Estate, Gift and Generation Skipping Transfer Tax Changes in the New Tax Law

Business Planning and More..... At Hoffman & Associates, clients are the most important asset to our firm. We are committed to providing the highest quality of service and delivering the best value at all times. By listening compassionately, understanding all needs and then delivering the best solution, we are able to help clients protect their legacies by becoming better planners, better business owners, and stronger families.

The sweeping tax reform legislation that just passed is making waves throughout the county.  Of particular interest to our practice is the future of gift, estate and generation-skipping transfer (GST) taxes under this legislation.

Under current law, the combined federal gift and estate tax exemption, and the GST tax exemption is $5.49 million. The top tax rate for all three taxes is 40%. The annual gift tax exclusion is $14,000. That means you can reduce your taxable estate by making tax-free gifts of up to $14,000 per year to an unlimited number of people without utilizing any of your lifetime gift and estate tax exemption.

The Tax Cuts and Jobs Act increases these exemptions to $11.2 million per individual and $22.4 million for a married couple, and it repeals the estate tax after 2024. The Generation skipping tax is also doubled and terminated in 2024. Under this bill, the annual gift tax exclusion is retained, though it is also aged for inflation and will be $15,000 per donee for 2018.  After 2024 the gift tax is retained but the rate falls to 35%.

For questions regarding this new bill or any other estate planning issue, please contact us at 404-255-7400 or email us at info@hoffmanestatelaw.com.

Rural Hospital Organization Expense Tax Credit

about-us-imageIn 2016, the Georgia legislature adopted a state income tax credit effective January 1, 2017 designed to enourage Georgian’s to contribute to qualified rural hospital organizations.

Participation in the Rural Hospital Organization (RHO) expense tax credit program is limited to Georgia rural hospitals that meet qualification criteria established in the law.  The maximum contribution permitted is $5,000 per individual, $10,000 for married couples.  90% of the contribution  qualifies for an offsetting tax credit.  A C Corpration or Trust may receive a 90% tax credt on conribution, up to a limit of 75% of the entitiy’s Georgia income tax liability.  Owners of pass-through entities, such as S corporations, limited laibility companies (that have not elected to be taxed as C corporations), or partnerships are not eligible and partners and shareholders of such entities are limited to the tax credit maximums that apply to their status as individual or married taxpayers.    For those taxpayers that itemize on their federal income tax return, the RHO contribution might also offer an additional tax benefit of a federal income tax charitable deduction.   If you would like more information on the Georgia Rural Hospital Tax Credit, please contact us at 404-255 7400 or email us at info@hoffmanestatelaw.com.

 

IRS Fact Sheet FS-2017-9: Worker Classification

Joe Nagel Website PictureIRS Fact Sheet 2017-9 provides a good reminder to employers that they must be careful in identifying workers as employees and independent contractors. If employees are misclassified as independent contractors, the employer may be responsible for payroll taxes. The FSA provides a list of factors used to discern whether a worker is an employee versus an independent contractor.

Even if the employer incorrectly classifies workers, documentation that supports the employer’s filing position is important.

An employer that has a reasonable basis for classifying its workers as independent contractors may be able to obtain special relief under section 530 of the Revenue Act of 1978 (P.L. 95-600). The IRS also has a Voluntary Classification Settlement Program that provides an opportunity to reclassify workers as employees for future tax periods, with partial relief from federal employment taxes.

If you have questions or need help regarding a misclassification of workers, we can help. Please contact us at 404-255-7400 or info@hoffmanestatelaw.com.

Understanding Employee vs. Contractor Designation
The Internal Revenue Service reminds small businesses of the importance of understanding and correctly applying the rules for classifying a worker as an employee or an independent contractor. For federal employment tax purposes, a business must examine the relationship between it and the worker. The IRS Small Business and Self-Employed Tax Center on the IRS website offers helpful resources.

Worker classification is important because it determines if an employer must withhold income taxes and pay Social Security, Medicare taxes and unemployment tax on wages paid to an employee. Businesses normally do not have to withhold or pay any taxes on payments to independent contractors. The earnings of a person working as an independent contractor are subject to self-employment tax.

The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work, not what will be done and how it will be done. Small businesses should consider all evidence of the degree of control and independence in the employer/worker relationship. Whether a worker is an independent contractor or employee depends on the facts in each situation.

Help with Deciding
To better determine how to properly classify a worker, consider these three categories – Behavioral Control, Financial Control and Relationship of the Parties.

Behavioral Control: A worker is an employee when the business has the right to direct and control the work performed by the worker, even if that right is not exercised. Behavioral control categories are:

• Type of instructions given, such as when and where to work, what tools to use or where to purchase supplies and services. Receiving the types of instructions in these examples may indicate a worker is an employee.
• Degree of instruction, more detailed instructions may indicate that the worker is an employee. Less detailed instructions reflects less control, indicating that the worker is more likely an independent contractor.
• Evaluation systems to measure the details of how the work is done points to an employee. Evaluation systems measuring just the end result point to either an independent contractor or an employee.
• Training a worker on how to do the job — or periodic or on-going training about procedures and methods — is strong evidence that the worker is an employee. Independent contractors ordinarily use their own methods.

Financial Control: Does the business have a right to direct or control the financial and business aspects of the worker’s job? Consider:

• Significant investment in the equipment the worker uses in working for someone else.
• Unreimbursed expenses, independent contractors are more likely to incur unreimbursed expenses than employees.
• Opportunity for profit or loss is often an indicator of an independent contractor.
• Services available to the market. Independent contractors are generally free to seek out business opportunities.
• Method of payment. An employee is generally guaranteed a regular wage amount for an hourly, weekly, or other period of time even when supplemented by a commission. However, independent contractors are most often paid for the job by a flat fee.

Relationship: The type of relationship depends upon how the worker and business perceive their interaction with one another. This includes:

• Written contracts which describe the relationship the parties intend to create. Although a contract stating the worker is an employee or an independent contractor is not sufficient to determine the worker’s status.
• Benefits. Businesses providing employee-type benefits, such as insurance, a pension plan, vacation pay or sick pay have employees. Businesses generally do not grant these benefits to independent contractors.
• The permanency of the relationship is important. An expectation that the relationship will continue indefinitely, rather than for a specific project or period, is generally seen as evidence that the intent was to create an employer-employee relationship.
• Services provided which are a key activity of the business. The extent to which services performed by the worker are seen as a key aspect of the regular business of the company.

Consequences of Misclassifying an Employee
Classifying an employee as an independent contractor with no reasonable basis for doing so makes employers liable for employment taxes. Certain employers that can provide a reasonable basis for not treating a worker as an employee may have the opportunity to avoid paying employment taxes. See Publication 1976, Section 530 Employment Tax Relief Requirements for more information.

In addition, the Voluntary Classification Settlement Program (VCSP) offers certain eligible businesses the option to reclassify their workers as employees with partial relief from federal employment taxes.

The IRS can help employers determine the status of their workers by using Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding. IRS Publication 15-A, Employer’s Supplemental Tax Guide, is also an excellent resource.

Workers who believe an employer improperly classified them as independent contractors can use Form 8919 to figure and report the employee’s share of uncollected Social Security and Medicare taxes due on their compensation.

The IRS Small Business and Self-Employed Tax Center provides a multitude of resources for small businesses as well as self-employed independent contractors.

Additional Resources:

• Publication 15-A, Employer’s Supplemental Tax Guide
• Form 1040-ES, Estimated Tax for Individuals
• Publication 505, Tax Withholding and Estimated Tax
• Publication 535, Business Expenses
• For information on eligibility for a voluntary program to reclassify workers as employees with partial relief from federal employment taxes, visit Voluntary Classification Settlement Program (VCSP).

IRS Field Service Advice 20172801F: Gift Tax Returns

Business Planning and More..... At Hoffman & Associates, clients are the most important asset to our firm. We are committed to providing the highest quality of service and delivering the best value at all times. By listening compassionately, understanding all needs and then delivering the best solution, we are able to help clients protect their legacies by becoming better planners, better business owners, and stronger families.

IRS Field Service Advice (FSA) 20172801F provides a reminder that gift tax returns must be filed by taxpayers in order to start the statute of limitations. Generally, a gift that is adequately disclosed on a gift tax return or a schedule thereto will start a 3 year statute of limitations which the IRS has to contest the value of the gift. If the gift is not adequately disclosed, or if no gift tax return is filed, there is no statute of limitations and the gift may be subject to IRS audit indefinitely. If you have questions or need help in the preparation of a gift tax return, we can help. Contact us at 404-255-7400 or info@hoffmanestatelaw.com.

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IRS Information Letter 2017-0015

Joe Nagel Website PictureIRS Information Letter 2017-0015 below provides a requesting taxpayer guidance on the proper amount of income includible in the taxapyer’s income from a life insurance split dollar arrangement entered into with his/her employer. This is a good reminder to review your split dollar arrangements periodically to make sure they are functioning and taxed as intended by the parties to the contract. If you need help with a split dollar arrangement, we can help. Contact us at 404-255-7400 or info@hoffmanestatelaw.com.

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IRS Tax Court Memo 2017-099: Katrina E. Taylor and Avery Taylor v. Commissioner

HoffmanPicture2

The following Tax Court Memorandum decision underscores the importance of substantiating auto and travel expenses. The court noted that in Rogers v. Commissioner, T.C. Memo. 2014-141, 108 T.C.M. (CCH) 39, 43. “Section 274(d) imposes relatively strict substantiation requirements for deductions claimed for (among other things) “listed property.” Under section 280F(d)(4) listed property includes any “passenger automobile.” No deduction is allowed under section 274(d) unless the taxpayer substantiates, by adequate records or by sufficient evidence corroborating her own statements, the amount, time and place, and business purpose for each expenditure. Sec. 1.274-5T(a), Sec. 1.274-5T(b), and Sec. 1.274-5T(c).”

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IRS News Release 2017-102: Electronic Payment of User Fees for Letter Rulings, Closing Agreements and Certain Other Rulings

business lawWASHINGTON — Beginning June 15, taxpayers requesting letter rulings, closing agreements and certain other rulings from the Internal Revenue Service will need to make user fee payments electronically using the federal government’s Pay.gov system.

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Another Reason to Have a Valid General Power of Attorney (GPOA)

douglas mcalpineMost married couples file their tax returns as Married Filing Jointly (MFJ) which is generally tax advantageous when compared to the other alternative which is Married Filing Separately (MFS).  It needs to be noted though, that filing jointly is an annual election by both spouses and cannot be used if one spouse does not agree to sign (a frequent issue during divorce proceedings).

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IRS Advance Release 2017-92: Work Opportunity Tax Credit (WOTC)

Joe Nagel Website PictureThe IRS recently highlighted a reminder that a tax credit is available for those who hire long term unemployed workers. There are 10 categories of qualified hires, including if the employee has been unemployed for 27 weeks and has taken unemployment for a portion of that time. Businesses should remember to take advantage of the credit when looking to hire qualified workers. For more information regarding this or any other business or tax related issue, please contact us at 404-255-7400 or info@hoffmanestatelaw.com.

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IRS Advance Release 2017-93: Startups Can Choose New Option for Claiming Research Credit

business lawA new option for small companies (less than $5 million in receipts) exists to apply up to $250k of research credit against payroll tax liabilities rather than income tax liability. For start ups the new option offers an opportunity to take credits that would otherwise be deferred if the company did not have taxable income to offset the credits.

For more information regarding this or any other small business legal concern please contact us at 404-255-7400 or info@hoffmanestatelaw.com.

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