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tax preparation

Tax Planning Advice for Major Life Changes

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We can never predict what life has for us. 

There may be significant milestones and changes that can impact your finances. It may be marriage, a baby, buying a home, changing careers, or nearing retirement. These life changes all have their unique tax considerations. Proper tax planning during these times can help you navigate these transitions more smoothly and maximize your financial well-being. 

Here are some tax planning ideas for major life changes:

  1. Marriage. Marriage changes your tax situation. If you’re recently married or about to get married, consider the following:
    • Update Your Filing Status: Choose between filing jointly or separately. Filing jointly often provides more tax benefits due to lower tax rates and increased deductions. Calculate both scenarios to determine which is more advantageous.
    • Review Withholding: Update your W-4 with your employer to reflect your new marital status. This will ensure that your withholding accurately reflects your combined income and tax situation.
  2. Baby: The new member of your family is a life-altering event that also impacts your taxes:
    • Claiming Dependents: You can claim a child as a dependent, which could lead to valuable tax credits such as the Child Tax Credit and the Earned Income Tax Credit.
    • Childcare Expenses: If you’re returning to work and paying for childcare, you might be eligible for the Child and Dependent Care Credit, which can help offset some of these costs.
  3. Purchasing a Home: Becoming a homeowner has tax implications:
    • Mortgage Interest Deduction: Depending on your income & deductions you may be able to deduct mortgage interest paid on your primary and, in some cases, secondary residence, which can provide substantial tax savings.
    • Property Taxes: Property taxes are often deductible, so keep track of these payments for tax purposes.
    • Home Office Deduction: If you use a portion of your home exclusively for business purposes (not applicable if you are compensated by W2), you might be eligible for a home office deduction.
  4. Changing Careers: Transitioning to a new job or career can lead to changes in your tax situation:
    • Job Search Expenses: Some job-related expenses, such as resume preparation and travel for interviews, might be deductible if they exceed a certain threshold.
  5. Approaching Retirement: As you near retirement, strategic tax planning can help you make the most of your savings:
    • Social Security Timing: The timing of when you start receiving Social Security benefits can impact the taxes you owe on those benefits. Be aware of the potential tax consequences.
    • Required Minimum Distributions (RMDs) for 2023: Once you reach the age of 73 (or 70½ if you were born before July 1, 1949), you’ll need to start taking RMDs from your retirement accounts. Plan for the tax implications of these distributions.
  6. Estate Planning: This is a critical aspect of your financial journey that affects your loved ones:
    • Gift and Estate Taxes: If you plan to gift substantial assets or have a sizable estate, understanding the gift and estate tax thresholds and exemptions is important for tax-efficient transfers.
  7. Divorce: Divorce can have significant financial and tax ramifications:
    • Alimony and Child Support: Understand the tax treatment of alimony (taxable to the recipient, deductible by the payer if the divorce was finalized by the end of 2018) and child support (non-taxable).
    • Property Division: The division of property during divorce can have tax consequences. Consult with professionals to ensure equitable and tax-efficient outcomes.

You should seek advice from a tax professional or financial advisor. They can guide you based on your specific circumstances and help you make informed decisions that align with your long-term financial goals. Tax laws can change, so staying informed and proactive is key to optimizing your financial situation during every stage of your life. 

A.K. Burton, PC, has experienced accountants who can help you do your tax and estate planning for now and the future changes in your life. Call us at (301) 365-1974 for a consultation.

We serve the Bethesda, Rockville, and Montgomery County, MD area.

*** For more information on marriage and taxes, visit the Tax Policy Center website.  

 

 

Estate Planning

Nine Reasons to Do Estate Planning in 2021

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This year, we have experienced the unexpected. 

COVID-19 (Coronavirus) has ripped through the fabric of our nation, wreaking havoc on our lifestyle. Even with a vaccine just being released as we write this blog, there will still be a time of transition and readjustment. ***

This transitional period is the perfect time for you to re-examine your estate. In our busy lives today, it is easy to prioritize other items and let estate planning slip to the bottom of the list of things to do. The pandemic has provided a time-sensitive reason to prioritize estate planning back to the top of the to-do list. There is a lot outside of our control these days. One thing you can control is making sure that your loved ones are provided for with estate planning. 

Here are some tips on estate planning as we enter 2021: 

  1. Life and Disability Insurance: If you have insurance, be sure to update your beneficiaries. If you don’t have life insurance or disability insurance, then buy some this year. Your employer may provide it. If not, research local insurance agents and brokers to see the best policy for you. This is a crucial decision because when you die, you are leaving funds for your spouse and loved ones to pay funeral expenses and other bills. 
  2. Pet Care: Have someone designated to walk and feed your dog or cat. Provide a key and vet name. 
  3. Funeral and burial arrangements: Make your specific funeral service wishes known, including who you want the eulogy, speakers, music, pallbearers, etc. Also, have your burial plot chosen and purchased. 
  4. Retirement accounts: Your beneficiaries should be updated so your savings and investments go to the right person. 
  5. Bank accounts and investments: Your bank should provide a “Transfer on Death” beneficiary of your accounts. Following your death, whoever you have chosen will automatically receive the account. It is good for smaller accounts and assets. 
  6. Digital assets: Someone should be designated to handle your email accounts and any other online accounts such as social media and websites. Have your Financial Power of Attorney keep all your user names and passwords in a file. Keep them updated when you have changed any of the passwords or closed any account. 
  7. Have a “Family Convo”: Get together with all of your immediate family and discuss what happens if you get sick or die. Make arrangements for your spouse and children. Give them the names of your power of attorney and any documents they may need for future arrangements. 
  8. Health Care Directive: Make your final health care plans known to your loved ones. If you want a DNR (Do Not Resuscitate) write it down. That and any end-of-life care needs should be expressed clearly.
  9. Last Will and Testament: This may be last on the list but it should be first on yours. Create a will that spells out specifically any and all property and who should get it.  

One of the best gifts you can give your loved ones is security. You reduce intra-family fighting, lawyer expenses, and hard feelings by covering all estate issues before you die. Your family will be grateful to you forever.

At A.K. Burton, PC, our experienced estate planning advisors can help you through every step of the way. Call us at (301) 365-1974 for a consultation. Our office is open! We serve Bethesda, Rockville, and Montgomery County. MD area.

*** For more information on how COVID-19 has affected Americans’ finances, see this Forbes magazine article.

Estate Planning, Family Finances, Financial Advice

Plan on Estate Planning in 2020

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Next year is almost here. In just a few weeks, 2020 will arrive. Are you ready?

Yes, it is an election year. It is a leap year. It is a new year to plan and move ahead with those plans. 

Should it also be your “Estate Planning Year”? Yes. As hard as it may be to think about, let alone talk about dying and what happens with all our stuff when that happens… it is a fact of life. 

So, while we have covered the topic of estate planning in other blogs, it is a subject that is worth revisiting. As this year winds down, you can act now to plan for your estate and help protect your family and loved ones. 

As you sit down with your trusted financial and estate planning advisor, keep these five points in mind:

  1. Life Insurance: There was a popular radio commercial about life insurance many years ago that said “Life insurance isn’t for the deceased. It’s for the living!” It seemed like a trite, non-sensical statement but it is so true. Life insurance is primarily used to protect a loved one from loss of income when the spouse or family member dies. Life insurance is a tax-free income that the beneficiary may use for income and expenses. If you’re not sure where to begin with life insurance policies, go to www.consumersadvocate.org/life-insurance/ for the latest reviews.      
  2. Beneficiary Designations: Life insurance, 401(k)s, IRAs and personal property all will be owned by someone upon the owner’s death. So, designate beneficiaries for all of these items. Review and update those beneficiaries every few years. Backup beneficiaries can also be named should the first beneficiary pass away.
  3. Charitable giving: Non-profit organizations receive billions of dollars each year from the generous giving of estates. Legacy giving is popular for churches, temples, alma maters, non-profits, civic groups and other legally designated 501 ( c ) 3  organizations. You can also discuss with your financial advisor the advantages of setting up a CRAT (Charitable Remainder Annuity Trust). 
  4. Form a Trust: Discuss with your estate planning advisor revocable or irrevocable trusts. Discuss your wants and needs and find out if one of these options matches your goals for estate planning.                             
  5. Reduce debt load: Pay off your debts! It is that simple. Your estate may end up paying those debts off which means leaving less for your heirs. Begin now at paying off credit cards, liens, and loans. 

Why work on estate planning now when there’s always tomorrow? It’s a lot of work! Truth is, making an appointment to start the estate planning process, making a plan, and then working towards that plan will set you and your family up for success! Don’t wait, act now. 

A.K. Burton, PC, has an experienced estate planning advisor and attorney on our staff who can help you do it all. We can begin now and take you through the entire process, professionally and compassionately. Contact us at (301) 365-1974 to schedule a consultation. Our accounting firm serves the Bethesda, Rockville, and Montgomery County, Maryland areas.    

Estate Planning

Estate Planning under Siege: How to resolve estate issues with family members

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You’ve heard the stories, or even worse lived through it. Family members fighting each other for the inheritance of their deceased parents. Fights over homes, cars, jewelry, clothing or even, pets ensue.  

These spats get so nasty that the heirs get ‘lawyered up” and take their siblings to court. Sometimes these legal disputes span decades and end up in the national news. Remember the infamous Anna Nicole Smith/J. Howard Marshall case? Other infamous inheritance cases such as Howard Hughes, James Brown also come to mind. a man's hand with a silver pen writing "My Last Will..."

Granted, these are sensationalized court cases; however, they highlight the necessity of estate planning to “regular people”, like us. If your family doesn’t get its arrangements in order, they may have a messy and regrettable experience, too.

Estate Planning may not be a topic you want to discuss, but it is one that every family needs to have. It doesn’t matter what you may be worth or what possessions you may own. Here are a few steps that you can take to avoid probate (and hopefully hard feelings among your heirs) which could last a lifetime:

  1. Leave a list of personal property: Your cars, home, clothing, jewelry, artwork and any other pieces of property that you own needs to be itemized. Then, next to each item of property, put the name of who you want to have it. You may even want to put a sticker with the name of the person on each item to help keep track of who gets what.
  2. Open a line of communication with all heirs: Ask them if they want anything in particular. Keep a record of the conversations and make a list of specific requests.
  3. List any gifts or loans to family members: Parents may make loans or give gifts to children to help them through difficult times. List the names of the children and the loans and/or gifts that were given them.
  4. Avoid joint ownership: In this case, “joint ownership” is where a child jointly owns assets with their parents. An added beneficiary (such as real estate) exposes the parent donor to the co-owner’s liabilities and limits the donor to change his mind in the future.
  5. List spouse as primary and sole fiduciary: Your husband or wife should be the first and primary fiduciary.
  6. Balance needs of spouse and children: Your family members have different needs. One strategy is to assign most of the life insurance money to your spouse, while other property items (i.e. autos, clothing, etc.) go to your children.Consider your individual family member’s needs upon your death to achieve the best balance possible.
  7. Transition the family business: You can gradually hand over the family business while you and your spouse are still alive. Think about grooming your successors by giving them more responsibility and authority.
  8. Keep estate planning confidential: Your finances are your business only. Avoid discussing your estate plan at a dinner with friends or posting plans on social media. Also, don’t give a copy of your estate plan to your children or grandchildren. Once you share your plan, any changes you make to it may be questioned. Avoid the drama. Life changes and with those changes, your estate planning. Only you, your spouse and your estate lawyer should discuss your estate plans.
  9. Make funeral arrangements: Choose where you and your spouse will be buried, the funeral program, interment plans, and other detailed funeral instructions. If you’re choosing to be cremated, iron out all the details and make a clear plan for your remains. These arrangements will save a lot of headaches and embarrassment for your heirs.

You have seen what happens when estates aren’t planned well: family fights, hard feelings, embarrassment, fraud, and litigation. All of these outcomes can be avoided with a solid estate plan. Estate planning is a difficult task and easier if you don’t procrastinate. Don’t delay any longer!

A.K. Burton, PC, which serves the Washington,D.C. and Bethesda, MD area, has experienced and licensed individual estate planning advisers who can help you create a will that will meet you and your family’s needs. Contact us at (301) 365-1974 for more information or email us at info@cpa-maryland.com.

Estate Planning

The First Steps to take in Estate Planning

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Death.

Well, your death to be more specific. It’s not something you want to think about and we should not be obsessed with it.

However, not planning for it is a major mistake many people make. We will all die one day. Death is something we can’t plan but we can plan to provide for our family and loved ones once the inevitable happens.

Estate Planning can actually be a relief to many who do it. It eliminates a lot of stress for you and your loved ones. How many stories have you heard of someone’s sudden death and the spouse and family being left with thousands of dollars in debts and no money to cover funeral expenses.

So, now is the time to take the First Steps in Estate Planning. Those all-important first steps should include the following:

  1. Create a Will and sign it: This first step is so simple and yet seems to be the most difficult or most often forgotten. (Only 43% of adults have a will according to a 2011 Harris Interactive Survey.) However, this is the most important and simplest step of all. Your property needs to be identified and the heirs to them named. So, in your will, name an executor who can properly disburse your property according to your wishes and pay off any estate debts. If you fail to execute a will, your property and debts may be passed on equally to your spouse and children according to the Law of Intestacy. That may cause hardship and incur extra legal costs. It’s much better to have a will and also be sure to sign and date it.
  2. Leave a detailed letter: Sometimes, you need to say more than the will allows. In this case, write a detailed letter stating your desires for your funeral arrangements, wording for the obituary, sentimental items you want to give to heirs, funeral program and other items. This letter would be kept and read by your attorney and/or executor. (You may have to amend this letter, along with your will, over the years.)
  3. Create an advanced health care directive: Many people fail to plan for health care emergencies. This unfortunate lack of planning and insight leaves their loved ones having to plan or decide on how to take care of them causing great stress and expense. A stroke, cardiac arrest or other major health crisis occurs and you may be unable to express your end-of-life desires to your family. This is a nightmare scenario. So, plan your “Advance Health Care Directive” giving explicit directions on how you should be treated when that moment occurs. Many people have a “DNR” or “do not resuscitate” orders on their medical and HIPAA release form. Your estate planning attorney can prepare this form for you and they can give your health care agent/case management team the right to get this information under the HIPAA rules. (You can find out more from the ABA’s “Consumer’s Toolkit for Health Care Advance Planning.”)
  4. Hire a Durable Power of Attorney (DPA): Your will and executor are a great start but you will still need an attorney to make sure all your wishes are known and executed should you be too sick to have it done. You may need to choose a trusted family attorney or a financial advisor. It should be someone familiar with the legal and financial issues and also someone who provide professional and compassionate advice to your heirs. (A relative is not recommended in this case as they would not have necessary objectivity needed in making decisions.)

This is only the start of estate planning. We will get into more detail in future blogs. The main point here is this: get that will written and signed. Everything after that can be done in time. Make this sadness less stressful for you loved ones by making sure they are taken care of and your property and assets go to those whom you want to have it. It’s not too late to do it today, in fact.

If you need more advice on estate planning, we have licensed and experienced attorneys at A. K. Burton, PC who can help you plan every step of the way. Contact us at (301) 365-1974 for more information or email us at info@cpa-maryland.com.