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- IRS Installment Agreements: 2017 User Fee Schedule and Options February 28, 2017
- A Handy Chart of 2017, 2016 and 2015 Retirement Plan & IRA Contribution Limits, Maximum Benefits, Maximum Income Subject to Social Security January 10, 2017
- IRS Warns & Updates Taxpayers of Numerous Tax Scams Nationwide: All Taxpayers, Tax and Financial Advisers Need To Read This December 15, 2016
- Do You Want To Know About Your IRS Account Balance? IRS Launches New Online Tool to Assist Taxpayers with Basic Tax Account Information December 6, 2016
- Tax Update: Governor Christie Reverses and Repeals New Law and Reinstates Pennsylvania-New Jersey Reciprocal Tax Agreement Preventing Adversely Impacting 250,000 Workers & Thousands of Employers November 1, 2016
- City of Philadelphia Department of Revenue Announces Wage Tax Reduction for July 1, 2016 July 12, 2016
- Did You Get a Letter in the Mail from the IRS? Here is What You Need to Do June 2, 2016
- 2016 Standard Mileage Rates for Business, Medical and Moving December 18, 2015
- Tax Positions of Presidential Candidates December 1, 2015
- New 2015 Tax Law Changes Tax and FBAR Filing Deadlines & Other Noteworthy Compliance Provisions: The Good, The Bad & The Ugly August 9, 2015
- Small Businesses Can Get IRS Penalty Relief for Unfiled Retirement Plan Returns July 19, 2015
- Philadelphia Use & Occupancy Tax Rate Change Effective July 1, 2015 July 9, 2015
- The City of Philadelphia Department of Revenue Announces Wage Tax Reduction for July 1, 2015. June 30, 2015
- Philadelphia Estate and Tax Blog Named The Best Tax Blog in America For 2015 March 17, 2015
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- Philip Seymour Hoffman: Estate Planning Lessons For Us and Especially Women March 4, 2014
- The Biggest (Tax) Loser: Misguided Gifts of Real Estate By Uninformed Do It Yourselfers, Realtors & Attorneys January 10, 2014
- Small Businesses: 8 Great Year-End Tax Planning Tips and Tricks: A Must Read December 22, 2013
- Estate Planning 2013: Now What? A Must Read For Everyone November 26, 2013
- Fraud Alert: Latest Reprehensible Tax and Financial Scam: Phony Charitable Contributions To Aid Typhoon Victims November 19, 2013
- Renewed Warning: IRS Tax Scam Alert and What To Do To Protect Yourself: Scary and Disturbing Tactics By Phony IRS Agents November 2, 2013
- Same-Sex Marriage Tax Guide: 16 Essential Tax Rules and Tips October 17, 2013
- 2013 Year End Tax Planning Strategies: Learn What Can Be Done Now To Save Taxes and Prevent Costly Mistakes October 8, 2013
- New Inheritance Tax Exemption For Family Businesses In Pennsylvania August 23, 2013
- Playing Games With Employees: IRS May Come Knocking June 9, 2013
- Estate Planning: Now What? A Must Read For Everyone January 21, 2013
- 2012 Year End Tax Planning Strategies December 4, 2012
- Hurricane Sandy: Tax Deductions For Casualty Losses November 6, 2012
- Can I Trash It Now? Tax Record Retention Guidelines October 23, 2012
- Philadelphia Now Allows A Tax Credit for Hiring Veterans September 23, 2012
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- STEVEN J. FROMM, ATTORNEY, LL.M. (TAXATION)
- IRS Installment Agreements: 2017 User Fee Schedule and Options
- A Handy Chart of 2017, 2016 and 2015 Retirement Plan & IRA Contribution Limits, Maximum Benefits, Maximum Income Subject to Social Security
- IRS Warns & Updates Taxpayers of Numerous Tax Scams Nationwide: All Taxpayers, Tax and Financial Advisers Need To Read This
- Do You Want To Know About Your IRS Account Balance? IRS Launches New Online Tool to Assist Taxpayers with Basic Tax Account Information
- Tax Update: Governor Christie Reverses and Repeals New Law and Reinstates Pennsylvania-New Jersey Reciprocal Tax Agreement Preventing Adversely Impacting 250,000 Workers & Thousands of Employers
- City of Philadelphia Department of Revenue Announces Wage Tax Reduction for July 1, 2016
- Did You Get a Letter in the Mail from the IRS? Here is What You Need to Do
- 2016 Standard Mileage Rates for Business, Medical and Moving
- Tax Positions of Presidential Candidates
- New 2015 Tax Law Changes Tax and FBAR Filing Deadlines & Other Noteworthy Compliance Provisions: The Good, The Bad & The Ugly
- STEVEN J. FROMM, ATTORNEY, LL.M. (TAXATION)
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Have you failed to file your retirement plan reporting form for your retirement plan?
If you have failed to do so, the Internal Revenue Service on July 14, 2015 provides eligible small businesses a low-cost penalty relief program enabling them to quickly come back into compliance with IRS filing rules.
The program is designed to help small businesses that may have been unaware of the reporting requirements that apply to their retirement plans. In most cases, retirement plan sponsors and administrators need to know that a return must be filed each year for the plan by the end of the seventh month following the close of the plan year. For plans that operate on a calendar-year basis, as most do, this means the 2014 return is due on July 31, 2015.
Small businesses that fail to file required annual retirement plan returns, usually Form 5500-EZ, can face stiff penalties – up to $15,000 per return! However, by filing late returns under this program, eligible filers can avoid these penalties by paying only $500 for each return submitted, up to a maximum of $1,500 per plan. For that reason, program applicants are encouraged to include multiple late returns in a single submission.
The program is generally open to small businesses with plans covering a one hundred percent (100%) owner or the partners in a business partnership, and the owner’s or partner’s spouse (but no other participants).
Key Point: However, those who have already been assessed a penalty for late Continue reading
As with most things in life, when things are bad, there usually is something good that can come out of it. Our current economic troubles have resulted in many closely held or small businesses being worth far less then they used to be. This is not a good situation for businesses that are hanging on to survive or have to be sold for various reasons. However, for people wanting to minimize estate and gift taxes and have been putting off taking a cold hard look at their estate plan, now may be the perfect time to explore the gifting of shares in their businesses.
For example, some businesses have senior family members who own all or most of the shares of the outstanding stock of their corporation. With the value of the business being down right now, more shares could be gifted to younger family members involved in the business.
Example: Mr. Senior owns 80% of Deflated, Inc., while his two sons who work in the business own 10% each. Deflated was worth $3,000,000 in 2007. By the end of 2008, it was worth $2,500,000. Mr. Senior talks to tax counsel and after exploring the tax strategies and planning tools discussed below decides to gift 20% of his shares worth $500,000 to each of his sons, leaving him with a 40% stock interest.
The tax advantages are as follows:
1. The stock gifted to each son was previously worth $600,000. The current market value of such stock to each son is now only $500,000. If Deflated, Inc. goes back to its value once the economy recovers, then Mr. Senior has just transferred $200,000 ($100,000 to each son) to his sons estate and gift tax free. At a current marginal estate tax rate of 45%, Mr. Senior’s family can save $90,000 (45%*$200,000).
2. The gifts to each son are gifts of a minority interest in Deflated, Inc. and such gifts lack marketability due to the limited market for such shares. Estate and gift tax rules allow discounts for these factors that reduce the value of assets transferred. (Caveat: There are some legislative proposals being floated in Washington seeking to limit this tax strategy. Stay tuned.) These discounts for minority interests and lack of marketability conservatively can be 25%, sometimes more. With such discounts the gift of each $500,000 is reduced by $125,000. At a current marginal estate tax rate of 45%, Mr. Senior’s family can save another $112,500 (45%*$250,000).
3. Outright gifts of stock are eligible for the annual donee exclusion of $13,000. In addition, Mr. Senior has a spouse who will join in this gift, which will allow for a second $13,000 exclusion. So the taxable gift to each son is now reduced by $26,000 (Mr. Senior’s annual exclusion of $13,000 and his spousal joinder of another $13,000). Additional savings to the family is $23,400 (45%*26,000*2 sons).
4. If Mr. Senior makes no further gifts and dies with his reduced ownership interest of 40%, his estate can claim the minority interest and lack of marketability discounts against his remaining shares. If Mr. Senior dies in 2014, when deflated is worth $4,000,000, his family can take a 25% lack of marketability/minority interest discount, saving his family another $180,000 (45%*$400,000 marketability/minority interest discount[$1,600,000 forty-percent interest*25%]).
Bottom Line: Mr. Senior can take advantage of the lousy economy, the lack of marketability and minority interest discounts and the annual donee exclusions with a spousal joinder to save his family a tremendous amount of future estate and inheritance taxes.
Caveat: Remember that this type of planning depends on the particular factual setting of each client. One difference in the facts can change the outcome. Also, be aware that state inheritance taxes have not been considered in the above example. Finally, the above should not be considered as legal advice. Please consult with tax counsel to discuss your particular factual situation.
Copyright © 2009, Steven J. Fromm.