2,550. Ultimately, FSAs enable workers to reduce their taxable income while receiving reimbursement for eligible health care-related expenses. The one caveat is that any money unused in an FSA at the end of the year may become forfeited. For this reason, it is important to budget appropriately at the start of each year.
Lifetime Learning Credit
Graduates who choose to continue learning after graduation, either full-time or via evening, weekend or online course, may receive a Lifetime Learning Credit worth a maximum of $2,000. To qualify, students must have a modified adjusted gross income of $63,000 or less, or $127,000 for married couples filing joint tax returns.
About the Author: Joanie B. Stein, CPA, is a senior manager with Berkowitz Pollack Brant’s Tax Services practice. She can be reached in the CPA firm’s Miami office at 305-379-7000 or via email at email@example.com.
Provenance Wealth Advisors, an independent advisory firm affiliated with Berkowitz Pollack Brant, is proud to announce that its chief investment officer, Todd Moll, earned notable recognition from two of the world’s leading financial news organizations.
Financial Times selected Moll as one of the top-400 financial advisors in the U.S., based on assets under management, asset growth, years of experience, industry certifications, compliance record and online accessibility. In addition, Moll was named by Barron’s as one of the Top-1,200 financial advisors in the country, where he also ranked 35th out of 84 advisors in Florida. The Barron’s ranking is based on assets under management, revenue produced for the firm, regulatory record, quality of practice and philanthropic work.
“These honors are well-earned reflections of Todd’s hard work, leadership and commitment to meeting clients’ investment needs,” said PWA Managing Director Eric Zeitlin. “Through his focus and that of our entire team, we have surpassed $1.8 billion in assets under advisement in just 15 years.”
Moll has been a director and chief investment officer of Provenance Wealth Advisors since 2001. He oversees the firm’s investment policy and leads a team that supports the financial goals of local and international clients through a comprehensive range of estate planning, financial and investment advisory, insurance and business-planning services.
Capital assets include almost everything owned for personal use or investment purposes, including houses, furnishings, cars, artwork, bonds and shares of stocks. Understanding the resulting tax liabilities or deductions that apply when taxpayers sell these assets is an important step in an efficient tax-planning process.
What is a capital gain?
A capital gain is the profit taxpayers earn when they sell an asset for more than the original price they paid to acquire it, also known as the basis. Capital gains are considered income, which taxpayers must report on their tax returns and for which taxpayers whose income exceeds statutory thresholds may be subject to an additional 3.8 percent Net Investment Income Tax.
What is a capital loss?
A capital loss is the shortfall taxpayers incur then they sell an asset for less than the basis. These losses are limited in their usefulness for several reasons: short-term losses offset short-term gains to determine if there is overall net short-term gain or loss; similar computations are made for long-term transactions; and the net short- or long-term gains/losses are combined to determine if there is an overall capital gain or loss. When taxpayers’ capital losses exceed their capital gains, they may deduct from their income the excess, up to $3,000 per year (or $1,500 for married filing separately), as a loss on their tax returns. Losses exceeding these deduction limits are suspended on their tax returns and are available in the next year, where they may be applied to offset future gains.
What is the holding period and why does it matter?
Assets held for more than one year are considered long-term holdings. Assets sold one year or less from the date of purchase result in short-term capital gains or losses. Typically, long-term capital gains are treated more favorably (current maximum rate of 20 percent) than short-term gains, which are taxed at the maximum ordinary income tax rates (currently 39.6 percent). As a result, taxpayers may consider holding an appreciated investment for more than one year before selling it.
Many taxpayers would prefer to use short-term losses to offset income that will be taxed at the ordinary income rates, but the law requires net short-term losses to offset net long-term gains in the same year. Therefore, year-end planning should include analyzing holding periods of the recognized gains and potentially selling short-term appreciated assets before year-end. This could allow the net long-term gain to be taxed at the preferred 0 percent to 20 percent capital gains tax rate.
What about mutual funds?
Investments in mutual funds present unique situations for taxpayers. When these investment pools sell shares of stock in their portfolios for a profit, taxes can be due on the capital gains. Each year, to avoid their own income taxes, the funds pass these tax gains to their shareholders in the form of Capital Gain Distributions. Many are surprised to learn they owe taxes from their investments in mutual funds, whether or not the mutual funds have increased or decreased in value. Tracking the tax basis of mutual funds is often difficult but always important. Dividend reinvestments not only increase the number of shares owned, they also increase the overall basis of the fund held. Including this information in the basis of fund shares sold will limit the erroneous overstatement of gains on dispositions.
Can I deduct the loss I incurred on the sale of my home?
Taxpayers may deduct losses on the sale of property only when the property is held for investment purposes. Therefore, the sale of personal jewelry or a home for a loss is not deductible. However, any asset sold at a gain requires the gain to be reportable, whether the asset was held as an investment or not. Note that the sale of a primary home for a gain is not necessarily fully taxable. A gain up to $250,000 ($500,000 if married filing jointly) is excluded, when certain requirements are met.
The tax considerations of an asset sale should weigh heavily on taxpayers’ decision. While selling an investment for a loss can help to offset the liabilities of a significant capital gain, taxpayers should tread carefully with the guidance of experience tax and financial advisors.
About the Author: Jeffrey M. Mutnik, CPA/PFS, is a director in Berkowitz Pollack Brant’s Taxation and Financial Services practice. He can be reached in the CPA firm’s Ft. Lauderdale office at (954) 712-7000 or via email at firstname.lastname@example.org.
U.S. citizens and resident aliens with financial interests in, or signature or authority over, foreign bank accounts, securities and brokerage accounts, mutual funds, trusts or other accounts with an aggregate value exceeding $10,000 at any time during the year, must file by June 30 a Report of Foreign Bank and Financial Accounts (FBAR). Identifying these accounts should be fairly easy. The difficulty for many citizens and permanent residents is understanding what qualifies as “other financial accounts” that must be reported to the IRS on FinCEN Form 114, Report of Foreign Bank and Financial Accounts.
Under the law, “other financial accounts” are defined as those “with investment funds and/or entities that regularly accept deposits in the manner of a financial agency.” Because the definition is fairly broad, it is not uncommon for taxpayers to overlook or erroneously exclude certain accounts from their FBAR reporting, resulting in significant penalties of up to 50 percent of value of the accounts for each year it goes unreported. For example, a lawyer who has signature authority over a client’s foreign trust account would need to report that on his or her FBAR. Last year, the District Court of Northern California ruled that foreign online gambling accounts fall under the FBAR reporting guidelines when a U.S. citizen deposits or withdraws money from those accounts at will. More recently, IRS officials noted that an offshore PayPal account could be a reportable financial account when the owner conducts business transactions through the account.
U.S. taxpayers should seek the guidance of professional counsel experienced in domestic and international tax regulations to ensure complete compliance with applicable laws and minimize risks of non-compliance.
About the Author: Andrew J. Leonard, CPA, is a senior manager in the International Tax practice of Berkowitz Pollack Brant. He can be reached at the CPA firm’s Boca Raton office at (561) 361-2000 or via email at email@example.com.
For many taxpayers, a letter from the IRS creates fear and a steep rise in blood pressure. While there is no need to panic, taxpayers should consider the following tips when receiving correspondence from taxing authorities.
- Be mindful of tax scams. The IRS will never contact taxpayers nor request personal information via email, telephone or social media.
- Understand that the IRS typically mails notices relating to taxpayers’ federal tax return or tax account.
- Read the notice carefully to identify the issue and obtain instruction on how to respond.
- When correspondence refers to a change or correction the IRS made to an existing tax return, compare the updated information with the original return.
- Contact an accountant or the IRS directly with any questions about the correspondence.
- When a taxpayer agrees with the IRS’s change or correction, he or she need only reply when requested to do so, including remitting taxes due.
- When a taxpayer disagrees with the IRS’s change or correction, a response is required via postal mail.
- Keep all copies of IRS correspondence.
About the author: Joseph L. Saka, CPA/PFS, is director in charge of the Tax Services practice at Berkowitz Pollack Brant. He may be reached in the Miami CPA firm’s office at (305) 379-7000 or via e-mail at firstname.lastname@example.org.
The lives and deaths of celebrities offer practical lessons in the dos and don’ts of estate planning. Consider musician Jimi Hendrix, who died without a will, leaving his estate in a perpetuate state of litigation for more than 30 years. Actor Phillip Seymour Hoffman passed away in 2014 without updating his will to include his children nor addressing the considerable estate taxes his companion, not his legal spouse, would incur. More recently, within months of actor Robin William’s tragic suicide, his survivors took to the courts to battle over many of his personal belongings.
Unlike Hendrix and Hoffman, Williams had a will and an estate plan that he updated to meet his changing family circumstances, which, at the time of his death included three children and a third wife. However, while Williams shrewdly established a trust through which his assets could pass to his heirs, his estate plan failed to address his small-ticket possessions that carry far greater sentimental value than any item of high monetary worth.
In each of the situations, grief quickly gave way to family infighting due to non-existent or incomplete estate plans that did not consider the preservation of peace and unity amongst surviving family members after one’s death. Ironically, even those individuals who take the time to develop a comprehensive estate plan can disrupt family harmony when they neglect to take one simple step: communicate their wishes while they are alive.
Death and the transfer of assets upon one’s passing are perhaps the most difficult topics of discussion. They can become more complicated and emotional when opened up for conversation among family members, whose inheritance expectation may not align with one’s estate plan. Avoiding the discussion entirely, however, is a bad idea. As challenging as it may seem, such a conversation can help family members understand and accept one’s final wishes and prepare themselves to manage the family’s business and wealth into the future.
Have a Plan
Establishing an estate plan requires individuals to take stock of all their assets, including financial accounts, real estate, personal property and business assets; to document beneficiaries to whom they wish to pass the assets; and to designate a financial fiduciary to oversee the ongoing management of the assets and related trusts upon their death. It requires a commitment of time that should be approached with the assistance of a lawyer, a financial advisor and an accountant, who together can provide guidance regarding the multitude of legal and tax implications of each decision. Moreover, these professionals can help to establish a series of checks and balances that will help minimize conflicts in the future, including the provisions of no contest clauses or mediation/arbitration clauses.
Communicate Your Goals and Wishes
Once decisions are made regarding the planned transfer of assets, individuals should share their plans with family members who are mature enough to engage in such a conversation. It is important that individuals define their goals and what they hope their estate plans will accomplish. Asking for the input of named beneficiaries will often help to build consensus and minimize or even eliminate misunderstandings, resentment and family discord in the future.
Recognize what is Important
Often, the biggest source of contention between surviving family members is not the pricey Picasso hanging in one’s entryway, but rather the small, inexpensive tokens that hold precious emotional value. Sibling squabbles can erupt over the ugly Christmas sweater worn every year or the collection of wine corks proudly displayed in one’s office. Ask what is important to each beneficiary and make attempts to accommodate their requests.
As harmonious as one hopes his or her family is, the fact is that death and inheritance can bring about discord and bitterness and lead to acrimonious battles between beneficiaries. Moreover, what one family member may consider fair and equitable may be perceived as unreasonable and imbalanced to another. Individuals should try to anticipate all the possible scenarios that will occur based upon their plans and recognize that fair does not always mean equitable. There are times when a decision must be made for the benefit of the entirety of the estate, rather than to quell an heir’s hurt feelings.
Addressing end-of-life plans and asset transfers with the aid of professional counsel are difficult but important steps in leaving a lasting legacy. While it may be a lengthy process fraught with difficult decisions, the end result will go a long way to protect one’s assets and family members from future frustration, expense and battles over personal possessions. Moreover, it will help to prepare family members to take over the financial management of an estate and keep it thriving for future generations.
About the Author: Rick D. Bazzani, CPA, is a senior manager in Berkowitz Pollack Brant’s Tax Services practice. He can be reached in the firm’s Ft. Lauderdale CPA office (954) 712-7000 or at email@example.com.
Saying “I do” is a significant life event that will lead to many changes along the road to happily ever after. Among these changes are a range of legal and financial issues that couples should address as early as possible.
Change in Name
Individuals who elect to take the last name of their new spouse must first obtain certified copies of their marriage certificates to begin the process of legally changing their names. Start by contacting the Social Security Administration and Department of Motor Vehicles followed by banks and managers of financial accounts, the U.S. Postal Service, employer and benefits plan administrators and the Internal Revenue Service.
Change in Tax Status
One’s marital status affects how he or she files taxes and the related income tax rate that will apply. Selecting the appropriate filing status will depend on a number of factors, including each spouse’s income level and availability of credits and deductions. Ultimately, the decision should be made with the guidance of a qualified tax professional.
The following table from the IRS shows the tax rates based on taxable income for the 2015 filing season.
|Marginal Tax Rate
||Married Filing Jointly
||Married Filing Separately
||$0 – $9,225
||$0 – $18,450
||$0 – $9,225
||$9,226 – $37,450
||$18,451 – $74,900
||$9,226 – $37,450
||$37,451 – $90,750
||$74,901 – $151,200
||$37,451 – $75,600
||$90,751 – $189,300
||$151,201 – $230,450
||$75,601 – $115,225
||$189,301 – $411,500
||$230,451 – $411,500
||$115,226 – $205,750
||$411,501 – $413,200
||$411,501 – $464,850
||$205,751 – $232,425
||$413,201 or more
||$464,851 or more
||$232,426 or more
As the table demonstrates, two working spouses filing a joint return will not get the same benefit as two single people filing separate tax returns. When high-earning couples combine their incomes, they may be pushed into a higher tax bracket for which more taxes will be due. This also applies when taking into consideration additional taxes and phase outs of adjusted gross income above certain thresholds.
Change in Withholding
Because marriage may affect couples’ tax liabilities, it is important to ensure that the amount withheld from each spouse’s paycheck matches the amount they will owe the government at the end of the year. Often, making this alignment requires one or both spouses to adjust the number of withholding allowances they claim on their W-4s with their employers.
It is important that taxpayers meet with qualified accountants before and after major life events to ensure that they maintain tax efficiency through their changing circumstances.
About the Author: Joanie B. Stein, CPA, is a senior manager with Berkowitz Pollack Brant’s Tax Services practice. She can be reached in the CPA firm’s Miami office at 305-379-7000 or via email at firstname.lastname@example.org.
Over the past decade, master limited partnerships (MLPs) have increased in favor among savvy investors, thanks to historically strong returns and steady income they provide in a low-yield environment. However, these crafty investments often come with complicated compliance requirements and surprising tax liabilities.
What is an MLP?
A master limited partnership (MLP) is a business that trades its equity shares in a public exchange and avoids corporate taxes by using a limited partnership structure. It is required to periodically distribute much of its tax-advantaged income to its owners, also known as its limited partners. With the majority of MLPs operating in the traditionally stable energy and natural resource industry, they have provided their limited partners with steady and predictable returns. In fact, the S&P MLP Index returned 28 percent annually from 2009 to 2014, compared with 22 percent for the S&P 500.
Despite these benefits, MLPs come with a series of tax reporting, compliance and liability complexities, which, at times, can amount to more than the gains the investments generate.
How are Investors Taxed on MLPs?
The pass-through structure of an MLP shields it from entity-level corporate taxes while enabling it to distribute a larger percentage of cash flow to investors. These distributions represent a return on investor’s capital, for which investors may defer much of the related taxes until the interest is sold. However, with the protection MLPs receive as partnership entities, they ultimately pass onto investors the tax liabilities of all of their activities, including income, gains, losses and credits. These activities also affect investors’ tax basis, or the amount they paid for shares in the MLP, plus or minus adjustments. Generally, each distribution decreases the basis of the investment. In turn, the lower basis will have tax implications upon the sale of the interest. Further, as a partnership interest for tax purposes, the partner/investor is subject to all of the complicated partnership rules, which can include distributions in excess of basis, depreciation recapture, “hot asset” taxation, “step up” or “step down” at the death of the partner, and others.
Another surprise for many investors is the way in which MLPs report their activities. Rather than sending out 1099s that report earnings during a tax year, MLPs issue partnership K-1s that detail all of their underlying activities, which investors must report on their personal tax returns. Unitholders who anticipated their investments would yield tax-free cash flow are often startled by the resulting taxes on their share of the MLP’s profits. Operating losses incurred are limited in their usefulness, as they must be suspended until the same activity generates income in a future period or until there is a disposition of the investment. Moreover, many MLPs operate in multiple taxing jurisdictions. Therefore, investors may meet filing thresholds in some or dozens of states, requiring the filing of individual nonresident income tax returns in those states. As a result, the compliance costs an investor may incur could alone mitigate any income earned from the MLP.
How Can I Limit My Risk?
Portfolio diversification is the most basic tenet of managing investment risk. Many investors and/or their investment managers desire exposure to a particular sector of the economy that MLPs can provide. However, using these vehicles may create unintended tax consequences. Therefore, the first step in managing risks associated with MLPs is to determine if these types of investments are appropriate for a portfolio. Do the potential gains outweigh the federal and state tax compliance costs?
Should an investor be undeterred by MLP risk and opt to hold onto the investment in search of high yield and enhanced returns, he or she should meet with an experienced accountant to assess and offer solutions for managing the multitude of tax liabilities and compliance issues that MLP’s demand. If the combination of risk and cost are too great, the best suggestion is to meet with an investment advisor to identify alternatives for generating similar yield without taking on similar risk.
About the Author: Jeffrey M. Mutnik, CPA/PFS, is a director with the Taxation and Financial Services practice of Berkowitz Pollack Brant Advisors and Accountants. He can be reached in the CPA firm’s Ft. Lauderdale office at (954) 712-7000 or via email at email@example.com.
For the first time in seven years, the Federal Reserve lifted its pledge of “patience” in raising interest rates. While maintaining a cautious outlook for the future, the Fed’s March 2015 announcement is good news for borrowers looking to take advantage of historically low rates. For investors chasing high-yields, however, the news may not be so positive. In fact, due to a prolonged period of low interest rates, many investors who fled the “safety” of conservative fixed-income vehicles, such as bonds, may be surprised to find that their moves into other products, including other bonds, annuities and dividend-paying stocks, may be less risky than they originally thought.
The traditional approach to investing as one aged relied on increasing the use of bonds to provide liquidity, preservation from market swings and a more reliable future income. While the Fed’s program of low interest rates and quantitative easing has indeed helped to turn around the economy, these actions, combined with longer life spans, have put a considerable dent in retirees’ savings. As a result, many retirees were faced with the prospect of outliving their savings and the inability to cover the rising costs of health care later in life. Investors sold bonds for less than they paid and moved into new vehicles in search of higher yields. However, these moves bring with them risks that many retirees may not be prepared to face, especially with the prospect of rising interest rates.
Interest Rate Risk. Changes in interest rates have the potential to negatively affect the value of an investment. Generally, as interest rates rise, bond values fall, often leading to a loss of investment principle. While the Fed may raise interest rates 1 percent, the price of bonds could decline more than 6 percent, depending on its maturity date and a variety of other factors. As a result, investors who anchored the bulk of their portfolios with the “safety” of bonds could face a heightened risk of declines in their portfolio values, especially if they sell those investments before their maturity dates. Conversely, investors who hold their bonds to maturity limit their exposure to interest rate risk.
Duration Risk. Duration is the number of years required before an investor can recover the true cost of an investment. By taking into consideration a number of factors, including present value and future interest payments, duration helps to measure an investment’s sensitivity to interest rates. Typically, the longer an investor holds an investment, the more the price will fluctuate with changes in rates. When investors sell bonds before their maturity dates, they are more exposed to price volatility and less likely to receive the face value, especially in a rising interest rate environment.
Credit Risk. Bonds come with the risk of credit quality being downgraded by rating agencies, including Moody’s, Fitch and Standard & Poor. Similarly, stocks and bonds carry the risk that the issuer will go out of business or default and fail to make principal payments. Generally, the lower the rating and higher the yield, the higher the credit risk.
Liquidity Risk. With the possibility of an interest rate hike, there is a concern that too many investors will attempt to sell investments at the same time or that there will not be a market of buyers to whom investors may sell the securities at a reasonable price. For example, consider auction rate securities that were aggressively marketed as high-return cash-equivalent investments in the late 1990s and early 21st century. However, in 2008, at the height of the financial crisis, liquidity dried up and market makers turned their backs on investors who sought to sell the securities back to investment banks. Thanks to class action lawsuits, some investors were fortunate to sell their holdings back to the banks at par, while others continue to have challenges liquidating the investments to this day.
Similarly troubling for investors is the lack of market makers in the high-yield, fixed income market. When interest rates rise, there may not be anyone willing to buy bond investments when investors seek to sell.
Other Risks. Depending on an individual’s investment horizon, seemingly conservative investments, such as low-volatility and dividend-paying stocks, may not provide the stability retirees and near-retirees need to maintain a steady income during their golden years. While the U.S. equity markets have been up for five years, a series of factors, both stateside and internationally, can cause a steep drop that can eat into one’s principal savings. Along the same lines, individuals who hold large amounts of their life savings in cash incur equally significant opportunity costs. To be sure, holding a certain amount of cash is an important part of any investor’s portfolio. It provides provide flexibility, liquidity and a buffer against lean times. However, too much cash-on-hand means that hard-earned money does not have an opportunity to grow.
There is no one magic solution to mitigate one’s investment risks, especially in an evolving market. Investors must assess their risk tolerance, gain a clear understanding of the risks associated with a particular investment and accept the fact that there are no absolutes in investing. A strategy that yields high returns today may not bear the same results in the future. Similarly, no investment is without risk. Investors must take a leap of faith and accept some level of risk if they expect to grow their wealth. However, risk tolerance and the ability to absorb risk will vary widely from one individual to another, depending on each’s unique circumstances. By taking their strategies off autopilot and conducting regular reviews of their existing investment portfolios, investors may remain diversified through changing market cycles and match the appropriate investment with their specific goals and tolerance for risk.
About the author: Todd A. Moll, CFP®, CFA, is a director and chief investment officer with Provenance Wealth Advisor, an independent financial services firm affiliated with Berkowitz Pollack Brant Advisors and Accountants. He can be reached at (954) 712-8888 or via email at firstname.lastname@example.org.
Provenance Wealth Advisors, 515 E. Las Olas Blvd., Ft. Lauderdale, FL 33301 (954) 712-8888.
Securities offered through Raymond James Financial Services, Inc., Members FINRA/SIPC. Raymond James is not affiliated with and does not endorse the opinions or services of Berkowitz Pollack Brant Advisors and Accountants. Any opinions are those of PWA and not necessarily those of RJFS or Raymond James.
This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Bond prices and yields are subject to change based upon market conditions and availability. If bonds are sold prior to maturity, you may receive more or less than your initial investment. Holding bonds to term allows redemption at par value. There is an inverse relationship between interest rate movements and bond prices. Generally, when interest rates rise, bond prices fall and when interest rates fall, bond prices generally rise. Dividends are not guaranteed and must be authorized by the company’s board of directors. Past performance may not be indicative of future results. Investing involves risk and you may incur a profit or loss regardless of strategy selected.
Death and taxes may be the two certainties in life, but death does not excuse an individual from meeting their tax liabilities. When a taxpayer passes away, his or her estate may owe Uncle Sam federal income taxes, federal estate taxes and, depending on where they passed, state death taxes. Filing a final return for a deceased taxpayer requires careful attention to a range of issues and tax rules and requirements.
Typically, a decedent’s final tax return is filed in the same manner as during his or her life. The return must include on IRS Form 1040 all income he or she earned during the calendar year up to the date of death, including all credits and deductions to which he or she may be entitled. The responsibility of filing the return could fall to the decedent’s widow or widower, who may file a joint return for the year of death and as a qualifying widow or widower for the subsequent two years; or to a personal representative charged with managing the decedent’s estate, including and executor or administrator; or to the decedent’s estate, which must apply for its own federal employer identification number (FEIN). When filing the return, the responsible party should enter the deceased person’s name, date of death and the word “deceased” at the top of the forms to prevent any delays in processing. Moreover, final filers should check with the IRS using Form 4506-T, Request for Transcript of Tax Return, to ensure the decedent filed individual tax returns in all of the years preceding his or her death. If the decedent failed to file in any year, his or her widow/widower or personal representative must file on the decedent’s behalf for those years as well.
Finally, if a decedent is due a refund, his or her personal representatives may lay claim to it using IRS Form 1310, Statement of a Person Claiming Refund Due a Deceased Taxpayer.
The advisors and accountant with Berkowitz Pollack Brant help individuals and their families through life and after death to develop tax-efficient strategies that mitigate liabilities while ensuring full compliance with tax reporting responsibilities.
About the Author: Joanie B. Stein, CPA, is a senior manager in Berkowitz Pollack Brant’s Tax Services practice. For more information, call 305-379-7000 or email email@example.com.