Author: heschlawadmin

Should You Draft Your Own Will on the Internet?

WHY DRAFTING YOUR OWN WILL ON THE INTERNET MAY HURT YOUR INTENDED HEIRS

All too often, people with good intentions make an attempt to draft their own will or will substitute. Unfortunately, this frequently leads to disastrous results and the inheritance goes to the wrong heirs. Below are a few hypotheticals showing what can go wrong when one tries to draft their own will or dies without one:

Example 1: John has two children: Anne and Beth. Anne is independently wealthy and John wants to provide the majority of his estate to go to his daughter Beth. John decides to type his Will himself and has Beth and a neighbor act as witnesses to the Will. Under Kentucky and Ohio law, since Beth is an heir who witnessed the Will, the Will is valid because it had two witnesses. However, now Beth cannot inherit more than she would take as if he died without a will as she was an interested witness. Unfortunately for John, the entirety of his estate will instead be divided as if he died without a will and the assets will be divided equally among Anne and Beth, despite his wishes.

Example 2: John is currently married to Jane. However, they are separated with no desire to reconcile their relationship, although they never actually divorced. John has two natural children from a previous marriage: Anne and Beth.  Intending his assets to go only to his two natural children at the time of his death, John drafts his will and specifically leaves all of his estate to them. Unfortunately for John, once he passes away, under Kentucky and Ohio law, his estranged spouse Jane can take against his will and claim a sizable portion of his assets. Even though she was not listed in the will, she can inherit her spousal share. John’s natural children will not receive all of his assets.

Example 3: John drafted his own will several years ago with very specific intentions for distributing certain property to family and non-family individuals. upon his death. John has recently passed away and no one is able to locate his will or a copy of it. As a result, John’s estate will be administered in probate. Under the laws of intestacy, the estate assets will go to his family tree as determined under Ohio and Kentucky laws. John’s true wishes will never be fulfilled, and the non-family members including his live-in partner would receive nothing.

Example 4: John is married to Jane. Each have two children from a prior marriage. Jane passed away before John. Having become very close to his stepchildren, John intends to give them and his natural children each an equal share of his estate upon death. John sadly passed away at age 45. He never had a will drafted as he felt he was still young and had plenty of time left to do so. Even though he did not have a Will, he believed his assets would be divided equally amongst his children and step children. Unfortunately for John, this resulted in the entirety of the estate being inherited by his natural children, and his stepchildren receiving nothing.

In each of these hypotheticals, John’s mistakes could have been prevented by consulting an experienced attorney. Bill Hesch and the attorneys of William E. Hesch Law Firm have years of experience in assisting in estate and financial planning. For more information about how to plan your estate and have a professional Will or Trust drafted to properly ensure your wishes are met, call Bill Hesch to set up a free consultation at 513-509-7829.

(Legal Disclaimer: William E. Hesch submits this blog to provide general information about the firm and its services. Information in this blog is not intended as legal advice, and any person receiving information on this page should not act on it without consulting professional legal counsel. While at times Bill Hesch may render an opinion, Bill Hesch does not offer legal advice through this blog. Bill Hesch does not enter into an attorney-client relationship with any online reader via online contact.).

Biden’s Tax Plan: Income & Estate Death Tax for Wealthy Taxpayers

It’s no surprise that once Joe Biden takes office in 2021, some of his initial actions will likely revolve around his plans and campaign promises to increase taxes on Americans of at least moderate wealth (those earning a minimum of $400,000 per year). However, one less-known caveat is the effect Biden’s taxation plans will have on estates should his plans come to pass.

At this time (December 2020), the unified federal estate and gift tax lifetime exemption sits at $11.58 million ($23.16 million for married couples). This exemption is set to expire on December 31, 2025, which will result in it reverting back to an exemption in an estimated amount of $6 million, affecting an estimated 7 million American families. However, one Biden proposition would include rolling back the lifetime exemption rate even further to $3.5 million, meaning any assets in the estate at the time of death over the $3.5-million-dollar threshold would be subject to today’s estate tax of 40 percent. There is concern that Biden could also accelerate the sunset provision of the $11.58 million exemption, resulting in this occurring much sooner than 2025. Further, additional Biden proposals include not only lowering the amount of exemption for estates but also raising the estate tax from 40 to 45 percent.

In addition to Biden’s plans for estate tax, concerns have also arisen regarding his plans to increase the capital gains tax rate for those earning greater than $1 million to 39.6 percent and terminate the tax code’s step-up provision that currently allows heirs to bypass taxes on gains accumulated before death. In addition, the estate would be subject to income taxes on the transfer of assets to heirs at death. The unrealized appreciation would be taxed to the estate on the transfer of assets to heirs. If this takes effect, compounded with the 3.8 percent Net Investment Income Tax, estates would face an immediate 43.4 percent income tax at the time of death under Biden’s plan. Further, on assets having unrealized appreciation, the estate will be paying income taxes at 43% and estate taxes at 45%. This equates to a combined effective tax rate of 71%.

These changes could result in millions in additional taxes being taken out of the estate instead of that wealth being passed along to heirs and named beneficiaries. Bearing that in mind, now could be the time to act in order to ensure that your loved ones receive the bulk of your assets rather than having it taxed away. For more information about how to maximize the assets passed on by your estate, call Bill Hesch to set up a free consultation at 513-509-7829.

(Legal Disclaimer: William E. Hesch submits this blog to provide general information about the firm and its services. Information in this blog is not intended as legal advice, and any person receiving information on this page should not act on it without consulting professional legal counsel. While at times Bill Hesch may render an opinion, Bill Hesch does not offer legal advice through this blog. Bill Hesch does not enter into an attorney-client relationship with any online reader via online contact.)

Patent Pending Retirement Trust for Baby Boomers’ Children

William E. Hesch Law Firm, LLC

3047 Madison Road, Suite 205

Cincinnati, OH 45209

(513) 731-6601 Phone

(513) 731-4173 Fax

www.heschlaw.com

bill.hesch@williamhesch.com

 

 

Patent Pending Retirement Trust for Baby Boomers’ Children

The Patent Pending Retirement Trust is an innovative trust idea that William E. Hesch, Esq., CPA, PFS created when working on an estate plan for his millennial children.  Bill was worried about his children planning for their retirement, and was trying to think of creative ways in which he could ensure that the two of them would have a sufficient amount of money to live off of when they reached retirement age.  Using his expertise in estate planning law, wills and trust law, asset protection planning and tax planning from his years of experience as an attorney, CPA, and financial planner (PFS) Bill created a Retirement Trust for his children.  In its simplest form the Retirement Trust is a trust meant to be a retirement plan for the Grantor’s children who do not expect Social Security to be, much of any help to them in thirty (30) years.

After using the trust for his estate plan, he began sharing the idea with clients over the past three years, to gauge whether or not there was a need in the estate planning market for such an instrument.  Many clients loved the concept and have in fact requested a Retirement Trust for their own estate plan.  Due to the positive reaction from his clients, Bill filed for a patent in August, 2018 and the Retirement Trust became “patent pending” in August, 2019.

Why use a Retirement Trust?

It is well known that the younger generations are not saving enough for their retirement.  Millennials are not saving for retirement in their 401(K)s and IRAs, and social security may not provide much retirement income for the generations that follow the baby boomers.  The main purpose for the Retirement Trust is to provide financial security for Grantor’s children in their retirement years.  A Retirement Trust allows the Grantor (or Grantors) to hold assets in a trust for the benefit of their children until their children reach an age specified by said Grantor, typically sixty-two (62) years of age. Upon reaching age sixty-two (62), the children begin receiving monthly distributions of retirement income, as provided for in the trust document.  There are a number of features the Grantor had customized in the instrument for his or her specific situation.

Who are the clients using Retirement Trusts?

This trust is typically used by baby boomer clients whose children are already old enough to be out of college and in the work force.  These clients want the benefits of using a revocable trust in their estate plans but are concerned with their children’s (or other beneficiaries’) financial security when they retire.  They have these concerns for many reasons, including: (1) their children’s past financial decision making; (2) have children who are entrepreneurs and are worried those children won’t have a nest egg for their retirement; (3) their children have potential creditor problems and don’t want them inheriting trust assets outright in a lump sum distribution; or (4) they believe social security benefits will not be there for their children.  It is a fact that seventy percent (70%) of lottery winners end up bankrupt in just a few years after receiving a large financial windfall.  It is not hard to believe that many children receiving a substantial windfall all at once from their parent, in their thirties or forties, may suffer the same fate.

How does the Retirement Trust work?

The Retirement Trust is a revocable trust that becomes irrevocable upon the death of the Grantor or both Grantors.  Upon the death of the Grantor, the trust is divided into sub trusts for each child.  Each child has the right to certain monthly distributions of their sub trust until that child reaches retirement age, typically age sixty-two (62).

Required distributions before reaching age sixty-two (62).

The Grantor has a choice of the method in which the required distributions before reaching the age of retirement are distributed, but it is commonly one or more of the following options: (1) a fixed dollar amount of the trust income and principal each year, adjusted for inflation annually (i.e. $20k); (2) a fixed percentage of the trust principal each year (i.e. 4% which would allow the trust nest egg to grow, while supplementing beneficiary’s income.); and (3) the Grantor may attach a work requirement to the beneficiary’s distributions before reaching the designated retirement age.  If a child becomes disabled, monthly payments commence for early retirement.

Distributions upon reaching the age of retirement.

Once the child reaches age sixty-two (62), the balance of assets remaining in that child’s sub trust are totaled and that child is entitled to a monthly annuity payment using the average monthly payment amounts that would be payed from Northwestern Mutual and New York Life annuities, payable for the remainder of that child’s life.  Typically, the trust will outline that payments shall be paid monthly beginning on the last day of the month in which the child turns sixty-two (62).

Northwestern Mutual and New York Life do not need to be the insurance companies identified in this section of the Trust.  Any insurance company’s annuities or actuarial tables or the IRS life expectancy tables can be used to compute a monthly benefit to be payable for that child’s life.  To clarify, an annuity is not actually purchased from one of these insurance companies.  The Trustee simply obtains a quote from each insurance company and pays from the trust the equivalent of the average monthly annuity payment that would have been paid from those insurance companies had an annuity actually been purchased.

For more information about this creative, innovative, Patent Pending Retirement Trust, call Bill Hesch to set up a free 30-minute initial consultation at 513-509-7829.

(Legal Disclaimer:  William E. Hesch submits this blog to provide general information about the firm and its services.  Information in this blog is not intended as legal advice, and any person receiving information on this page should not act on it without consulting professional legal counsel.  While at times Bill Hesch may render an opinion, Bill Hesch does not offer legal advice through this blog.  Bill Hesch does not enter into an attorney-client relationship with any online reader via online contact.)

Hesch Law / CPAs Office Coronavirus Procedures

Our firm remains open and available to serve you while maintaining our top priority of keeping our employees and clients SAFE.  I am working daily at the office from 9am to 5pm and office staff are working at home as much as possible.  Meetings with staff are encouraged to be by phone conference or Zoom if possible.  Otherwise, in person meetings in the office are kept to a minimum and safe distancing is strictly observed.

Tax information can be mailed or emailed to us or can be dropped off on our 2nd floor stairwell by appointment.

Any documents that need to be executed and witnessed or dropped off are done by appointment only.  Please schedule this with Bill Hesch at 513-509-7829 or office staff at 513-731-6601 or 513-731-6612.  Arrangements can be made to schedule a drop off on the second floor stairwell to our front door entrance on Madison Road.

In regard to the sanitation of our office, the office is deep cleaned every week.  We disinfect all door handles, bath sink handles and light switches every day.

When the staff is meeting in each other’s work space or meeting with clients, both employees and clients shall wear masks.  Also, when staff enter into the common areas in our office, they shall be wearing their masks.

Hand sanitizer and masks have been provided to all staff and will be made available to any visitor in the office.

Thank you and prayers for everyone’s safety!!

Bill Hesch

William E. Hesch Law Firm, LLC
William E. Hesch CPAs, LLC
3047 Madison Road, Suite 201/205
Cincinnati, OH 45209
(513) 731-6601 Phone
(513) 731-6612 Phone
(513) 731-6613 Fax
www.heschlaw.com
www.heschcpa.com
bill.hesch@williamhesch.com

Make sure you have your Financial/Health Care Power of Attorney and Living Will Executed During this Unprecedented Time

With all that is taking place in our nation at this time, we at the William E. Hesch Law Firm, LLC are trying to emphasize the importance of executing your Financial Power of Attorney, Health Care Power of Attorney, and Living Will so that your family can manage your finances and make your health care decisions if you are disabled or incapacitated.

These three documents are often overlooked by most individuals since 50% of people die without a will. However, if you become disabled or incapacitated without these documents, then your family must go to the probate court and get appointed your guardian in order to manage any assets in your name (e.g. IRA, 401K, etc.)  or make your health care decisions.

The guardianship process is an administrative nightmare for family members, and just ends up generating hefty attorney’s fees especially in Hamilton County Ohio.  First, you have to get a guardian appointed, and then the Court sets a monthly budget and the Guardian needs to get court approval every time an extra expense not in the budget occurs.  Additionally, you must keep an annual accounting to document with a receipt every dollar you spend.  Also, it is a requirement in Hamilton County Ohio that you have an attorney co-sign on every check that you write.

The Financial Power of Attorney is a powerful document that is not costly to create, and it allows whoever you designate to access your assets in order to pay your bills and take care of your finances.  Your family member or friend who is appointed your power of attorney (POA) will be able to take this document to the bank and get listed on your account as your power of attorney. This allows the POA access to the account without court involvement.  Obviously, this is a powerful document and you would only want to designate someone you trust, but it makes things a lot easier on your family.

It is also just as important to execute the necessary health care documents. It is important to note, that in Kentucky the Health Care Power of Attorney and Living Will are combined into one document.  In Ohio, they are two separate documents. You always need a Health Care Power of Attorney, because if you became sick and temporarily unconscious or incapacitated, you would need to designate a health care POA to make medical decisions if you are unable to do so for any reason. The Health Care Power of Attorney allows whoever you designate to make those health care decisions on your behalf.

The Living Will is needed when you are either terminally ill or permanently unconscious and at least two physicians have determined that life support and a feeding tube is not going to help you get any better, rather they will simply prolong the process of dying.  In that situation by having a Living Will, you are directing your doctors that if you are terminally ill or permanently unconscious that you do not want life support or a feeding tube and you do not want your family to have to make that decision.  If you only have a Health Care Power of Attorney in Ohio, and no Living Will, then you are saying that you want your family to make all of your end of life decisions.  If you know that you don’t want life support in those situations, and you do not want your family to have to make those decisions, then you need the separate Living Will document in Ohio. In Kentucky, the section for the Living Will is included in the Health Care directive.

In practice, we have seen those instances where families only had a Health Care Power of Attorney, because they thought they would be able to make those end of life decisions for a spouse or parent and it ended up being very difficult for them.  It is important to keep this in mind when making these estate planning decisions.

Another thing to be aware of is the grey areas, which come up more often.  For example, you are not terminal or permanently unconscious, but your heart stopped.  In this situation would you want to be resuscitated using paddles, use medication to restart your heart, or would you want a DNR?  Although it may be difficult, these are conversations we advise you to have with your doctor and family members so that they know what you would want in these various situations.

(Legal Disclaimer:  Bill Hesch submits this blog to provide general information about the firm and its services.  Information in this blog is not intended as legal advice, and any person receiving information on this page should not act on it without consulting professional legal counsel.  While at times Bill Hesch may render an opinion, Bill Hesch does not offer legal advice through this blog.  Bill Hesch does not enter into an attorney-client relationship with any online reader via online contact.)

 

 

*** ATTENTION PAYROLL PROTECTION LOAN AND ECONOMIC INJURY DISASTER LOAN RECIPIENTS ***

The COVID-19 pandemic has brought about many changes for businesses which include the Paycheck Protection Program loan (PPP) and the Emergency Economic Injury Disaster Loan Program (EIDL).  We have also seen the Families First Coronavirus Response Act (FFCRA) tax credits with the Employee Paid Sick Leave Act (EPSL) and the Emergency Family and Medical Leave Expansion Act (Expanded FMLA), as well as, the CARES Act Employee Retention Credit.  All of these benefits are a relief to business owners as they deal with the struggles of the Coronavirus with their employees, and their business profits.  This relief is good but can also be overwhelming and confusing.

Be aware that you cannot combine some of the options in order to get a greater benefit.  There are options to cover the many expenses but you are also limited so that you do not double dip.

  • Businesses planning on the PPP loan forgiveness under the CARES Act cannot include as eligible “payroll costs” the qualified leave wages paid under the FFCRA tax credit program for the EPSL and the Expanded FMLA employee leave programs. The employer will be receiving the FFCRA tax credits on theses wages so they cannot use these wages in computing the PPP loan to be forgiven.
  • The CARES Act Employee Retention Credit allows employers to get a refundable tax credit against the employer’s 6.2 % portion of the social security payroll tax for 50% of the “qualified wages” up to $10,000 paid to each employee but, this credit is not available if the employer receives the PPP loan or the EIDL loan.
  • The CARES Act allows for a deferral of the employer’s portion of the social security payroll taxes that are due through 12/31/20 to be deferred to 2021 and 2022 but, this deferral cannot be used by an employer that obtains a PPP Loan and the loan is forgiven under the CARES Act loan forgiveness provision. On the other hand, if a business receives an EIDL loan and does not receive loan forgiveness, they are able to defer payroll taxes under the CARES Act payroll tax deferral program.

The COVID-19 changes can help businesses get through these difficult times but employers need to make sure they don’t overlap the benefits and run into problems further down the road.

Employers need to carefully review their April, 2020 payroll to make sure the payroll Retention Credit and payroll tax deferrals are allowable depending on which SBA loan that they obtain.

Blended Family IRA Beneficiary Designation

Congress recently passed—and the President signed into law—the SECURE Act, landmark legislation that affects the rules for creating and maintaining employer-provided retirement plans. Whether you currently offer your employees a retirement plan, or are planning to do so, you should consider how these new rules may affect your current retirement plan (or your decision to create a new one).

Here is a look at some of the more important elements of the SECURE Act that have an impact on employer-sponsors of retirement plans. The changes in the law apply to both large employers and small employers, but some of the changes are especially beneficial to small employers. However, not all of the changes are favorable, and there may be steps you could take to minimize their impact. Please give me a call if you would like to discuss these matters.

It is easier for unrelated employers to band together to create a single retirement plan. A multiple employer plan (MEP) is a single plan maintained by two or more unrelated employers. Starting in 2021, the new rules reduce the barriers to creating and maintaining MEPs, which will help increase opportunities for small employers to band together to obtain more favorable investment results, while allowing for more efficient and less expensive management services.

New small employer automatic plan enrollment credit. Automatic enrollment is shown to increase employee participation and retirement savings. Starting in 2020, the new rules create a new tax credit of up to $500 per year to employers to defray start-up costs for new 401(k) plans and SIMPLE IRA plans that include automatic enrollment. The credit is in addition to an existing plan start-up credit, and is available for three years. The new credit is also available to employers who convert an existing plan to a plan with an automatic enrollment design.

Increased credit for small employer pension plan start-up costs. The new rules increase the credit for plan start-up costs to make it more affordable for small businesses to set up retirement plans. Starting in 2020, the credit is increased by changing the calculation of the flat dollar amount limit on the credit to the greater of

  1. $500, or
  2. The lesser of:
    1. $250 multiplied by the number of nonhighly compensated employees of the eligible employer who are eligible to participate in the plan, or
    2. $5,000.

The credit applies for up to three years.

Expand retirement savings by increasing the auto enrollment safe harbor cap. An annual nondiscrimination test called the actual deferral percentage (ADP) test applies to elective deferrals under a 401(k) plan. The ADP test is deemed to be satisfied if a 401(k) plan includes certain minimum matching or non-elective contributions under either of two safe harbor plan designs and meets certain other requirements. One of the safe harbor plans is an automatic enrollment safe harbor plan.

Starting in 2020, the new rules increase the cap on the default rate under an automatic enrollment safe harbor plan from 10% to 15%, but only for years after the participant’s first deemed election year. For the participant’s first deemed election year, the cap on the default rate is 10%.

Allow long-term part-time employees to participate in 401(k) plans. Currently, employers are generally allowed to exclude part-time employees (i.e., employees who work less than 1,000 hours per year) when providing certain types of retirement plans—like a 401(k) plan—to their employees. As women are more likely than men to work part-time, these rules can be especially harmful for women in preparing for retirement.

However, starting in 2021, the new rules will require most employers maintaining a 401(k) plan to have a dual eligibility requirement under which an employee must complete either a one-year-of-service requirement (with the 1,000-hour rule), or three consecutive years of service where the employee completes at least 500 hours of service per year. For employees who are eligible solely by reason of the new 500-hour rule, the employer will be allowed to exclude those employees from testing under the nondiscrimination and coverage rules, and from the application of the top-heavy rules.

Looser notice requirements and amendment timing rules to facilitate adoption of nonelective contribution 401(k) safe harbor plans. The actual deferral percentage nondiscrimination test is deemed to be satisfied if a 401(k) plan includes certain minimum matching or nonelective contributions under either of two plan designs (referred to as a “401(k) safe harbor plan”), as well as certain required rights and features, and satisfies a notice requirement. Under one type of 401(k) safe harbor plan, the plan either

  1. Satisfies a matching contribution requirement, or
  2. Provides for a nonelective contribution to a defined contribution plan of at least 3% of an employee’s compensation on behalf of each nonhighly compensated employee who is eligible to participate in the plan.

For plan years beginning after Dec. 31, 2019, the new rules change the nonelective contribution 401(k) safe harbor to provide greater flexibility, improve employee protection, and facilitate plan adoption. The new rules eliminate the safe harbor notice requirement, but maintain the requirement to allow employees to make or change an election at least once per year. The rules also permit amendments to nonelective status at any time before the 30th day before the close of the plan year. Amendments after that time are allowed if the amendment provides

  1. A nonelective contribution of at least 4% of compensation (rather than at least 3%) for all eligible employees for that plan year, and
  2. The plan is amended no later than the last day for distributing excess contributions for the plan year (i.e., by the close of following plan year).

Expanded portability of lifetime income options. Starting in 2020, the new rules permit certain retirement plans to make a direct trustee-to-trustee transfer to another employer-sponsored retirement plan, or IRA, of a lifetime income investment or distributions of a lifetime income investment in the form of a qualified plan distribution annuity, if a lifetime income investment is no longer authorized to be held as an investment option under the plan. This change permits participants to preserve their lifetime income investments and avoid surrender charges and fees.

Qualified employer plans barred from making loans through credit cards and similar arrangements. For loans made after Dec. 20, 2019, plan loans may no longer be distributed through credit cards or similar arrangements. This change is intended to ensure that plan loans are not used for routine or small purchases, thereby helping to preserve retirement savings.

Nondiscrimination rules modified to protect older, longer service participants in closed plans. Starting in 2020, the nondiscrimination rules as they pertain to closed pension plans (i.e., plans closed to new entrants) are being changed to permit existing participants to continue to accrue benefits. The modification will protect the benefits for older, longer-service employees as they near retirement.

Plans adopted by filing due date for year may be treated as in effect as of close of year. Starting in 2020, employers can elect to treat qualified retirement plans adopted after the close of a tax year, but before the due date (including extensions) of the tax return, as having been adopted as of the last day of the year. The additional time to establish a plan provides flexibility for employers who are considering adopting a plan, and the opportunity for employees to receive contributions for that earlier year.

New annual disclosures required for estimated lifetime income streams. The new rules (starting at a to-be-determined future date) will require that plan participants’ benefit statements include a lifetime income disclosure at least once during any 12-month period. The disclosure will have to illustrate the monthly payments the participant would receive if the total account balance were used to provide lifetime income streams, including a qualified joint and survivor annuity for the participant and the participant s surviving spouse and a single life annuity.

Fiduciary safe harbor added for selection of annuity providers. When a plan sponsor selects an annuity provider for the plan, the sponsor is considered a plan “fiduciary,” which generally means that the sponsor must discharge his or her duties with respect to the plan solely in the interests of plan participants and beneficiaries (this is known as the “prudence requirement”).

Starting on Dec. 20, 2019 (the date the SECURE Act was signed into law), fiduciaries have an optional safe harbor to satisfy the prudence requirement in their selection of an insurer for a guaranteed retirement income contract, and are protected from liability for any losses that may result to participants or beneficiaries due to an insurer’s future inability to satisfy its financial obligations under the terms of the contract. Removing ambiguity about the applicable fiduciary standard eliminates a roadblock to offering lifetime income benefit options under a plan.

Increased penalties for failure-to-file retirement plan returns. Starting in 2020, the new rules modify the failure-to-file penalties for retirement plan returns.

The penalty for failing to file a Form 5500 (for annual plan reporting) is changed to $250 per day, not to exceed $150,000.

A taxpayer’s failure to file a registration statement incurs a penalty of $10 per participant per day, not to exceed $50,000.

The failure to file a required notification of change results in a penalty of $10 per day, not to exceed $10,000.

The failure to provide a required withholding notice results in a penalty of $100 for each failure, not to exceed $50,000 for all failures during any calendar year.

 

If you would like to discuss any of the new laws, please call me at 513-731-6612.

 

Sincerely,

 

 

William E. Hesch

 

 

2019 extender legislation – energy credits

In December, 2019, Congress passed legislation to extend some tax provisions until December 31, 2020.  Since some of the provisions had expired on December 31, 2018, congress not only extended the legislation but also resurrected the provisions retroactively to January 1, 2018.  This means that you not only can apply the tax breaks to your 2019 and 2020 tax returns, you can also amend your 2018 return to tax advantage of the tax savings if they apply to you.

The top tax breaks that have been brought back that will affect the individual taxpayer are:

  • The exclusion from income for the cancellation of acquisition debt on your principal residence (up to $2 million)
  • The mortgage insurance premiums deduction as resident interest
  • The 7.5% floor to deduct medical expenses on Schedule A of your individual tax return (instead of 10%)
  • A deduction for above-the-line tuition and fees
  • The deduction for nonbusiness energy property credit when you have energy-efficient improvements to your residence.

In addition to the nonbusiness energy credit, Congress also retroactively reinstated the energy-efficient home credit and the energy-efficient commercial buildings deduction for improvements back to January 1, 2018 through improvements placed in service by December 31, 2020.

The nonbusiness energy property credit and the residential energy-efficient property credit are for residential property owners.  The nonbusiness energy property credit is available when there are improvements for energy-efficient windows, doors, roofs and added insulation.  This credit is applied to the cost of the improvements but not the installation cost.  The residential energy-efficient property credit is applied the cost of qualified residential solar panels, solar water heating equipment, wind turbines, and geothermal heat pumps.  This credit is applied to the cost, as well as, the assembly and installation expenses.

The energy-efficient commercial buildings deduction was originally enacted in 2005 but expired on December 31, 2017.  With the retroactive reinstatement of this deduction (179D deduction), taxpayers may be able to claim the deduction for any qualifying property placed in service from January 1, 2006 through December 31, 2020 without filing amended tax returns.  The credit is applied to commercial property which includes apartment buildings with at least four stories.  The improvements must be made to the heating, cooling, ventilation, or hot water systems; interior lighting system; or to the building’s envelope.  The credit is up to $1.80 per square foot.  The credit is taken in the first year similar to bonus depreciation.

SECURE Act changes to IRA’s

Do you have an Individual Retirement Account (IRA)?  Are you 70 years or older?  If so, congress passed tax legislation late last year in the Setting Everyone Up for Retirement Enhancement Act of 2019 (SECURE Act) with changes that will benefit you in 2020.

Before December 31, 2019, you were not able to make traditional IRA contributions after you turned 70½.  Now the SECURE Act allows you to continue to contribute to your IRA as long as you have earned income. This is a benefit but there are complications if you make qualified charitable distributions from your IRA after 2019.

Another change is related to the IRA distributions.  Prior to December 31, 2019, you had to take required minimum distributions (RMDs) from your IRA or qualified retirement plan in the year you turned 70 ½.  Starting in 2020, you can put off taking the RMDs until you reach 72.  This change is only available to individuals who turn 70 ½ in 2020 or later.  If you turned 70 ½ prior to 2020, you are still required to take the RMDs or be subject to a penalty.

There was also a change to the Required Minimum Distribution on inherited IRA’s.  In the past, the RMDs could be extended out over several years depending on the beneficiary of the IRA.  The Secure Act has eliminated the RMD each year but the IRA must be fully distributed by the end of the 10th calendar year following the year of death.  There are some exceptions to this rule including distributions to the surviving spouse and minor children but for others, there is the 10 year distribution limit.

If you are near 70 years old or older and have an IRA, give us a call.  Let us help to ensure you are getting the best tax benefits from your IRA.

HOW TO DEDUCT ASSISTED LIVING AND NURSING HOME BILLS

Watch your wallet: the median cost in 2018 for an assisted living facility was $48,000 and over $100,000 for nursing home care.

If you could deduct these expenses, you’d substantially reduce your income tax liability—possibility down to $0—and dramatically reduce your financial burden from these costs.

As you might expect, the rules are complicated as to when you can deduct these expenses. But I’m going to give you some tips to help you understand the rules.

Medical Expenses in General

On your IRS Form 1040, you can deduct expenses paid for the medical care of yourself, your spouse, and your dependents, but only to the extent the total expenses exceed 7.5 percent of your adjusted gross income.  In December 2019, Congress retroactively reduced the 10% adjusted gross income limitation to 7.5% in 2018.  Therefore, taxpayers can file amended personal income tax returns for 2018 and 2019 as a result of that retroactive tax law change.

Medical care includes qualified long-term care services.

Assisted living and nursing home expenses can be qualified long-term care expenses depending on the health status of the person living in the facility.

If you operate a business, your business could establish a medical plan strategy that could make the medical expenses business deductions for your business.

Qualified Long-Term Care Services

The term “qualified long-term care services” means necessary diagnostic,preventive, therapeutic, curing, treating, mitigating, and rehabilitative services, and maintenance or personal care services, which

  • are required by a chronically ill individual, and
  • are provided pursuant to a plan of care prescribed by a licensed health care practitioner.

Chronically Ill Individual

A chronically ill individual is someone certified within the previous 12 months by a licensed health care practitioner as

  1. being unable to perform, without substantial assistance from another individual, at least two activities of daily living for a period of at least 90 days due to a loss of functional capacity;
  2. having a similar level of disability (as determined under IRS regulations prescribed in consultation with the Department of Health and Human Services) to the level of disability described in the first test; or
  3. requiring substantial supervision to protect the individual from threats to health and safety due to severe cognitive impairment.

A licensed health care provider is a doctor, a registered professional nurse, a licensed social worker, or another individual who meets IRS requirements.

Activities of Daily Living Test

For someone to be a chronically ill individual, at least two of the following activities of daily living must require substantial assistance from another individual:

  • Eating
  • Toileting
  • Transferring
  • Bathing
  • Dressing
  • Continence

Substantial assistance is both hands-on assistance and standby assistance:

  • Hands-on assistance is the physical assistance of another person without which the individual would be unable to perform the activity of daily living.
  • Standby assistance is the presence of another person within arm’s reach of the individual that’s necessary to prevent, by physical intervention, injury to the individual while the individual is performing the activity of daily living.

Examples of standby assistance include being ready to

  • catch the individual if the individual falls while getting into or out of the bathtub or shower as part of bathing, or
  • remove food from the individual’s throat if the individual chokes while eating.

Cognitive Impairment Test

Severe cognitive impairment is a loss or deterioration in intellectual capacity that is comparable to, and includes, Alzheimer’s disease and similar forms of irreversible dementia, and measured by clinical evidence and standardized tests that reliably measure impairment in the individual’s short- or long-term memory; orientation as to people, places, or time; and deductive or abstract reasoning.

Substantial supervision is continual supervision (which may include cuing by verbal prompting, gestures, or other demonstrations) by another person that is necessary to protect the severely cognitively impaired individual from threats to his or her health or safety (such as may result from wandering).

You have much to consider if you face the medical issues above. I’m happy to help you understand if your medical expenses can qualify for the medical deductions and what this means taxwise.

 

William E Hesch

William E. Hesch Law Firm, LLC

William E. Hesch CPAs, LLC

3047 Madison Road, Suite 201

Cincinnati, Ohio  45209

Office:  513-731-6601

Direct:  513-509-7829

bill.hesch@williamhesch.com

www.heschlaw.com

www.heschcpa.com