January 19, 2018
The Tax Cuts and Jobs Act has doubled the federal gift and estate tax exemption, with inflation-adjustments projected to raise it to $11.18 million for 2018.This means federal estate taxes are a concern for fewer families, at least in the short term. (The doubled exemption expires December 31, 2025.) But it’s important to consider how state estate or inheritance taxes may affect your estate plan.
There’s uncertainty about how states will respond to the increased federal estate tax exemption. One line of thought is that many states will continue to “decouple” from the federal exemption and impose their own estate tax exemptions at a lower amount.
Establishing residency in a new state
If your estate is large enough that estate tax liability is a concern, one option is to move to a state that imposes low or no estate or inheritance taxes. But moving to a tax-friendly state doesn’t necessarily mean you’ve escaped taxation by the state you left. Unless you’ve cut all ties with your former state, there’s a risk that the state will claim you’re still a resident and are subject to its estate tax.
Even if you’ve successfully established residency in a new state, you may be subject to estate taxes on real estate or tangible personal property located in the old state (depending on that state’s tax laws). And don’t assume that your estate won’t be taxed on this property merely because its value is less than the federal exemption amount. In some states, estate taxes are triggered when the value of your worldwide assets exceeds the state’s exemption amount.
Terminating residency with a previous state
If you’re relocating to a state with low or no estate taxes, consult with us about steps you can take to terminate residency in the old state and establish residency in the new one. Examples include acquiring a residence in the new state, obtaining a driver’s license and registering to vote there, receiving important documents at your new address, opening bank accounts in the new state and closing the old ones, and moving cherished personal possessions to the new state.
If you own real estate in the old state, consider transferring it to a limited liability company or other entity. In some states, interests in these entities may be treated as nontaxable intangible property. Contact us to learn more about how state estate or inheritance taxes may affect your estate plan.
It’s been said that timing is everything. With the reduction of individual income tax rates under the Tax Cuts and Jobs Act, now may be the right time to convert a traditional IRA to a Roth IRA.
The Section 179 deduction has long provided a tax windfall to businesses, enabling them to claim immediate deductions for qualified assets, instead of depreciating them over time. For 2019, the maximum deduction is $1.02 million, subject to a phaseout rule if more than $2.55 million of eligible property is placed in service during the tax year. Even better, the Sec. 179 deduction isn’t the only avenue for immediate tax write-offs for assets such as machinery and equipment. Under the 100% bonus depreciation tax break, the entire cost of eligible assets placed in service in 2019 can be written off this year. Contact us to learn how your business can maximize the deductions.
Business owners have been engaging in bartering transactions for hundreds of years. But if your company trades goods or services today, be aware there are tax consequences.