2017 Year-End Planning Event

Campbell Wealth Management of Old Town will hold two education events on 2017 year-end tax planning featuring Ross & Moncure’s accountants Brian Davis, Luci Weigel and Sandy Brown. All Campbell Wealth Management and Ross & Moncure clients are invited to attend. Campbell Wealth Management is a local boutique financial advisory specializing in high-net-worth individuals in or approaching retirement. Our firms share a commitment to working toward retirement certainty for our clients.

The purpose of the event is to prepare clients for the 2017 financial year-end. We will cover (1) strategies to minimize annual income taxes, (2) estate planning, and (3) 2017 legislative changes that will affect your tax bill. We anticipate a lot of interest in this event due to the pending large changes to the IRS Code, and we encourage you to register early to secure your seat.

A morning event and an evening event are offered:

MORNING – 28 NOVEMBER
Location: Crowne Plaza Old Town, Kennedy Room (second floor), 901 N Fairfax St, Alexandria, VA 22314
Time: 11AM to 12:30PM
There is no charge for this event.

EVENING – 7 DECEMBER
Location: Crowne Plaza Old Town, Kennedy Room (second floor), 901 N Fairfax St, Alexandria, VA 22314
Time: 6:30PM to 8PM
There is no charge for this event.

RSVP to Nataya at nataya@rossmoncure.com, and please do specify whether you will attend the morning or evening event. If you have questions or issues that you would like addressed, please submit them in advance to Rachel at r@rossmoncure.com. We appreciate your questions, as they make for a more engaging session!

Equifax Data Breach

In 2017, hackers accessed 143 million+ American consumers’ personal information via Equifax, one of America’s three primary credit reporting agencies. The data leaked included names, Social Security numbers, birth dates, addresses, and driver’s license numbers.

Our Recommendation: Next Steps

(1) Determine if your information was exposed at www.equifaxsecurity2017.com. From this site, click on the “Potential Impact” tab. You can then sign up for free credit monitoring.

(2) Check your credit reports periodically at www.annualcreditreport.com. Add a “Credit Freeze” or “Fraud Alert” to your credit file by calling Equifax (800-349-9960), Experian (888-397-3742) and TransUnion (888-909-8872). A fraud alert allows creditors to get a copy of your credit report only if they take steps to verify your identity. If you are very worried, you can choose to place a “credit freeze” on your account; however, be aware that a credit freeze will lock your credit and may impair your ability to get credit if you need access to money quickly, such as when an emergency arises. A fraud alert will still allow you to obtain credit, but potential creditors will ask for additional verification of your identity.

(3) File your tax returns early. Filing early is your best defense against tax-related identity theft. Submit your tax return as early as possible, before identity thieves have a chance to file a phony tax return and claim a refund using your information. Be prepared to include the details from your driver’s license to help state tax authorities verify your identity. Many states already encourage you to include your driver’s license number, issue date and expiration date with your electronically-filed tax return; a few states even require it. Providing those details can help the tax authorities process your return more quickly than will be possible without that extra information.

If you have any questions, please do not hesitate to contact Luci Weigel.

Tax Planning for Women

Campbell Wealth Management of Old Town will hold two education events titled “A Wise Woman’s Guide to Financial Planning” featuring Ross & Moncure’s accountants Brian Davis, Luci Weigel and Sandy Brown. All Campbell Wealth Management and Ross & Moncure clients are invited to attend. Campbell Wealth Management is a local boutique financial advisory specializing in high-net-worth individuals in or approaching retirement. Our firms share a commitment to working toward retirement certainty for our clients.

During this session, we will address estate planning, spousal inheritance, retirement and downsizing, social security maximization, and income planning.

Location: Crowne Plaza Old Town, 901 N Fairfax St, Alexandria, VA 22314

Event 1: Wednesday, June 14th at 9:30am
Event 2: Thursday, June 22nd at 6pm

RSVP to Laura at laura.reynolds@rossmoncure.com, and please specify whether you will join us for the morning or the evening session.

Legal Education Event in Alexandria

We are partnering with Wade, Grimes, Friedman, Sutter  & Leischner, PLLC of Old Town to offer two workshops to our clients on “Piercing the Corporate Veil: When LLC’s and Corporations May Be At Risk”. Please find a brief overview of our agenda below, though this is subject to change.

(1) Relevant Tax Updates

(2) Preventing Personal Liability Related to Entity Ownership

(3) Self-Settled Spendthrift Trusts

Dates: Tuesday the 24th of January and Thursday the 26th of January —  5:30PM to 6:30PM

RSVP: Each session will be limited to ten participants on a first come, first served basis. Please let us know at r@rossmoncure.com if you are able to attend. The location will be provided by Rachel if space is still available.

Reasonable Compensation

If there is only one shareholder and no other employees, should all distributions be taken out as Reasonable Compensation?

  1. If the business or the services of the shareholder are so unique that no one replace the owner and there are no other assets in the corporation, then everything taken out of the business should be treated as wages (Reasonable Compensation) and nothing should be considered a distribution.
  2. If the corporation has tangible assets, such as equipment or inventory, the owner deserves a return on that investment. Likewise, if the business has employees or uses contractors, the owner deserves a return on that investment as well.
  3. If the corporation has intangible assets, such as goodwill, a license to operate or a favorable lease, the shareholder should receive a return on these assets. These assets may or may not have a tax basis. An example of this would be internally developed goodwill.

Reasonable Compensation is based on the value of services provided by the shareholder to the corporation. Any additional cash available for withdrawal from the business can be taken out in the form of a distribution of earnings and profits. Reasonable Compensation must be paid before distributions are made. The return on investments accumulated since inception should be equal to or greater than the accumulated distributions. If the accumulated distribution exceeds the accumulated return on investments, all assumptions need to be reviewed and adjusted. It may be necessary to adjust the Reasonable Compensation, the value of the assets or the return on investments.

Single shareholder employees of S corporations only providing services will frequently assert that they cannot be replaced.  While this may be true on rare occasions,  more than likely they have answered incorrectly.  It may be that they do not fully understand the question. Any discussion about replacing a business owner within a company in relation to Reasonable Compensation, is about the hypothetical replacement cost of the owner. Small business owners often believe that they are irreplaceable assets, when in reality all the services they perform can be done by others.  The owners think of their consideration devotion to the company, sleepless nights, and other intangibles.  While this is probably true, it is again a matter of the hypothetical replacement of the owner.

If you have questions about the amount of compensation that you are taking from your S Corporation, call us to discuss.

Health Reimbursement Arrangements

The rules have changed for Health Reimbursement Arrangements (HRAs). Business owners who have such plans should scrutinize them carefully to ensure they comply with important reforms enacted as part of the Affordable Care Act (ACA).

Health reimbursement arrangements (HRAs) are tax-advantaged group health benefit plans that reimburse participants for qualified medical care expenses. Prior to 2014, many employers used HRAs as a way to help employees purchase individual insurance coverage. For example, an employer may not have offered health insurance coverage, but instead contributed $4,000 each year to an HRA for each employee. The employee could then use some or all of the funds in the HRA to purchase an individual health insurance policy. The employer was able to deduct the $4,000 as a business expense, but the employee wasn’t required to report that amount as a taxable benefit.

The rules have changed. These plans can still be a great “win-win” for employer and employee, but the plans must be designed with great care. What worked a few years ago may no longer work today, and failure can lead to disastrous penalties. Please contact us to ensure that your HRA plan is in compliance with regulations.

Tax Education Event in Alexandria

On Tuesday, December 6th, Campbell Wealth Management of Old Town will hold a tax education event featuring Ross & Moncure’s CPA Brian Davis. All Campbell Wealth Management and Ross & Moncure clients are invited to attend. Campbell Wealth Management is a local boutique financial advisory specializing in high-net-worth individuals in or approaching retirement. Our firms share a commitment to working toward retirement certainty for our clients.

The purpose of the event is to prepare clients for the 2016 financial year-end. We will cover (1) strategies to minimize annual income taxes, (2) estate planning, and (3) 2016 legislative changes that will affect your tax bill.

Please find the full event details below:
Location: Crowne Plaza Old Town, Washington Room (second floor), 901 N Fairfax St, Alexandria, VA 22314
Time: 5:30PM to 7PM
RSVP to Rachel at r@rossmoncure.com

ABC 7 – WJLA “Ask the Financial Advisor”

phone-bank-ask-the-financial-advisor-00000002On Thursday, October 13th, ABC 7-WJLA news station will run a segment called “Ask the Financial Advisor,” a live phone bank hosted by one of ABC 7’s reporters, and viewers of ABC 7 can call in to ask a panel of advisors any questions they may have about managing their money. Our own Luci Weigel will be one of the advisors on the segment!

The phone bank will run from 4:30pm – 6:30pm on Thursday, October 13th, and the number to call is (703) 236-9220.

Of course, this is not Luci’s first brush with television fame. She was recently on another WJLA segment providing tips on how one might successfully take a “temporary retirement.” Yes, there is such a thing as a temporary retirement, and Luci has some useful advice to those who might be tempted to take one.

Passport Revocation

If you owe Uncle Sam more than $50,000 in back taxes, don’t plan on fleeing the country – or taking a vacation overseas.

Tucked away in the Fixing America’s Surface Transportation (FAST) Act is a provision that allows the revocation of passports held by American taxpayers that owe more than $50,000 in delinquent federal taxes.

The $50,000 number is indexed for inflation, so it will grow over time.  The threshold includes the sum of both the tax owed and the interest and penalties that have accrued on the tax debt.  Once a notice of lien or levy has been issued, the Department of Treasury will certify the delinquent debt to the State Department.  The State Department can then find the taxpayer ineligible to hold a U.S. passport – in other words, they can revoke an already-issued passport, deny future applications for passports, and reject renewal applications.

Legal immigrants and visa-holders have faced similar penalties for non-payment for years, as visas and green cards can be revoked for non-payment of tax debt.

To prevent revocation of travel documents, clients who are unable to pay their tax balance due in full should request an installment agreement with the IRS.  Debtors who have a valid installment agreement in place – and who are complying with the payment schedule – will not be subject to revocation of their travel document.

Our firm stands ready to assist when a reversal of financial circumstances results in tax debt that exceeds our clients’ ability to pay.  If you need help establishing an installment agreement with the tax authorities, don’t be embarrassed – simply let us know, and we will be happy to have a private discussion of the avenues available to help you to meet your tax obligations.

Sooner Rather Than Later: Putting the DSUE to Use

In prior postings, I wrote about the Deceased Spouse’s Unused Exclusion (DSUE), and the unintended consequences of a reduced DSUE when a surviving spouse remarries.

In today’s post, I’ll be writing more about Betty and Howard. You’ll recall that Betty’s first husband, Arnold, passed away in 2013, leaving $3 million to the couple’s children. Although his estate was not large enough to require that an estate tax return be filed, an estate tax return was filed anyway and an election was made allowing Betty to “inherit” the unused portion of the estate tax exemption from Arnold’s estate. As such, Betty’s total 2015 estate exclusion amount is $7.68 million (her own $5.43 million exemption for 2015 plus the $2.25 million DSUE).

This is the point at which smart couples recognize their mortality and take actions to protect their heirs. If Howard dies, he will become Betty’s “last deceased spouse,” and Betty’s estate would be forced to use his $0 DSUE instead of the $2.25 million DSUE she “inherited” from her first husband, Arnold. Betty’s estate would be able to shield only $5.43 million from taxation, rather than $7.68 million available to her while Arnold is still her “last deceased spouse.”

Fortunately, the DSUE Betty acquired through Arnold’s estate can be used as an additional gift tax exclusion instead of waiting for her estate to use the exclusion after she dies. This provision allows Betty to act now and gift $2.25 million to her children, using the DSUE she “inherited” from Arnold to shield the gift from taxation. The DSUE is used before Betty’s own exclusion, which is $5.43 million for 2015 and will continue to grow with inflation for the remainder of Betty’s life. If Betty lives a long and healthy life, that exclusion will grow as time marches on since it is indexed for inflation. If Howard passes away first and has an available DSUE, Betty can again inherit Howard’s DSUE and it can be used to further shield her estate assets from taxation.

By using the DSUE she received from Arnold’s estate while it is still available to her, she can protect her children from $900,000 in estate taxes ($2.25 million exclusion she would lose if Howard predeceases her x 40% federal estate tax rate). In addition, these gifts grow in the hands of Betty’s children (assuming they are properly invested), allowing them to enjoy the benefits of growth without incurring a potentially-taxable transfer of appreciated assets. Perhaps most importantly, Betty is still around to watch her children enjoy her gift!

As I’ve noted previously, everyone’s situation is different, and the solution that worked for Betty may not be the best course of action for you. State community property laws, how assets are titled (tenants in common verses joint tenancy with right of survivorship), and other specific circumstances may recommend a different course of action. The important lesson, however, is that the time to make a plan is before the plan is needed; the time to consider the tax consequences of your estate plan is before the tax man comes knocking on the door of your heirs.