Senior Moments

According to the US Census, almost 13% of Americans are age 65 and over. With Baby Boomers retiring on a daily basis, thisstatistic will certainly increase. Boomers are simply enjoying getting older. In everyone’s book of life, you slowly move through each chapter. Early in yourlife book you have childhood and grow into your teenage years. A chapter or twolater later, you build a career and maybe raise a family. You settle into themiddle of this story working, saving, growing and graying. But that is okay!

Many of you are now in the “Senior Moment” of your lives. Your career and years of hard work are heading in a new direction, maybe even coming to a close. You are focusing on the possibility of retirement andyears of this new lifestyle, enjoying your families and friends in a new more enjoyable way. You have earned it.  You are in your senior moment! What a way to continue your life story.

At AABS Inc, we are ready to help and support this new and exciting chapter.  We have enrolled agents who represent you with your critical retirement factors. All of your needs: personal, business, accounting, and bookkeeping are managed so you can focus on what is important
to you. With face-to-face personal and private appointments, we can discuss an array of variables that make things just a little better. Care and home services, for both the elderly and the physically challenged, are all part of the discussion and assessment portfolio.

We also offer personal finance taxes, estate and trust planning, as well as provide to you personal executor services.

We want to provide as much information as we can to you as you assess your new direction.

At AABS, we are there for you. Call us for an appointment at 919 303 3345, or e-mail us at info@aabsinc.com

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Visit www.aabsinc.com

We are there for you when you need us!

 

 

A trust keeps you and your family out of court.

A simple probate-avoidance living trust has no effect on either income or estate taxes. More complicated living trusts, however, can greatly reduce your federal estate tax bill if you expect your estate to owe estate tax at your death. Professional guidance is needed to set up such trusts. A Living Trust will save nothing on income taxes. Income taxes will come out the same amount, trust or no trust. Thus, no tax savings here.

A living trust is a legal document that, just like a will, contains your instructions for what you want to happen to your assets when you die. But, unlike a will, a living trust avoids probate at death, can control all of your assets, and prevents the court from controlling your assets at incapacity.

When you set up a living trust, you transfer assets from your name to the name of your trust, which you control in the  trusts name and date.

Legally you  own nothing.   The concept is very simple, but this is what keeps you and your family out of the courts.

Contact for Assistances

If you need help preparing and organizing affairs, or have questions please seek a trusted professional.  Feel free to visit us as well.

Melissa M. Van, EA at info@aabsinc.com or visit www.aabsinc.com

FOOTNOTE: Excerpts  re posted from the www.aabsinc.com website written by CPA site solutions.

Compare and Understand Wills vs Trusts

Definitions

A Will is a set of instructions regarding the disposition of property, it takes effect at death.

Probate is the Court’s supervised disposition of property in accordance with the directions in a Will.

A Trust is a set of instructions that can apply during life and/or death. Property in a Living Trust does not pass through probate.

A Personal Representative is the same as an Executor. It is the person or entity responsible for performing the instructions in a Trust.

Some points to consider

Most of a person’s property is considered for federal estate tax purposes and for state death tax purposes regardless of whether it is held in a Living Trust or passes by Will. For example, life insurance does not pass by a Will (nor go through probate) and is not considered for state death tax purposes. However, it is considered for federal estate tax purposes.

Having a Trust, per se, does not save on federal estate taxes nor on state death taxes. Both Wills and Trusts can include provisions for tax savings strategies.

Probate is public information. Persons can go to the courthouse and see how a probate estate was distributed and to whom. This only applies to that portion of the estate that goes through probate.

Probate costs apply to that portion of the estate that goes through probate. Probate costs vary widely among states. Texas is low; New York is high.

Trusts can be private thereby shielding from prying eyes the details of the distribution of an estate. However, Trusts become open to public view when they are challenged or disputed.

Often, the costs to set up a Trust are substantially greater than the costs to prepare a Will.

The fees to administer a probate estate and to administer a Living Trust are often about the same. This can however vary significantly by state.

Trusts must be funded to be effective. A Trust provides instructions regarding property owned by the Trust. So, if a Trust is being utilized, assets must re-titled to the Trust. Exactly how to do this should involve legal council.

The Personal Representative under a Will, or the Trustee under a Trust, have a fiduciary responsibilities and are personally obligated to see that the document provisions are met. If a Trust is used, be sure that your Trustee is a trustworthy individual. The actions of a Trustee are generally not court supervised. The actions of a Personal Representative under a Will generally are court supervised.

In Conclusion

Either a Will or a Trust may be appropriate depending on your circumstances. Neither is best for all situations. When deciding between a Will and a Trust, consult a reputable attorney. With growing frequency, non-attorneys are trying to “sell” Living Trusts. Technically, this is an unauthorized practice of law. You could be victimized. A reputable attorney or accountant is able to advise you on the many factors to consider. Do not buy into the scare tactic that a Trust is always better and cheaper.

Comparing Wills and Trusts

Wills and trusts are essentially two different tools that accomplish the same goals. Deciding which tool is better for you depends on how you value the different advantages and disadvantages of each one. Whether done through a will or a living trust, the owner can choose to have the assets, or portions of the trust, remain in trust for a variety of reasons after death, such as to:

• Provide for a spouse, siblings, elderly parents, etc;
• Provide basic tax planning (a credit shelter trust a/k/a A/B trust);
• Ensure that at the death of a spouse, any remaining assets will go to the grantor’s children, not to someone else (a QTIP trust);
• Provide personal, tax and/or asset protection for heirs;
• Keep assets from heirs until they reach certain ages; or
• Provide instructions that require expenditures that perpetuate the grantor’s values (e.g., money is to be used for education, investing, etc., rather than be spent frivolously).

 

If you need help or have questions please seek a trusted professional.  Feel free to visit us as well.

FOOTNOTE: re posted from the www.aabsinc.com website written by CPA site solutions.

Trusts

Trusts, Estates, wills how do you make sense of all of this.

Today, trusts are not used only by the very wealthy. People of a wide variety of income levels use them as estate planning tools. Trusts are complex and costly to set up and run, requiring a higher level of services from an attorney than wills. They are useful in accomplishing various estate planning and financial planning goals.

What They Are

A trust owns its own property (holds the title). When it is set up, the trust appears on official papers and records as the legal owner of any property that is placed into it. The trust’s principal is the property that the trust owns, as distinguished from the interest or dividends earned by that property. The terms of the trust dictate who will get the benefit of the income from the trust property, how long the trust will last, and so on.

The trustee is the person or entity whose job it is to administer and manage the trust: make investment decisions, pay taxes, make sure the terms of the trust are carried out, and take care of the trust’s property. Generally speaking, the trust must pay income tax on any of its undistributed interest or other income.

There are basically two types of trust:

• An irrevocable trust is a separate entity, for both legal and tax purposes, and pays its own taxes. The irrevocable trust cannot be revoked or changed.
• A revocable trust is not considered a separate entity for tax purposes, although it may be considered a separate legal entity. The revocable trust can be changed or revoked-taken back-by the creator of the trust.

Another way to categorize trusts: A living (or inter vivos) trust is set up by a living person while a testamentary trust is created by a will.

What They Can Accomplish

Trusts can be used for many worthwhile purposes:

1. Give property to children.
2. Reduce estate taxes.
3. Leave assets to a spouse.
4. Provide for life insurance used to pay estate tax.

Giving property to children. People generally do not want to just give property to a minor child outright because of the financial risks involved (e.g., the child could squander it). Many people give property to a minor through a trust. The trust’s terms can be written so that the child does not get outright ownership until he or she has achieved a certain age, so that the child receives only the income from the trust property until that time. Another way to give property to a minor is via the Uniform Gifts to Minors Act or Uniform Transfers to Minors Act. These provisions, which apply in most states, provide for a custodianship over property given to a minor.

Reducing estate taxes. As noted earlier, if you leave everything to your spouse, it passes free of federal estate tax. However, when your surviving spouse dies, anything in his or her estate over the exclusion amount (also called “exemption amount”) would be subject to estate tax. The exclusion amount for 2009 is $3,500,000. No limit in 2010 and reverts back to $1,000,000 in 2011. The credit shelter trust, or bypass trust, is used to shelter up to the exclusion amount from the estate tax. Here’s a simplified example of how it might work:

Example: Simon and Sylvia have an estate worth $4 million. Simon’s will puts $2,000,000 worth of assets in a bypass trust. The ultimate beneficiary of this trust is Simon and Sylvia’s daughter. (The beneficiary can be anyone other than Sylvia.) Sylvia is to receive the income from that trust for her life, but her rights in the trust are limited, so that she is not considered the owner. The rest of Simon’s estate ($2,000,000) is left to Sylvia in his will.

Assuming Simon dies in 2009, the $2,000,000 in the bypass trust is sheltered by his estate tax exemption. The $2,000,000 that goes to Sylvia is deducted from the estate because of the marital deduction. Thus, on Simon’s death, the federal estate tax due is zero. When Sylvia dies, her estate will include only the $2,000,000 (if she still has it), plus any other assets she has accumulated. It will not include the $2,000,000 put into the bypass trust, which will be exempt from tax because of the $2,000,000 estate tax exemption.

Thus, the federal estate tax on Sylvia will apply only to her assets in excess of $3,500,000. Result: The family has sheltered assets worth $4 million from estate tax in the Simon/Sylvia generation. Without the bypass trust, the estate tax would have applied to an additional $2,000,000 of the estate.

Caution: Wills may be drafted to leave a bypass trust an amount equal to the exclusion amount in the year of death, rather than a specific dollar amount. However, because amounts change, review of the estate plan may be needed to keep the desired balance between what the spouse is to get and what trust beneficiaries are to get.

Leaving an asset to a spouse. The marital deduction trust allows the first spouse to die to place estate assets in a trust for the surviving spouse, instead of leaving them to him or her outright. If the legal requirements are met, the estate gets the marital deduction, but can still preserve assets for heirs other than the surviving spouse. Typically, the income of such trusts will go to the surviving spouse for life and the principal will go to children. All of the income must go to the surviving spouse for the trust to qualify for the marital deduction. It must be paid out at least once a year. The spouse may have some access to the principal. When the second spouse dies, the property is included in his or her estate for estate tax purposes.

Pay estate tax. Complex and expensive arrangements, life insurance trusts are usually used to finance future estate taxes on an estate that contains a business interest or real estate.

If you need help or have questions please seek a trusted professional.  Feel free to visit us as well.

FOOTNOTE: re posted from the www.aabsinc.com website written by CPA site solutions.

Estate Tax “Repeal”

The 2001 Tax Relief Act repeals the federal estate tax in one of the most confusing tax measures ever enacted. The law reduces the overall estate tax burden over the years 2002-2009, until it is repealed in 2010-subject to revival, as if these changes had never happened, on January 1, 2011. This revival arises under a sunset provision which voids all provisions of the 2001 Act, effective 1/1/11. Sunset was considered a practical necessity under the parliamentary moves-limited Senate debate and amendments-adopted to put the 2001 Act on a fast track to enactment. There have been other tax sunsets, with less sweeping consequences.

Under the current statutory scheme, absent further change, the federal estate tax is repealed only for those dying during the calendar year 2010. While the 2011 sunset would affect other provisions of the 2001 Act (such as tax rates), its biggest impact is in those situations for which taxpayers and tax professionals do long-term planning: especially estate planning.

Tax professionals consider that this situation presents at least two major reasons for planning as if your estate (if large enough) will be subject to estate tax: First, the uncertainty as to the time of death-that the repeal will have become effective in the year the individual happens to die. Second, the uncertainty about the law, that any repeal will stick-because of changes in economic forecasts and national priorities since repeal was voted.

States had death taxes long before there was a federal estate tax. Today, many state death taxes are modeled in some way on the federal estate tax; some have other taxes taking effect at death. In some cases, the amount subject to state death tax falls as the amount subject to federal estate tax falls (absent further state action) and the tax will be repealed automatically (again absent further state action) upon the repeal of its federal counterpart. In other states, death taxes are independent of the federal tax and apply whether or not a federal tax applies. A number of states will revise their own death tax policies depending on what Congress decides to do to resolve the scheduled repeal and year-later reinstatement of the pre-2002 estate tax system.

Gift tax. The lifetime gift tax exemption is $1,000,000. Gift tax rates fall at the same rates as estate tax rates but continue (at 35% or the top income tax rate) after estate tax repeal.

Gifts (apart from the annual exclusion of $13,000 per donee in 2009 ($12,000 exclusion in 2008) are applied against the $1,000,000 exemption so that gift tax is due when their total exceeds $1,000,000. If estate tax is still in existence when the donor dies, the estate will include prior taxed gifts and prior untaxed gifts counted against the $1,000,000 exemption. If an estate tax results (because the estate at death plus these prior gifts exceeds the estate tax exclusion amount applicable in the year of death), that tax is reduced by prior gift tax payments.

Some states impose gift taxes.

Caution: Under the estate/gift tax scheme now applicable, gift tax can result in situations where there would be no estate tax if assets of the same value had been held at death. So gifts that bring the gift total above the lifetime exemption should be made only on the specific advice of a tax professional.

Gift tax is continued after estate tax repeal as a device to limit asset transfers designed to avoid income tax.

Income tax after estate tax repeal. Assets acquired upon another’s death usually take a tax basis to the heir equal to the asset’s fair market value at date of death. Thus, for example, if a person bought 1,000 shares of stock at $10 a share and died when the shares were worth $50 a share (a $40,000 unrealized gain), his or her heir takes the shares at a total basis of $50,000. The heir can sell the shares for $50,000, free of income (capital gains) tax.

Fair market value basis at death is usually a step up in basis, though the basis is stepped down at death where value has fallen below cost. Basis step up-by which most inherited assets escape most capital gains tax-has been justified as a kind of compensation for the possible exposure of the entire asset (not just the unrealized gain) to estate tax, whether or not estate tax was actually imposed. The theoretical reason for basis step up is reduced if there is no estate tax. Accordingly, basis step up is repealed effective 2010, but with a major provision that allows step up to continue for up to $4,300,000 of appreciation in a decedent’s assets.

Complex estate planning for making use of this surviving basis step up is possible, but your professional adviser’s view of the prospects for estate tax repeal should govern whether such planning should be done now.

FOOTNOTE: From website aabsinc.com and CPA site solutions.

Feb Newsletter

 
Feburary Tax News letter BY AABS

Automated Accounting & Bookkeeping Services Inc Read Our Newsletter Financial Calculators Tax Center

News From AABS By now you should be getting all your tax papers in the mail or on line, remember there is  $25.00 off if you turn in your paper work by 2/15/11. And If you plan on preparing yourself please take advantage of our new interactive website, full of resources, financial calculators and FQA’s. There is even live chat and video conferencing availbale to you. Please come visit us on Facebook and twitter for uptodate tax inforation and special web discounts. Now enjoy your first AABS Newsletter with information to help make this season less stressful. If you have any suggestions on what you want to see in upcoming newsletters, please let us know. We want to be your source for all your financial needs. Featured Article For February, 2011 How to Avoid Identity Theft During Tax Season Unfortunately, tax season is prime time for scams. From phony Web sites to fake IRS e-mail and the threat of computer viruses, this is a good time to be extra careful online. This article covers the various tactics used by today’s scammers – and how you can protect yourself. Tax Tips Tax Deadline – April 18, 2011 7 Tips for Preparing Your Taxes Without the Stress Missing Your Form W-2?   Financial Planning Tips Review Your Savings Plan Review Your Retirement Plan Review January’s Budget vs. Actuals Collect Your Tax Information Tax Due Dates February 10 Employers – Federal unemployment tax. File Form 940 for 2010. This due date applies only if you deposited the tax for the year in full and on time. Employers – Social Security, Medicare, and withheld income tax. File Form 941 for the fourth quarter of 2010. This due date applies only if you deposited the tax for the quarter in full and on time. Small Employers – File Form 944 to report Social Security and Medicare taxes and withheld income tax for 2010. This due date applies only if you deposited the tax for the year in full and on time. Farm Employers – File Form 943 to report Social Security and Medicare taxes and withheld income tax for 2010. This due date applies only if you deposited the tax for the year in full and on time. Certain Small Employers – File Form 944 to report Social Security and Medicare taxes and withheld income tax for 2010. This tax due date applies only if you deposited the tax for the year in full and on time. Employers – Nonpayroll taxes. File Form 945 to report income tax withheld for 2010 on all nonpayroll items. This due date applies only if you deposited the tax for the year in full and on time. Employees – who work for tips. If you received $20 or more in tips during January, report them to your employer. You can use Form 4070. February 15 Employers – Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in January. Employers – Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in January. Individuals – If you claimed exemption from income tax withholding last year on the Form W-4 you gave your employer, you must file a new Form W-4 by this date to continue your exemption for another year. Employers – Begin withholding income tax from the pay of any employee who claimed exemption from withholding in 2010, but did not give you a new Form W-4 to continue the exemption this year. February 28 Businesses – File information returns (Form 1099) for certain payments you made during 2010. There are different forms for different types of payments. Use a separate Form 1096 to summarize and transmit the forms for each type of payment. See the 2010 Instructions for Forms 1099, 1098, 5498, and W-2G for information on what payments are covered, how much the payment must be before a return is required, what form to use, and extensions of time to file. If you file Forms 1098, 1099, or W-2G electronically (not by magnetic media), your due date for filing them with the IRS will be extended to March 31. The due date for giving the recipient these forms is still January 31. Payers of Gambling Winnings – File Form 1096, Annual Summary and transmittal of U.S. Information Returns, along with Copy A of all the Forms W-2G you issued for 2010. If you file Forms W-2G electronically (not by magnetic tape), your due date for filing them with the IRS will be extended to March 31. The due date for giving the recipient these forms remains January 31. Employers – File Form W-3, Transmittal of Wage and Tax Statements, along with Copy A of all the Forms W-2 you issued for 2010. If you file Forms W-2 electronically (not by magnetic media), your due date for filing them with the SSA will be extended to March 31. The due date for giving the recipient these forms is still January 31. Employers – with employees who work for tips. File Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips. Use Form 8027-T, Transmittal of Employer’s Annual Information Return of Tip Income and Allocated Tips, to summarize and transmit Forms 8027 if you have more than one establishment. If you file Forms 8027 electronically (not by magnetic tape), your due date for filing them with the IRS will be extended to March 31. Farmers and Fishermen - File your 2010 income tax return (Form 1040) and pay any tax due. However, you have until April 18 to file if you paid your 2010 estimated tax by January 17, 2011.   FacebookTwitterLinkedin Video Chat   Text Chat     Email Updates     RSS Feed Print This Page Contact Us AABS/Owav PO BOX 1677 Apex, North Carolina 27502 Add us to your address book

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The Most-Overlooked Tax Deductions

According to intuit.com and Kiplingers study in 2009 below are the 19 most overlooked tax deductions.

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1. State sales taxes

2. Reinvested dividends.

3. Out-of-pocket charitable contributions.

4. Student-loan interest paid by Mom and Dad.

5. Job-hunting costs.

6. Moving expenses to take your first job.

7. Military reservists’ travel expenses.

8. Health insurance deduction to reduce self-employment tax.

9. Child-care credit.

10. Estate tax on income in respect of a decedent

11. State tax paid last spring.

12. Refinancing points.

13. Jury pay turned over to your employer.

14. American Opportunity Credit.

15. Making Work Pay credit.

16. Credit for energy-saving home improvements.

17. Additional bonus depreciation.

18. Break on the sale of demutualized stock.

19. Home-buyer credit.

For more information or questions on your 2010 taxes please visit.

http://aabsinc.com

Maximizing Business Entertainment Expenses

Entertainment expenses are great deductions to add to your taxes and can save you money, however there are some important guidelines to consider when including them on your return.

In order to qualify, business must be discussed before, during, or after any meal deducted. The surroundings must be conducive to business discussion. For instance, a small or quiet restaurant would be an ideal location for a business dinner. Be careful of locations that include ongoing floor shows or other distracting events that inhibit business discussions. Prime distractions are theater locations, ski trips, golf courses, sports events, and hunting trips.

Starting in 1994, the IRS allows up to a 50% deduction on entertainment expenses. Good documentation of these expenses is required in order for the IRS to consider these deductions. Remember that the business meal must be arranged with the purpose of conducting specific business. Bon appetite!