Tax Filing Responsibilities of Estate Executors

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Your role as an executor or personal administrator of an estate involves a number of responsibilities. Did you know that part of your responsibility involves making sure the necessary tax returns are filed? And there might be more of those than you expect.

Here’s an overview:

  • Personal income tax. You may need to file a federal income tax return for the decedent for the prior year as well as the year of death. Both are due by April 15 of the following year, even if the amount of time covered is less than a full year. You can request a six-month extension if you need additional time to gather information.
  • Gift tax. If the individual whose estate you’re administering made gifts in excess of the annual exclusion ($14,000 per person for 2017), a gift tax payment may be required. Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, is due April 15 of the year following the gift. The filing date can be extended six months.
  • Estate income tax. Income earned after death, such as interest on estate assets, is reported on Form 1041, Income Tax Return for Estates and Trusts. You’ll generally need to file if the estate’s gross income is $600 or more, or if any beneficiary is a nonresident alien. For estates with a December 31 year-end, Form 1041 is due April 15 of the following year.
  • Estate tax. An estate tax return, Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, is required when the fair market value of all estate assets exceeds $5,490,000 (in 2017). One thing to watch for: Spouses can transfer unused portions of the $5,490,000 exemption to each other. This is called the “portability” election. To benefit, you will need to file Form 706 when the total value of the estate is lower than the exemption.
  • Form 706 is due nine months after the date of death. You can request a six-month extension of time to file.

Give us a call if you need more information about administering an estate. We’re here to help make your task less stressful.

Considering Paying for Your Child’s College Education?

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Should you pay for your child’s college education? Or should your child find the financing? There are compelling arguments for both sides, but ultimately, your family needs to do what’s best for your financial situation. Most families find that a combination of both works the best.

Parents should pay.

Arguments in favor of shelling out your hard-earned cash for a son’s or daughter’s higher education can be compelling. For one thing, college is a very expensive proposition these days. A year of undergraduate study at a private university can easily top $30,000 and public in-state schools can run over $12,000. Of course, if your student decides to get an advanced degree or go to medical or law school, he or she can run up a bill exceeding the cost of your home mortgage. Advocates of this point of view ask, “Do you really want to saddle your kid with that kind of debt so early in life?”

They add that if your child ends up working to pay for college, that’s less time available for study and making friends. And, of course, friendships built in college can generate a wealth of opportunities for a future career. Also, by investing in tax-deferred 529 plans, parents can withdraw funds free from federal and some state income taxes when it’s time for college.

The child should take the responsibility.

Others argue that covering the cost of your child’s college education should not be your priority. After all, they reason, your kid has a lifetime to pay back student loans, and making loan payments can generate a positive credit history. Advocates of this position also argue that kids who have to pay for their own tuition, books, and living expenses learn responsibility and value the investment that college represents. They also point to available tuition reimbursement plans provided by some companies or the military service option as a way to get a college education without breaking the bank.

Those on this side of the debate often argue that 529 plans are overrated as a savings vehicle because investment options can be limited and tax rules are likely to change, undermining future tax benefits. Finally, they reason that a parent’s own retirement savings should take precedence over saving for a child’s education.

Making the decision.

Of course, your family’s dynamics, the importance you place on a college education, and your personal financial priorities will factor into this decision. If you’d like help looking at the pros and cons of this important issue, give us a call.

“Everyone” is Not Your Customer

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Indiscriminately trying to sell to “everyone” can dilute your message, muddy your image, and waste your company’s resources. To market effectively, you have to know your customers. Remember: Satisfied customers come back, and they generally refer others. Here’s how to get started.

Think about your typical customers: ages, interests, gender, aspirations, and financial and social status. In order of importance, list what customers are looking for when they come to your business. Do they seek selection, quality, price, service, or some combination? Is efficiency, expertise, or willingness to accommodate special requests particularly important to your customers? Do they demand convenience, or are they looking for atmosphere, ambience, or status?

When creating ads or other marketing tools, emphasize what your clients value, and communicate in their manner and style. For instance, low prices may not appeal to those who are more concerned with status, and ads to sell power tools rarely feature people in suits.

Getting to know your customers is mutually beneficial. You provide products and services that customers find valuable while at the same time creating revenue opportunities for your company. And isn’t that win-win dynamic the reason you started your business in the first place?

How to be a Successful Saver

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How much money did you save last year? If your savings fell short of your goals, don’t give up. You can still take charge of your financial future. Here are tips to become a successful saver.

  • Set goals. Give your saving a purpose. Do you want to accumulate an emergency fund with enough cash to cover six months of living expenses? Other saving goals may include a college savings fund, vacation fund, or a fund for major purchases.
  • Treat your savings as your most important monthly bill. Write a check to savings first, or have your savings automatically deducted from your checking account or paycheck.
  • Take advantage of tax-deferred retirement accounts. If your employer offers a 401(k) or SIMPLE retirement plan, contribute the maximum amount allowed. No employer plan available? Contribute to an individual retirement account. The money you contribute can reduce your taxable income and grow tax-deferred.
  • Track your expenses. Highlight and eliminate unnecessary or wasteful spending. Control the use of your credit cards. The amount you pay each month in finance charges could go to savings instead. Get in the habit of giving yourself a regular cash allowance, and try to live with it.

For help in setting financial goals and developing a savings plan, call us.

Tax Tips for Newlyweds

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The tax implications of marriage are probably not the first thing on the minds of most newlyweds, but paying a little attention to it now can save time and even money later. Here are a few tips to help those who are about to embark on a new life together.

Tip 1: Notify the Social Security Administration with any name change(s). The IRS has a name match program with the SSA and will potentially reject deductions and joint filing if the name change is not made timely. Do this by filing Form SS-5 with the SSA.

Tip 2: Use Form 8822 to update your address with the IRS if either of you is moving.

Tip 3: Change your name and addresses with your employer and the Postal Service to ensure your W-2s are correctly stated and delivered to the proper address.

Tip 4: If selling one or two residences, make sure you review how capital gains tax laws apply to your situation. This is especially important if one of you has been in your home for only a short time or if either home has appreciated in value.

Tip 5: Review legal documents to ensure legal titles are as you wish them to be. This includes bank accounts, titles on property, credit cards, insurance policies, and living wills.

Tip 6: Recalculate your payroll withholdings and file a new W-4. If both newlyweds work, your combined income could put you into a higher tax bracket. This phenomenon is referred to as “the marriage penalty.” By changing withholdings now, you can avoid a big surprise at tax time.

Tip 7: Review your employee benefits and make necessary changes in health care, insurance, retirement account beneficiaries, and tax-preferred spending accounts. Marriage is a qualified event to make mid-year changes by most employees.

If you or someone close to you has questions about marriage and taxes, give us a call. We’d love to help.

Building Customer Loyalty – A Few Basics

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If your company isn’t showing your customers you care, it’s time to get back to the basics. Your company’s survival depends on it.

Studies have shown that businesses often spend five to six times more to attract a new customer than to keep an existing one. Over the long term, those dollars add up. In fact, a company’s ability to care for its customers often determines its survivability in the marketplace. Make customers happy and they’ll stick with you; disappoint them and they’ll tell their friends.

Building customer loyalty is a matter of focusing on the basics. Does your company need to refocus on any of them?

Hire friendly people. You have probably visited a business where you encountered a grumpy salesperson or a bashful receptionist. Unlikeable staff will not generate repeat business. The staff you employ should enjoy interacting with people. If your employees regularly hide out in the back room instead of greeting clients, it’s time to take a hard look at your hiring practices.

Request customer feedback. This can be as simple as spending a few minutes with a customer to inquire about his or her experience with your company. Be specific. Instead of asking “How was our customer service today?”, ask a more specific question like, “Did our salesperson answer all your questions about XYZ product?” You might also establish a focus group of customers to solicit ideas for improving your products and services.

Follow up. If customers spend valuable time providing their opinions via surveys, suggestion boxes, or focus groups, don’t ignore what they have to say. Let them know that you take their ideas seriously and are looking for ways to implement at least some of their suggestions.

Never stop training. Often employees treat customers rudely or disrespectfully because they simply lack training in proper etiquette. Show them the proper way to answer phone calls, how to make eye contact and smile, how to help without being pushy. With a little focused training, most people can learn good customer service skills. Take time upfront to develop these skills in your employees and you’ll reap dividends in customer loyalty.

Model proper behavior. Simply put, the boss should exemplify top-notch customer service. If your employees see you treating clients poorly, don’t be surprised if they assume that such behavior is acceptable.

Remember: it’s easier to keep an existing client than to beat the bushes for a new one. It’s cheaper, too.

IRS file

What You Should Do When the IRS Contacts You

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Has the IRS questioned something on your tax return? Ignoring it is not the proper course of action.

After you file your tax return, the last thing you want to see is a notice from the IRS questioning your return. Some IRS notices involve very minor changes, like a correction to a Social Security number. Some are for serious changes that could involve a lot of money, such as a billing for more taxes, interest, or penalties due for an adjustment to your total tax liability.

So, what should you do if you get a letter from the IRS?

Here is a list of do’s and don’ts concerning contact from the IRS.

  • Don’t ignore the notice; the problem will not go away.
  • Act promptly. A quick response to the IRS may eliminate further, more complicated correspondence.
  • If you agree with the IRS adjustment, you do not need to do anything unless a payment is due.
  • If the IRS is requesting more money or a significant amount of new information, be sure to contact your tax preparer immediately.
  • Always provide your tax preparer with a copy of any IRS notice, regardless of how minor it appears to be.
  • Keep a copy of all the IRS correspondence with your tax return copy for the year in question.

Often taxpayers experience anxiety when they receive correspondence from the IRS. Don’t worry. The most important thing to remember is not to ignore the IRS. Bring any notice you receive to our office and let us assist you in resolving the problem quickly.

Answers to Common Questions After You File Your Tax Return

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You have filed your 2016 tax return, but you probably still have questions. Here are a few of the most common post-filing questions the IRS answers.

  • How can I check the status of my refund?

You can go online to check on your refund if it has been 24 hours since the IRS would have received your e-filed tax return or four weeks after you mailed your paper return. Go to www.irs.gov and click on “Where’s My Refund?” You will need your Social Security number, your filing status, and the amount of your tax refund.

  • What records should I keep?

Keep receipts, canceled checks, or other substantiation for any deductions or credits you claimed. Also keep records that verify other items on your tax return (W-2s, 1099s, etc.). Keep a copy of the tax return, along with the supporting records, for a minimum of seven years.

  • What if I discover that I made a mistake on my return?

If you discover that you failed to report some income or claim a deduction or tax credit to which you are entitled, you can correct the error by filing an amended tax return using Form 1040X, Amended U.S. Individual Income Tax Return.

  • What if my address changes after I file?

If you move or have an address change after filing your return, send Form 8822, Change of Address, to the IRS. You should also notify the Postal Service of your new address so that you’ll receive any refund you’re due or any notices sent by the IRS.

For answers to other tax questions you may have, give us a call.

June 15 Tax Filing Date for US Citizens Abroad

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U.S. citizens and resident aliens living overseas or serving in the military outside the U.S. receive an automatic two-month extension of the regular tax filing deadline. If this extension applies to your living situation, you have until June 15, 2017 to file your 2016 tax return. To use this automatic two-month extension, you must attach a statement to your return explaining that you live overseas or you are serving in the military outside the U.S.

Know When to Sell

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Deciding when to buy a stock is often easier than determining when to sell. As you’re reviewing your portfolio at year-end, consider these situations that may indicate the right time to sell.

When there are no tax consequences. If you hold stock in a retirement fund, you may want to reap gains with no tax impact.

To take money off the table. If a stock has had a nice run, you could sell a portion to recoup part of your investment. You can continue to invest in the stock but with locked-in gains.

A shift in fundamentals. Consider selling if the economy changes or an entire industry becomes vulnerable due to negative news.

When you’ve given up on a stock. If a stock has been declining or flat-lining for an extended period, selling low now can save you from having to sell even lower later on.

To take a contrarian position. If the market has gotten frothy and all the news is optimistic, choosing to harvest your gains could be a wise move.

When cash becomes attractive. A gloomy economic outlook could be reason to increase your cash reserves.

Having a disciplined selling strategy means giving as much thought to the sale of a stock as to the purchase. Contact us. We’re here to help.