Hoffman & Associates Expands

Planning With Uncertainty

business lawWith the election of Donald Trump as President, many income, estate, and gift tax issues are in a state of uncertainty. President-Elect Trump has mentioned eliminating the Estate Tax, but it’s unclear if he will make that a priority, or if Congress is interested in such a change.

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Hoffman & Associates Expands

Overtime Law Update

IAN M. FISHERIn  June, we warned business clients that new regulations governing overtime laws would take effect on December 1, 2016. However, a number of states sued the Department of Labor and on November 23, the United States District Court for the Eastern District of Texas issued an injunction blocking the implementation from taking effect.

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Changes in Overtime Pay Regulations

IAN M. FISHERSmall business owners may be in for a shock later this year when new Department of Labor Regulations governing overtime go into effect. On December 1, 2016, a Final Rule by the Wage and Hour Division will go into effect, causing approximately 4.2 million currently exempt workers to have a right to time and a half pay from their employers.

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Tax Extender Deal Signed

IAN M. FISHERChristmas came a week early for many taxpayers in 2015.

On Friday, December 18, President Barack Obama signed into law a tax and spending package containing numerous tax breaks for individuals and businesses.

Of particular interest to many Hoffman & Associates clients may be the Conservation Easement Enhanced Incentive. In 2014, there was a provision in Sec. 170 of the Internal Revenue Code that allowed the value of qualified conservation contributions to be deducted up to 50 percent of a taxpayer’s contribution base (similar to AGI) and carried over to 15 succeeding tax years. For qualified farmers or ranchers, the deduction limit was 100 percent of the contribution base.

However, that enhanced incentive ended at the end of 2014 without Congress’s action and the easement limit reverted to 30 percent of a taxpayer’s contribution base and 5 years of carryover. As part of the now signed tax extender deal, the enhanced incentive is now permanent. The bill completely deletes the language in the code section that makes the enhanced incentive expire, so taxpayers now have peace of mind when considering conservation easements going forward.

Some other tax breaks included in the package include the following:

  • IRA charitable rollover, which means once a taxpayer reaches age 70 1/2, he or she can make direct gifts from his or her IRA to charities of up to $100,000 per year. This would be more beneficial than taking withdrawals and then gifting to charity.
  • Research and Development Credit, which incentivizes small businesses and startups to invest in research and development by allowing them the use of this credit against alternative minimum tax or even payroll taxes in some limited instances.
  • Reduced S Corporation Built-In Gains recognition period, which is important for C corporation owners who are interested in converting to S Corporations. Under previous law, the corporation had to hold appreciated assets for 10 years or it would be taxed on their gains. Now, that holding period has been reduced to 5 years.
  • Itemized deduction for state and local sales tax in lieu of income taxes. This could be beneficial if a taxpayer made a large purchase during the year that is greater than his or her state income tax obligation. This is particularly useful for taxpayers who live in states without a State income tax, such as Florida.
  • Enhanced Sec. 179 Deductions, which allow businesses to deduct full purchase price of qualifying equipment and/or software purchased during the tax year. Businesses may deduct up to $500,000 of qualifying expenses on up to $2,000,000 of equipment. These were set to drop to $25,000 and $200,000 had this not been included in the tax extender bill.
  • Once the Sec. 179 cap is reached, bonus depreciation was also made permanent in this tax deal. What that means is a taxpayer can deduct 50% of the depreciation in the first year instead of the normal 20%.

 To illustrate this in conjunction with the enhanced Sec. 179 deductions, let’s say a company bought $750,000 worth of new equipment. They would be able to deduct the following:

  • $500,000 – Sec. 179 deduction ($250,000 remaining after Sec. 179 deduction)
  • $125,000 50% Bonus first year depreciation (of the remaining $250,000)
  • $25,000 normal 20% depreciation (20% of the $250,000-$125,000)

 

  • $650,000 Total First Year Deduction ($500,000+$125,000+25,000)
  • $227,500 Cash Savings, assuming 35% tax rate

The tax extender bill contained numerous other provisions benefitting both individual taxpayers and businesses. If you have any questions about them, please feel free to contact Hoffman & Associates.

Single Member LLCs for Asset Protection

IAN M. FISHERAt Hoffman & Associates, we advise many of our clients to form limited liability companies, known as LLCs, to hold and protect their assets. In general, an owner of an LLC interest, or a “member” of the LLC, will not be responsible for any debts of the LLC, which is a win-win situation for the client. Further, if the member gets sued for something related to the LLC, such as the actions of an employee of the LLC or product liability from a product produced by the LLC, the member’s personal property will be shielded from the person suing the LLC.

Additionally, if a member is sued for something unrelated to the LLC, the member’s LLC interest will be somewhat shielded from that judgment creditor. Often the remedy for a judgment creditor against a member of an LLC is what is known as a “charging order,” which means they cannot take ownership of the LLC, but will be entitled to any LLC distributions to that Member.

However, in a few limited instances, a court will look through the LLC to get to a Member’s assets, known as “piercing the veil” of the LLC. Generally, this is done in the case of an LLC with only one member, which is the situation numerous clients find themselves in – they do not have a partner to add or do not want to add a partner to their business. Even with this risk, many clients will want to own the whole LLC themselves, which is a very simple structure, since all of the LLC’s taxes would pass through to that single member.

Often, states are more likely to pierce the veil or not limit the remedy to a charging order in the case of single-member LLCs, or SMLLCs. In fact, only a handful of states limit action against a member of a SMLLC to a charging order. Delaware, Nevada and Wyoming are the popular states that offer this statutory protection. If a client is focused on asset protection and does not want an additional LLC member, forming the LLC in one of these three states is the best course of action.

Even in a state that limits a remedy to a charging order, a court can still pierce the veil of a SMLLC if the LLC member does not respect the structure of the LLC. In a recent Wyoming case, Greenhunter Energy, Inc. v. Western, 2014 WY 144, (WY S.C., Nov. 7, 2014), the Wyoming Supreme Court completely disregarded a SMLLC because the Member did not treat the LLC like a separate operating entity. There were numerous problems in this case, but they are easily avoidable with a proper Operating Agreement and by respecting the LLC as a separate entity.

Some clients desire more anonymity. Delaware, Nevada, and Wyoming all require a manager’s name to be filed with the state, which becomes an easily accessible public record. If a client also desires anonymity, one option would be to form an LLC in a state that does not require a manager’s name to be listed (such as Georgia) and have that LLC serve as the manager of the SMLLC.

Although the SMLLC can be ineffective if not formed and used properly, as shown in the Greenhunter Energy case, it can be a great tool for those clients who have asset protection goals, even if they do not want to bring a partner into their business. If this is you or someone you know, please contact Hoffman & Associates to discuss a single-member LLC to protect your assets.

For more information regarding this or any other business law concern, please visit the Hoffman & Associates website at www.hoffmanestatelaw.com, call us at 404-255-7400 or send us an email.

 

Why YOU should have a BDIT

Ian 1As a business owner, does anything sound better than having your business protected from creditors and having it grow completely outside of your estate while still having full control over it? The Beneficiary Defective Inheritor’s Trust (the “BDIT”) technique allows all of that. Essentially, a trust beneficiary, the business owner, YOU, can grow your business in a trust established for you by someone else.

The biggest advantage of this strategy is that the BDIT will be for the benefit of the business owner and will be completely discretionary, so there will be no problem getting money out of the company if needed. Some other benefits of this trust are that the beneficiary/business owner has significant control over the trust property and it is a grantor trust with respect to the beneficiary, so that will further remove assets from the beneficiary’s estate while the assets grow tax free. One other advantage is that a BDIT is more flexible than a defective grantor trust as far as changing beneficiaries of the trust, so it might be a good option if a parent is not sure if their child can handle a business or a similar situation.

The mechanics of the BDIT are as follows:

  1. A Parent (or other third party, hereinafter the “Parent”) forms the trust (in a favorable jurisdiction for asset protection) for the benefit of the business owner;
  2.  The Parent contributes $5,000 cash to the trust and allocates $5,000 of GST exemption to it;
  3.  The Parent grants the beneficiary a Crummey power of withdrawal over the $5,000 for 30 days and it lapses;
  4.  The Parent retains no powers that could trigger the grantor trust rules for the Parent;
  5.  The Parent grants full discretion over distributions of income and principal to a third-party trustee;
  6.  The child is granted the power to remove and replace the independent trustee with another independent trustee;
  7.  The Parent grants a broad special power of appointment to the child, exercisable during life or at death;
  8.  The beneficiary will be the Investment Trustee and control all managerial decisions; and
  9.  A formula clause will be used to shift any unintended gifted assets to a non-GST tax exempt BDIT.

However, because the BDIT is a very complex strategy, it must be documented, implemented, and administered very carefully.  If all the proper procedures are followed, this transaction is legitimate despite the IRS not liking it.  Anyone with a growing business should look into a BDIT

For more information regarding this or any other estate planning concern, please visit the Hoffman & Associates website at www.hoffmanestatelaw.com, call us at 404-255-7400 or send us an email.

Obamacare Implementation Update

Ian 1For many small business owners, dozens of questions have loomed about the implementation of the Affordable Care Act (the “ACA”).  Good news for them: the Obama administration has extended ACA transition deadlines to give small business owners a longer time to become compliant with ACA regulations.

When the ACA was first passed, all employers with 50 or more full-time employees would have had to have offered health insurance coverage to their employees by January 1, 2014.  However, the effective date for this requirement has been pushed back to January 1, 2015.  Additionally, 2015 will be considered a transition year, in which full compliance is not mandatory for employers with up to 100 full-time employees.

Since 2015 is considered a transition year, these mid-size employers (between 50 and 100 full-time employees) will not have to provide health insurance coverage until January 1, 2016 if the following two conditions are met:

  • From February 9, 2014 through December 31, 2014, the company’s number of employees and overall hours worked by employees were not reduced except for bona fide business purposes; and
  • From February 9, 2014 through December 31, 2015, health coverage for employees was not eliminated or materially reduced.

Many Hoffman & Associates clients can potentially benefit from this transition period. For employers with 100 or more full-time employees, the new regulations allow for coverage of 70% of employees in 2015 instead of 95%, which was the previous 2015 requirement.  All other provisions of the Affordable Care Act will be effective.

 

For more information regarding this or any other business planning concern, please visit the Hoffman & Associates website at www.hoffmanestatelaw.com, call us at 404-255-7400 or send us an email.

In accordance with IRS Circular 230, this article is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purpose. The information contained herein is provided “as is” for general guidance on matters of interest only. Hoffman & Associates, Attorneys-at-Law, LLC is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. Before making any decision or taking any action, you should consult a competent professional advisor.

Conservation Easements – Easy Tax Savings (Update)

Ian 1You may not be able to have your cake and eat it too, but you can own your land and donate it too.

Conservation easements allow a property owner to maintain ownership of his land while ensuring it will be preserved in perpetuity.  This allows a land owner to maintain private ownership of the land while also limiting development, essentially making a charitable donation and therefore receiving a tax deduction for the reduction in value under IRC sec. 170.

Although the landowner will maintain possession of the land, the conservation easement burdening the land is permanent and runs with the land, so the land can be transferred, but the conservation easement restrictions will always remain in place.

Why would you want to burden your land forever?  Besides the charitable aspect, a landowner can save a significant amount of real estate taxes, income taxes, and estate taxes with a conservation easement.  A landowner who places a conservation easement on his land can offset up to 30 percent of federal taxable income, and up to a six year carryover of any unused deduction.  Additionally, there are state tax credits in Georgia and many other states for conservation easements.

The amount deductible from tax will be the difference between the value of the property before the conservation easement and the value of the property after that conservation easement, which must be determined by a qualified appraiser.

The landowner grants the conservation easement to either a government unit or a charity and the contribution must be exclusively for “conservation purposes.”

The state of Georgia gives a dollar-for-dollar income tax credit for 25 percent of the fair market value of the donation, up to a maximum credit amount of $250,000.  It can be carried forward for 10 years.  Additionally excess credits can be sold to other taxpayers for cash.  However, there is a $5,000 application fee.

For more information regarding this or any other estate planning concern, please visit the Hoffman & Associates website at www.hoffmanestatelaw.com, call us at 404-255-7400 or send us an email.

 

In accordance with IRS Circular 230, this article is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purpose. The information contained herein is provided “as is” for general guidance on matters of interest only. Hoffman & Associates, Attorneys-at-Law, LLC is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. Before making any decision or taking any action, you should consult a competent professional advisor.

Conservation Easements – Easy Tax Savings

Ian 1You may not be able to have your cake and eat it too, but you can own your land and donate it too.

Conservation easements allow a property owner to maintain ownership of their land while also ensuring that it will be preserved in perpetuity.  This allows a land owner to maintain private ownership of their land while also limiting development, essentially making a charitable donation and therefore receiving a tax deduction for the reduction in value under IRC Sec. 170.

Although the landowner will maintain possession of the land, the conservation easement burdening the land is permanent and runs with the land, so the land can be transferred, but the conservation easement restrictions will always remain in place.

Why would you want to burden your land forever?  Besides the charitable aspect, a landowner can save a significant amount of real estate taxes, income taxes, and estate taxes with a conservation easement.  In fact, right now, a qualified farmer who puts a conservation easement on the farm can offset up to 100 percent of his or her federal taxable income, leaving the farmer with ZERO income tax for the year, and up to a 15 year carryover of any unused deduction.  Additionally, there are state tax credits in Georgia and many other states for conservation easements.

However, at the end of 2013, the income deduction limit is set to revert to 30% of a donor’s income and only a five year carry forward.

For example, in 2013, if a farmer who makes $500,000 a year sets up a conservation easement worth $1.5 million, the farmer can deduct $500,000 in 2013 and carry forward the $1,000,000 excess charitable deduction to offset income in future years.  However, if that farmer waits until next year and Congress does not pass the Enhanced Easement Incentive, that same $1.5 million conservation easement would only be worth a $150,000 deduction and a carryover period of only five years.  Therefore, the farmer would lose out on $600,000 of the deduction.

The amount deductible from tax will be the difference between the value of the property before the conservation easement and the value of the property after that conservation easement, which must be determined by a qualified appraiser.

The landowner grants the conservation easement to either a government unit or a charity and the contribution must be exclusively for “conservation purposes.”

The state of Georgia gives a dollar-for-dollar income tax credit for 25% of the fair market value of the donation, up to a maximum credit amount of $250,000.  It can be carried forward for 10 years.  Additionally excess credits can be sold to other taxpayers for cash.  However, there is a $5,000 application fee.

For more information regarding this or any other estate planning concern, please visit the Hoffman & Associates website at www.hoffmanestatelaw.com, call us at 404-255-7400 or send us an email.

In accordance with IRS Circular 230, this article is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purpose. The information contained herein is provided “as is” for general guidance on matters of interest only. Hoffman & Associates, Attorneys-at-Law, LLC is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. Before making any decision or taking any action, you should consult a competent professional advisor.

Update to the “DOMA” Ruling

The Treasury Department announced on August 29th that legally married same-sex couples will be treated as married for federal tax purposes regardless of what state they live in starting Sept. 16th, 2013.  Any same-sex couple legally married in a jurisdiction that allows it has the freedom to move to other states that don’t allow it and the federal government will recognize the marriage for tax purposes.

“Today’s ruling provides certainty and clear, coherent tax filing guidance for all legally married same-sex couples nationwide. It provides access to benefits, responsibilities and protections under federal tax law that all Americans deserve,” Treasury Secretary Jacob Lew said in a statement. “This ruling also assures legally married same-sex couples that they can move freely throughout the country knowing that their federal filing status will not change.”

However, this ruling will not apply to same-sex couples in states that don’t allow same-sex marriage for social security purposes.  It will also not apply to those same-sex couples in domestic partnerships or same-sex unions.

On June 26, 2013 the Supreme Court of the United States held Section 3 of the Defense of Marriage Act (“DOMA”) unconstitutional “as a deprivation of the liberty of the person protected by the Fifth Amendment” in United States v. Windsor, an estate tax case.  As a result, the federal government must henceforth recognize same-sex marriages as valid if they are conducted lawfully in a state that allows them.  This means that legally married same-sex couples will be able to file joint income tax returns and will qualify for other income and estate tax benefits previously associated with marriage between a man and a woman.

However, the DOMA ruling does not mean that states have to recognize same-sex marriage.  Georgia has a constitutional ban on same-sex marriage.  Therefore, same-sex couples in Georgia remain under the same rules that existed prior to the DOMA ruling.  That is, same-sex couples may not file joint Georgia income tax returns.  Further, a same-sex partner will not be treated as next of kin for purposes of medical decision making or sharing of medical information under HIPAA.  Likewise, it will remain difficult for a same-sex partner to get appointed as guardian or conservator of their partner without proper estate planning documents.

Regardless of a same-sex couple’s marital status in Georgia, well drafted estate planning documents, including wills, health care directives and financial powers of attorney, can incorporate many of the otherwise available benefits for same-sex couples.

 

For more information regarding this or any other estate planning concern, please visit the Hoffman & Associates website at www.hoffmanestatelaw.com, call us at 404-255-7400 or send us an email.

In accordance with IRS Circular 230, this article is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purpose. The information contained herein is provided “as is” for general guidance on matters of interest only. Hoffman & Associates, Attorneys-at-Law, LLC is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. Before making any decision or taking any action, you should consult a competent professional advisor.

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