From Our CPAAI
(CPA Associates International) Colleagues

Tax Reform Update


Tis the season to battle it out on The Hill.  You may have heard about a little thing called Tax Reform. Well, the House of Representatives passed its version of the tax reform bill a few weeks ago. Recently, the Senate passed its version and, shockingly (sarcasm inserted here), they do not match. Both houses have until December 22nd, to agree on many issues, including tax reform, before The Government Shutdown of 2017 begins.

The house and senate bills both mention change in the area of estate and gift. Lucky for us taxpayers, they do agree on doubling the lifetime estate and gift exemption starting in 2018.  However, the Senate bill would end that increase in 2026. The lifetime estate and gift exemption amount in 2017 is $5.49 million for individuals and $10.98 million for married couples. An increase will allow taxpayers to transfer almost twice the amount of cash and property free from estate and gift tax.

To be clear, the lifetime estate and gift exemption amount is the total lifetime amount that can be passed to another individual free from estate or gift tax.  It is separate from the annual exclusion which allows taxpayers to yearly gift an amount exempt from filing a gift tax return and without reduction of the lifetime estate and gift exemption. Current law requires a gift tax return for any cash or property gifted in excess of the annual exclusion to an individual by an individual in the same tax year. The annual exclusion for 2017 is $14,000.  The LA times published as article titled “Here are the 5 major differences between the House and Senate versions of the GOP tax plan” on November 10, 2017 incorrectly stating that the annual exclusion will double under the new tax reform to $28,000 in 2018. That may have been a Christmas Wish as the IRS states the annual exclusion is currently set to increase to only $15,000 in 2018.

A big difference between the two bills is the treatment of the estate and generation skipping (GST) tax. The House bill would start a slow repeal of the estate and GST tax starting in 2018 and ending with a full repeal in 2024.  The House bill maintains the “step-up” basis in assets (increase the basis of the asset to the market value) passed to beneficiaries. The Senate bill makes no mention of a repeal.

This is not the first time that an estate tax repeal was on the chopping block. In 2010, during the Obama administration, the estate tax was set to be repealed in the Taxpayer Relief Act. However, in 2011, Congress decided not to repeal the estate tax and all those poor estate tax planning attorneys were back at work.

A conference committee of House and Senate leaders has been created to discuss changes needed to the tax bill in order to find a merry middle to this tinselly tax reform. While change is still simmering and uncertainty bright, call your estate attorney and accountant, to plan for the eternal silent night.

By Kelly Stout, CPA

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How Long Should I Keep Financial Records?


How long should tax returns, credit card statements, loan documents, and other important paperwork be kept? Whether running a household or a business, it is important to know when it is safe to dispose of financial and legal documents. 

It is extremely important to hold on to financial paperwork in the case of an IRS audit or other type of examination. However, retaining unnecessary records takes up valuable storage space that could be made available for more important documents. Not many of us have the extra space needed to retain everything we think might be needed for future reference.

Establishing a retention schedule that takes into account state and Federal regulations in addition to any specific industry standards can sometimes be a daunting task. The team at H2R CPA put together Records Retention Schedules for Individuals and Businesses as a helpful tool that you can download. (Please keep in mind that this information is provided as a general guideline only.)

Visit H2R CPA by clicking here.


Estate Tax Repeal Could Increase Taxes For 99.8% Of U.S. Families


One of the provisions of the Trump Tax Proposal (TTP) is the repeal of the Federal Estate Tax. This is an onerous tax that taxes people’s net worth after they pass away. Taxation begins currently at $5.49M, or married couples have the opportunity to increase this limit to $10.98M.

Generally, this means that the tax hits only about .2% of people who die or about 1 in every 500. Sounds like great news for those over the $10.98M stratosphere. It likely is for those taxpayers.

The down side is that one discussed way to pay for this is to eliminate the Step-Up in Basis rules.  This is where assets cost basis are re-set to Market Value at death. For the under $10.98M, or $5.49M for singles, your heirs can acquire many assets like stocks and mutual funds, sell them after inheritance, and pay no income tax.

If the discussed elimination of the step-up goes away, this means when you inherit greatly appreciated marketable securities, you may get a tax bill with that inheritance. This could greatly change Estate Planning. The general rule now is if you have significantly appreciated securities for an elderly person, do not sell them and let your heirs sell them and avoid income tax on the gain. This strategy could totally change if the Step-Up in basis goes away as part of the TTP.

IMPORTANT DISTINCTION: This does not affect retirement accounts. They never received the step-up. Also, if you are a Pennsylvania decedent, the 4.5-15% inheritance tax for non-spousal bequests is likely here to stay.  

Therefore, Estate Planning is still important.  The focus of what saves you money, though, could be greatly changing.

Visit H2R CPA by clicking here.