Year: 2014

Estate Planning Sandy UT

Estate Planning Sandy UT

Same-Sex Marriage Can Be Taxing

Estate Planning Sandy UTIn the case Windsor vs. U.S., the Supreme Court struck down the main provision in the Defense of Marriage Act (DOMA) that defined marriage for federal purposes as between a man and women. Generally, the Windsor case was not viewed as a tax case; however, there are profound and far-reaching tax consequences of this ruling. Estate Planning Sandy UT. The Supreme Court’s decision now requires the federal government to treat same-sex couples the same as married heterosexual couples if they are legally married in one of the states that permits same-sex marriage. Many questions still remain unanswered, such as how to resolve conflicts between state laws and to what extent these changes will be applied retroactively. There are a number of clear and present issues that impact tax law right now.

There are three main tax effects that result from this ruling. First, there is the right to file a joint tax return. Filing a joint tax return might result in a lower total tax liability for the couple. Typically, this is advantageous when one spouse is a higher wage earner than the other; however, it can actually create higher taxes if both spouses earn similar amounts and are highly paid. Depending on an analysis of the situation, it could be advisable to file amended tax returns or protective refund claims. Favorable situations could be where the couple would have lower taxes as result of filing jointly or where one spouse had capital gains that would have been cancelled out by the capital losses of the other spouse. The general statute of limitations for refunds is the latter of three years from the date of filing or two years from payment.

While the Windsor case itself applied retroactively in granting an estate tax refund, it is currently uncertain how the IRS will apply the decision to individual tax returns; retroactively to all cases where the statute of limitations has not run, only prospectively or only where protective refund claims have been filed.

Second, employers need to make the necessary administrative tax changes and adapt for the new benefits that married same-sex couples now qualify for. Employees’ withholdings might need to be updated to reflect their new filing status. Health coverage provided to same-sex spouses could now be tax-free. Additionally, pension and other retirement plans might also require tax-related administrative changes.

Third, ESTATE PLANNING Sandy UT is subject to major changes as a result of this ruling. Married couples receive favorable treatment on many estate and gift tax provisions. Same-sex couples should update their plans to take advantage of these changes:

  • The ability for the estate of the first spouse to die to transfer any unused exclusion amount to the surviving spouse.
  • The opportunity to receive a marital deduction for amounts transferred to the surviving spouse.
  • The ability to make split gifts.
  • The opportunity for either spouse to use the marital deduction to transfer unlimited assets to the other spouse during their life gift-tax free.

While these three issues reflect the major changes of the DOMA ruling, many other more minor tax changes result as well such as the deductibility of alimony.

There are two major caveats to the Windsor ruling. First, there are currently no decisive regulations or laws for same-sex couples who were legally joined together under marriage-equivalents such as domestic partnerships or civil unions. In cases where these situations apply, it might be worth filing protective refund claims in hopes that this issue is resolved in favor of marriage-equivalent relationships. Second, it is unclear how the changes in the law will apply where a same-sex couple work and live in states where one recognizes their marriage and the other does not.

If you think these changes could a have significant impact on your tax situation, give us a call to discuss how we can help analyze your personal situation.

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Areas of Service:  Estate Planning Sandy UT, Wealth Management Sandy UT, Wills Sandy UT.

Business Valuation Sandy UT

Business Valuation Sandy UT

Selling Your Business to Pay for Retirement

Business Valuation Sandy UTMany small business owners get so immersed in day-to-day operations that they don’t take the time to consider long-range plans, such as retirement. But even for those who are able to work a good, long time – avoiding the misfortunes of health issues, financial emergencies and business setbacks – retirement tends to sneak up on you. Business Valuation Sandy UT 

However, the day will come when you realize that you can’t work forever, and at some point the business you’ve labored to build will need to work for you. Don’t let that moment come so late that you haven’t prepared your enterprise to procure the highest price possible.

You might think you have retirement covered. Once you’re ready, you’ll just sell the business and retire on the proceeds. But that plan can have flaws. For example, what if when you want to retire, the economy is in a downturn and there are few prospective buyers?

What if you have to sell before you previously intended due to a health concern or family emergency? If we have learned anything during the past decade, it’s to plan for contingencies.

Do you have a plan to aggressively pay off your mortgage and other obligations so you can retire debt free? Do you have insurance to protect both your business and family should something happen to you? It’s important to start strategizing ahead of time so that, regardless of whether all goes to plan or not, you have options when the time comes to retire. A big part of this equation is to understand the value of your business as it relates to retirement planning.

Because a small business is often built on blood, sweat, experience and long hours, it can be difficult to step away and view it as an asset. To create a retirement plan, it’s important that you recognize this and consider how much that asset is worth. To get started, hire a third party appraiser or broker to value your business from an objective market perspective. Bear in mind that there are three methods typically used to assess the value of a business:

  1. Asset approach – Add up all of the assets and subtract their depreciation to determine value.
  2. Income approach – Calculate the net present value of the income generated by your business by discounting future cash flows and applying multipliers to EBIDA (Earnings Before Interest, Depreciation and Amortization).
  3. Market approach – Compare your business to others in your industry, paying careful attention to similar size and location, and factor in intangible variables such cash flow, market opportunity, economic conditions, customer loyalty, team experience, etc.

You might wish to value your business using all three approaches and then establish a price based on the one with the most favorable valuation. Recognize, too, that the value of a small business is frequently influenced by less tangible assets – such as the expertise of a key employee – so it’s not always effective to use a simple mathematic formula.

It’s also a good idea to plan two exit strategies. For example, Plan A might be to sell for a generous profit, while Plan B is to retain equity in the business but hand it over to someone else to run if you don’t get an offer for the price you want. Consider your future market and the ideal buyer, and manage your business so that it will be an attractive turnkey for that target when you’re ready to sell. Or, think about grooming a younger employee or one of your children to take over the business when you retire. Perhaps selling isn’t your best option – if you remain invested in the business it could generate passive income to supplement your nest egg.

There’s your business plan, and your retirement plan … now is the time to think about how to integrate the two.

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Areas of Service: Business Valuation Sandy UT,  Valuation Expert Sandy UT

Estate Planning Salt Lake City

Estate Planning Salt Lake City

The Importance of Reviewing/Updating a Will and Account Beneficiary Designations

Estate Planning Salt Lake CityIn his mid-twenties, Gary married a waitress named Tiffany. Estate Planning Salt Lake City The marriage lasted only a couple of years, and then Gary went on to marry Jill, had two children – Caroline and Sarah – and became a partner at his architectural firm. At age 50, Gary passed away suddenly from heart failure while running a half marathon. Sarah was a junior in college and Caroline had moved back home after graduation while looking for a “real” job.

While Jill had a lot on her plate as a new widow, she wasn’t worried financially because she and Gary had updated their wills just a year before. But what she learned next was devastating. Although Gary named Jill sole beneficiary in his will, he had never changed the beneficiary designation for his work 401(k) plan or life insurance policy since he’d started at his firm 25 years earlier. That meant that his ex-wife Tiffany, now thrice divorced and living in a trailer park, would receive the majority of the family’s assets.

This sounds like a one-in-a-million situation, but the fact is it represents one of the biggest mistakes people make in estate planning. It happens because people’s lives tend to grow richer and more complex as they get older. They switch jobs, buy homes, divorce and remarry, have children and stepchildren, adopt at a late age, and are completely swept away by a life filled with neighborhood barbecues, weekend youth soccer games and trying to make ends meet. Administrative chores like changing beneficiary designations on old accounts is one of those little details that is often overlooked.

A financial advisor might not ask about assets he does not manage, such as life insurance policies or a company 401(k) plan. As such, there might not be anyone reminding you to update account beneficiary designations for your employer retirement plan, IRA, annuity, insurance policy or even bank accounts.

Be aware that a will does not supersede the beneficiary instructions of these separate accounts; therefore, it’s important to review and update your beneficiary designations every so often for each of your accounts – and always whenever one of the following scenarios occur:

  • Marriage
  • Divorce
  • Remarriage
  • Job change
  • Retirement plan rollover
  • Birth of a child or grandchild
  • Adoption of a child or grandchild
  • Beneficiary dies or becomes disabled
  • One of the your financial institutions changes ownership

One common scenario is that of two separate families joining via a second marriage. If stepparents and stepchildren aren’t confusing enough, imagine the new couple decides to have a baby together who is much younger. The younger sibling may be resented by and not likely to have a strong relationship the older siblings, and yet, she could end up at their financial mercy if she is left out of the will and/or beneficiary designations.

The moral of this story is that writing a will is important to appoint a guardian for your under-age children, an executor for your estate and to communicate your desires. However, a will is not the last word on asset transfers, so it’s just as important to keep your account beneficiary designations up-to-date and consistent with your will.

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Areas of Services: Estate Planning Salt Lake City, Estate Planning Sandy UT, Estate Planning South Jordan

Business Sale Salt Lake City

Business Sale Salt Lake City

Getting Value from Your CPA

Business Sale Salt Lake CityHow did you fare on April 15? Business Sale Salt Lake City Did you file on time or extend? How was your tax bill? Did you owe money or receive a refund? We won’t talk about whether you paid too much tax because no matter the amount, all Americans feel they pay too much tax. So how did April 15 treat you? Regardless of your answer, if you didn’t consult your CPA during the year, you may have missed out on his or her real value.

You see, most people think the value of a CPA comes only in that short period of time between January 1 and April 15, but the true value comes throughout the year when you consult your CPA on financial matters. The matters can be simple, such as how much to withhold for federal and state taxes or complex like when you are negotiating the purchase or sale of a business.

For example, let’s take a look at a typical business purchase. Say you get the chance to buy an established business. The current owner tells you the average annual income is $100,000, he wants $350,000 and you can pay it over 10 years at no interest. Let’s see, you get net cash income of $65,000 ($100,000 – $35,000) and build your own business asset in the process. Considering you only make $35,000 right now, that sounds great, doesn’t it?

Well, let’s ask some questions a CPA might ask. First of all, what does the balance sheet look like? What assets will you get with the purchase? Are there any receivables or inventory? Are there any real assets like equipment or buildings? Is the $100,000 really consistent and does it come from the good name of the business or a few contacts the owner has that will disappear when you purchase the company? Is the net income before or after taxes and does it represent real cash available for your living expenses or will cash flow be significantly less?

Not only must you look at the basic business questions, but the manner in which you structure the purchase is critical. If the business in the preceding example is a corporation, you have two choices. You can either purchase the assets or you can purchase stock. Let’s say the only asset of the company is its good name, commonly called goodwill. If you buy the stock, your basis in the company is $350,000, but you won’t be able to deduct any of that cost until you sell the company. If you buy assets, you will have a $350,000 asset, the cost of which you can deduct over 15 years. If your effective tax rate is 30% that saves you $7,000 per year. Would you rather pay less tax now or later?

There are numerous tax and legal matters that come into play when buying a business and the fact is you shortchange yourself if you fail to involve the proper professionals before, during and after the acquisition.

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Areas of Service: Business Sale Salt Lake City, Business Sale Sandy UT, Business Sale South Jordan, Business Sale West Jordan

Bankruptcy Salt Lake City

Bankruptcy Salt Lake City

How to Use an IRA for Asset Protection

Bankruptcy Salt Lake CityMost people do not anticipate a situation in which a creditor will come after their assets, but these situations are more common than you might think. Bankruptcy Salt Lake City For example, say your teenager is involved in a car accident and the injured party files a civil suit – your assets could be vulnerable. Likewise, if you get divorced or must file for bankruptcy, your assets can be attached or garnished.

If you would like to protect your portfolio against the possibility of creditors getting access to your assets – now or after you pass assets on to your heirs – it’s a good idea to understand what accounts are the best vehicles to protect your assets.

Up to $1 million in aggregate of all Individual Retirement Accounts’ assets are protected from creditors if you file for bankruptcy. Moreover, a bankruptcy court has the discretion to increase this cap in the “interest of justice.” Outside of a bankruptcy situation, whether or not your IRA will be protected from creditors is largely dependent on state law. The majority of states shield all assets of a traditional IRA from creditors; slightly fewer (but still most) states offer the same protection for a Roth IRA.

Employer-sponsored plans, such as the 401(k), 403(b), 457(b), SEP IRA and SIMPLE IRA, enjoy unlimited protection under the Employee Retirement Income Security Act of 1974 (ERISA). If you roll over assets from an employer-sponsored plan, they will then be subject to the $1 million limited protection given an IRA in a bankruptcy proceeding, and be subject to state law outside of bankruptcy.

Limited Liability Protection

You can also structure your IRA to wholly own an LLC for the same reason individuals use LLCs in their personal investment and business activities – to limit personal liability. Using a Self-Directed IRA LLC to make investments offers you greater asset and creditor protection than making investments personally. For example, say you purchase rental property under your IRA/LLC and a renter then files a lawsuit as a result of being injured on the property. In this case, only the assets owned by the IRA/LLC are at risk; the lawsuit may not go after your other personal assets.

Inherited IRA

You might be able to protect IRA assets that you plan to leave to your family (other than your spouse) by naming a trust as your designated IRA beneficiary because a trust also enjoys creditor protection. If you do not do this while you’re alive, your heirs can preserve inherited retirement assets by transferring the IRA they inherit to a “see-through trust.” This type of trust enjoys the same tax-deferred treatment that the beneficiary would enjoy had he inherited the IRA directly, but with far better protection from creditors in the wake of a bankruptcy filing or creditor lawsuit.

Be aware that in July 2014, the Supreme Court unanimously upheld a Seventh Circuit decision (Clark v. Rameker) that an inherited IRA was not protected in a bankruptcy proceeding. This was a specific case in which the IRA beneficiary claimed her inherited assets should be protected against creditors, demonstrating that these protections may come under scrutiny going forward on a case by case basis.

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Areas of Service: Bankruptcy Salt Lake City, Bankruptcy Sandy UT, Bankruptcy South Jordan UT, Bankruptcy West Jordan UT