The Best Estate Planning Strategies for High Net Worth Investors

Estate planning is no small feat; in fact, for most individuals, it’s an ongoing process. Even with the guidance of a team of financial and tax advisors, estate planning experts, and specialists in life insurance, annuities, and other investment alternatives, you may be shocked to learn how much of your estate could be lost to taxes. Estate tax mitigation is a key element of estate planning, but in order to be effective in minimizing tax liability, it’s vital that you understand the criteria for imposing both estate and income taxes.


In 2017, the estate tax exemption was set at $5.49 million per individual and $10.98 million for married couples. Any assets over and above these sums will typically be subject to taxation, which can reach well over 50% or more if you include the impact of any possible state estate taxes. High net worth individuals with an estate valued above these thresholds must employ a number of strategies in order to maximize the transfer of wealth to heirs and charitable interests. The good news is that only two out of every 1,000 estates will be subject to federal estate taxes this year, which is largely attributable to the efforts of expert estate planning advisors who work with high net worth investors to minimize their estate tax liability.

So, how then can you develop a solid estate planning strategy as a high net worth investor? I routinely encourage our clients to consider the approaches described below. However, before taking any sort of action, be sure to discuss strategies with your financial advisor and estate planning team. This will ensure that you make the right move for your precise priorities and requirements.

Properly Titling Assets as a High Net Worth Estate Planning Strategy

A properly structured estate should provide ample access to assets needed while you are alive without compromising your overall estate and legacy plans. While certain assets may be directly owned by you or your spouse, it is wise to make certain that other assets are safely outside your estate for estate tax purposes. Some assets such as business interests and investment portfolios, and retirement accounts will require you to maintain direct control, while other assets such as life insurance may be outside of the estate in a properly structured trust.

Estate taxes can reduce the value of your estate by 50% or more, but these taxes apply only to assets owned directly by you. By ensuring that your assets are properly titled, you’ll be better equipped for the estate planning process.

Systematically and Strategically Reducing the Size of Your Estate

While it may seem counterintuitive, reducing the size of your estate could result in a larger transfer of wealth to your heirs as you may qualify for a lower tax bracket. An effective strategy will often include developing a plan that includes the creation of trusts, reallocation of assets to children, and qualified donations, all with the goal of helping you achieve the transfer of as much of your wealth as allowable.

Additionally, strategic gifting may also be beneficial as it entails distributing up to $15,000 per recipient each year—and it is free of taxation and does not reduce your estate/gift tax exemption. This can serve as an effective method for reducing the size of your estate in a tax-free manner.

Finally, it may be possible to pay for certain expenses for your heirs, such as college tuition, without being subject to gift taxes.This is another key area to explore with your accounting and financial team as well as your estate planning advisors.

Leveraging Qualified Charitable Donations as an Estate Planning Strategy

Another estate planning strategy is to take advantage of IRA Qualified Charitable Donations (QCDs). This serves to reduce the size of your estate while guaranteeing that your funds go to the intended recipient with minimal—if any—taxes due.

QCDs are available to IRA owners who are at least 70 ½ years old. The distribution must be paid directly to the non-profit organization. Married couples can each donate up to $100,000 per year from their own IRA, for a maximum gift of up to $200,000 per year, provided they maintain separate IRAs.

Using Trusts to Transfer Wealth from a High Net Worth Estate

Trusts often become a topic of discussion during the estate planning process, but trusts are not suitable for everyone—and not all trusts offer any substantial tax sheltering. This is because financial allocations to the beneficiary are typically considered taxable income unless properly structured.

That said, there are a number of types of trust, such as living trusts and irrevocable trusts, which serve different purposes and can be useful. Living trusts offer access to assets and offer maximum control while alive, while Irrevocable trusts seek to maximize tax exemptions on the wealth they’re passing along to heirs and charities. Therefore, it’s wise to work with your financial planner and estate planning consultants to determine which trust, if any,  may be beneficial for transferring wealth in your unique situation.

Life Insurance as an Estate Planning Tool for High Net Worth Individuals

Life insurance policies can serve as a very effective technique for conveying wealth to your loved ones—and even to charities. In fact, it’s often possible to secure a life insurance policy even later in life, imparting a greater tax-free sum to the beneficiary when you pass.


For instance, a sum of $80,000 could be used to secure a life insurance policy with a payout of up to $5 million (depending upon age and health, of course). Even when taxation on a life insurance policy is taken into account, the overall sum provided to the beneficiary would be greater than the amount of money that was paid into the policy. Life insurance should definitely be explored with an estate planning and life insurance expert if you are a high net worth individual looking for estate planning tools and investment alternatives.

Choosing the Right Estate Planning Advisor

If you are concerned about choosing a trusted advisor to work on your estate plan, you are not alone. A 2016 survey found that 53% of respondents reported challenges as they sought out the advice and guidance of an estate planning professional. To complicate matters further, many other consultants may have a role in your estate planning process as well, including your financial advisors, attorneys, CPAs, and life insurance advisors. Your individual goals are central to your estate plan; choosing an advisor that you feel can help you meet your unique objectives and overcome any challenges you may encounter is critical. In my many years of advising clients, I’ve found that while every client has their own story and their own goals, maximizing wealth transfer is typically their top priority.

source: howardkayeinsurance.com

For over 55 years, the professional team of advisors at Howard Kaye Insurance has been working with clients to achieve their estate planning goals using investment alternatives such as annuities and life insurance. Our experts have devised a number of effective strategies that serve to maximize the transfer of your wealth while simultaneously limiting and minimizing tax liability. This ensures that your loved ones and the charities that are close to your heart can enjoy the maximum benefit from your estate. Our advisors are ready to discuss your goals today, so contact our team by calling 1-800-DIE-RICH.

Can You Claim Land Transfer Tax?

Land transfer tax (LTT) is a charge levied by each Canadian province when you acquire a property. It is based on the amount paid for the land and includes any amount remaining on the mortgage or debt assumed as part of the purchase agreement. This tax is determined using a specific equation and a land transfer tax calculator.

Many people wonder if land transfer tax can be claimed. If you’ve moved for work and your employer has not reimbursed you, you can claim the LTT. Also, there exists a rebate in the provinces of Ontario, British Columbia and Prince Edward Island that allows you to recoup the cost of the land transfer tax entirely.

Land Transfer Tax Rebate

In Ontario, first-time home buyers can qualify for a rebate that is equal to the full amount of the land transfer tax paid, up to a maximum of $4,000. As of January 1st, 2017, this tax rebate is restricted to Canadian citizens and permanent residents of the country. Furthermore, you must apply for the land transfer tax rebate within 18 months of the date of registration of the transfer or the date of the unregistered disposition.

Qualifying for the Ontario Rebate

There are certain criteria you must meet in order to qualify for the Ontario land transfer tax rebate. You must be 18 or older and live in the purchased home within nine months of buying it. Furthermore, you cannot have previously owned a home. If your spouse has already owned a home during the time that they have been your spouse, you will not qualify. The rebate covers the full amount of the LTT up to the maximum home purchase price of $368,250. If your home costs more than that price, you can still qualify for the maximum rebate but have to pay the remainder of the tax.

Qualifying for the Toronto Rebate

The city of Toronto has its own land transfer tax that comes with a separate rebate. The criteria that must be met are similar to that of the Ontario LTT rebate. You must be 18 or older, live in the home within nine months of purchase, and cannot have owned a home before, with the same going for your spouse (during the time that they’ve been your spouse). The maximum amount you can receive as your rebate is $3,725. You are eligible for both the Ontario and the Toronto rebates if you’ve bought property in the city. Additionally, if you are purchasing a home with your spouse, and only one of you is eligible for the rebate, you can still get 50% of the rebate amount. This goes for both the Toronto and Ontario LTT rebate.

Using the Land Transfer Tax Calculator

To determine what your land transfer tax is you will need to use the land transfer tax calculator. You’ll need the purchase price of your home and this land transfer tax calculator.

source:  northwoodmortgage.com

India asks IBM to pay US$866 million in outstanding tax

Indian tax authorities have asked IBM's Indian unit to pay 53.57 billion rupees (US$866.20 million) in outstanding income tax on fiscal 2009 revenue, media reported on Saturday.

In an emailed statement, an IBM India spokeswoman confirmed the company had received a tax notice, but declined to comment on the amount of tax liability or the nature of the notice.

India's Income Tax office issued the company a notice for under-reporting revenue for fiscal 2009 by the Indian unit, the Business Standard newspaper said, citing a tax official.

"IBM does not agree with the tax department's claims and will aggressively defend itself through the appropriate judicial process," the IBM India spokeswoman said.

IBM has been locked in a tax dispute with authorities related to its 2009 reporting year income, media have reported previously.

Officials at India's income tax office were not available for comment on Saturday.

In its latest 10-Q filed with the U.S. Securities and Exchange Commission (SEC), IBM said it had recorded US$394 million in prepaid income tax in India "at" September 30, 2013. IBM said a "significant portion" of that amount was paid in order to reserve its right to appeal previous tax assessments in India, which it said it expects to win in appeal.

The tax office notice was a draft assessment order which can be challenged by IBM before the appellate authorities, the Business Standard said

The case comes as India is pursuing tax claims against several multinationals, with Royal Dutch Shell, and Vodafone Plc among several firms involved in tax disputes in the country. – Reuters

source: gmanetwork.com

How Google UK clouds its tax liabilities

London — In November 2012, Google's Vice President for Northern and Central Europe was called to an oak-paneled conference room overlooking the Thames to testify to a parliamentary committee about how firms like his reap billions in revenue in Britain but pay very little corporate income tax.

Matt Brittin, dressed in a fitted blue suit and open-necked white shirt, smiled confidently as he explained that Google Inc. wasn't liable for taxation on UK sales because these were all handled from its European headquarters in Dublin, Ireland. "Nobody (in the UK) is selling," Brittin told the Public Accounts Committee (PAC).

That's not how Simon Andrews, founder of advertising agency Addictive, has experienced Google UK. "All the people you tend to deal with are in London," said Andrews, whose business plans and buys advertising campaigns on behalf of clients. "You would never know about the Dublin thing apart from if you looked closely at the address on the invoices. All the people are based in London."

The difference is important. For tax purposes, Google, which is headquartered in Mountain View, Calif., says it does not have a British presence. From 2006 to 2011, Google generated $18 billion in revenues from the UK, according to statutory filings, and paid just $16 million in taxes. If the UK tax authority were to decide that UK-based employees do sell to British clients, UK law could consider Google to have a tax residence, lawyers and academics say.

Google UK Ltd. employed 1,300 people at the end of 2011, of whom 720 were engaged in "the provision of marketing services" to Google Ireland, according to its accounts. Google's chairman, Eric Schmidt, defended the internet search giant's low tax bills in the UK last month, saying the company's arrangements are within the law.

A Reuters examination of Google's activities in Britain shows many roles that actually target, negotiate and close sales of Google's advertising products to its customers. Research included interviews with more than a dozen customers and former staff, job advertisements, CVs and endorsements on networking website LinkedIn.

There may be a fine line between marketing and sales, but the idea that Google does not sell in Britain raised a chuckle from Andrew Johnson, a manager at digital marketing agency Stickyeyes who is based in the northern city of Leeds. His company, which has annual turnover of around £15 million ($23 million), buys a range of services from Google and he has had meetings with account managers in London. "I suppose it goes back to the famous quote that we're all sales people ultimately because we're all trying to sell something," he said. "But they do lots of sales pitches. That's how we view them. They view them as new product pitches, we call them sales pitches."

On its corporate website, Google UK says London is home base to "a number of EMEA sales & marketing leaders," adding, "Most offices outside Mountain View focus on engineering or sales; we do both."

In late March and early April, the website advertised dozens of London-based sales jobs, whose responsibilities included "negotiating deals," closing "strategic and revenue deals" and achieving "quarterly sales quotas."

The LinkedIn profiles of around 150 London-based employees said they were involved in formulating sales strategy, managing sales teams, closing deals or other sales work. Some employees describe how they meet—or exceed—sales targets.

David Smith is Strategic Partner Lead at Google in London, according to his LinkedIn profile in late April. His profile said his role involves "selling Media Platforms Solutions to existing Publishers, Agencies and Marketers" and noted that "I constantly exceed target." His former boss endorsed this claim, posting a recommendation saying he "demonstrated his ability to grow clients at exponential rates taking one agency from $50k a year to over $1MM annually." Smith, like other Google employees named in this story, did not respond to requests for comment.

Google customers also endorse its London-based sales staff on LinkedIn, at least six profiles show. "An outstanding sales professional" is how David McLeman described Koert Holtgreve, Regional Sales Lead for UK, Ireland & Benelux at Google UK, from the time they worked together. McLeman did not respond to requests for comment.

Lawyers and academics say that if Google's UK staff did agree sales with UK customers, that could open the possibility of much bigger tax bills. The tax authority in France has already challenged a similar structure that the company used in relation to its French subsidiary. But questions of tax often sit in a legal grey area, where a country's tax authority and the courts ultimately decide.

Google's Director for External Relations Peter Barron said if UK customers want to buy advertising from Google, the company's UK marketing staff would encourage them to do so; but only staff in Ireland sold to UK clients. "We comply with all the tax rules in the UK," he said.

Google has not been accused of violating UK tax laws. Britain's tax authority, Her Majesty's Customs and Revenue (HMRC), and Google's auditor, Ernst & Young, declined to comment, citing taxpayer and client confidentiality.

Margaret Hodge, chairwoman of the Public Accounts Committee, which heard Brittin speak in November, said the fact Google told parliament it does not sell in the UK while advertising London-based jobs for salespeople is a "very serious" matter. The discrepancy raises questions about whether Google does operate within the law, she said, and whether it misled parliament—a rare offense which in the past has cost government officials their jobs.

"It's difficult to reconcile the statements made by the witness (Brittin) and the evidence Reuters has uncovered," Hodge said. She said she plans to recall Brittin to appear before her committee. "We will need to very quickly call back the Google executives to give them a chance to explain themselves and to ensure that actually what they told us first time around is not being economical with the truth."

Google director Barron said Brittin firmly rebutted any suggestion he misled the committee. But Barron declined to say whether UK-based employees do actually negotiate terms with clients, or why job advertisements told candidates they would be required to perform such tasks.

"Our advertisements for UK staff sometimes refer to sales skills and many of the roles include Sales in the title as we are seeking to attract people with those skills and that background," he added. "We accept that the wording of some job adverts may have been confusing and we are working to make it clearer."

Tangible presence

Google makes almost all its money from internet advertising—selling space on its own website, arranging ads on those run by others and offering services, such as tools to monitor internet traffic. Most UK employees work in a multicolored office block just off Oxford Street—the capital's main shopping area—fitted out with exposed air conditioning pipes, buttoned fabric walls, floral wallpaper, outsized lampshades and cafeterias offering free food and drinks.

Brittin told the parliamentary Public Accounts Committee Google declares hardly any taxable profit in the UK because all its profits are derived from the computer codes developed in California.

He said Google employs "a couple of hundred" staff in Dublin who are responsible for selling to UK clients. The London employees are "digital consultants" who simply educate potential clients about how its products work and direct them to Dublin if they express an interest to buy anything.

The UK unit's accounts show it doesn't receive revenue from sales, but fees from Google Ireland and Google Inc., which are supposed to cover costs and include a small premium. Google UK Ltd. reported losses every year between 2006 and 2011, which allowed it to build up tax credits—used to offset future tax bills—of almost $20 million.

Google Ireland Ltd. reported sales of €12.5 billion ($16.4 billion) in 2011, but profits of only €24 million, and an Irish corporation tax bill of €8 million. The low profit comes from the fact it pays most of its turnover to an affiliate in Bermuda, which levies no income tax on foreign-controlled corporations, for the right to use the computer algorithms.

Chairman Schmidt has said he is "very proud" of Google's corporate structure. "It's called capitalism," he told Bloomberg News in December. "We are proudly capitalistic. I'm not confused about this."

Cool stuff

Matt Brittin's comments to parliament sit uneasily with the recruitment section of Google's website.

There, the company makes a clear distinction between marketing and sales. It divides its roles into three main categories: "Build cool stuff," which includes technical and research roles, "do cool stuff," which includes marketing and administrative functions, and "sell cool stuff."

"Sell cool stuff" includes four sales sub-categories: Sales & Account Management covers revenue-generating roles. Product & Customer Support helps "improve user experience" and collects feedback; Partnerships covers business development; Sales Operations involves supporting sales people. Google's website says the London office is home to teams in all four areas.

In mid-April, the corporate website advertised 39 London-based positions within the sales team. It offered 21 jobs in Sales & Account Management and nine with Partnerships sub-categories - roles for which the ads tell candidates they will need to be involved in negotiating and closing deals. Only seven London-based jobs were advertised within the "Marketing and Communications" subcategory.

Over-achievers

The way Google staff describe their work also differs from Brittin's words.

Account Manager Indi Burton, for example, outlines her role on her LinkedIn profile: "From the initial first call to establish the right contact, I pitch clients over the phone and face to face. Once the client is on board I manage and grow the account and client relationship." None of the people whose LinkedIn profiles are cited in this story responded to attempts to contact them; Google declined to comment on the profiles.

Adrian Joseph, Google's London-based Head Of Search Advertising Solutions for Northern & Central Europe, who describes himself as a black belt in judo and cites table tennis and investing in fine wine among his interests, says on his LinkedIn profile that he has "responsibility for driving all Search advertising revenue."

Jerome Beauguitte, a Senior Account Executive, said his role was to "develop a strategic client acquisition plan targeting top accounts in Europe ... Identify and close enterprise and subscription-based sales opportunities."

Peter Lorant, as Head of Channel Partners (EMEA), said he was "Responsible for channel revenue" and "Over-achieved New Business Quota in 2011 & 2012."

'Very salesy'

Johnson, the Google customer at Stickyeyes, said that "smaller spending clients" go through the Dublin call center, but those spending more than £250,000 a year receive dedicated support from Google representatives in the UK. The culture is "very, very salesy," he said. "Anything they've got new that they want you to spend more money on, it's all about selling you their new products."

Two former London-based sales staff also told Reuters the larger customers were dealt with by London.

Marcos Steverlynck worked as a sales and business development professional at Google in London from 2007 to 2011. He said the focus was on closing deals. "It could be either contacting potential partners directly or partners contact you and basically, negotiating the deals with them."

When large, strategic deals had to be escalated for approval, they went to US offices rather than to Ireland, said Steverlynck, who now runs an online art dealership. Google declined to comment on how decisions on big deals were handled.

What is selling?

Google's practice of not reporting sales from UK clients to be assessed for income tax in Britain is based on the legal assumption that it does not have a taxable presence in the country, a "permanent establishment" known as a PE, lawyers and academics say. Tax lawyer Miles Dean, founder and partner of law firm Milestone, said the company can avoid having a taxable presence if all sales to UK clients are made directly with Google Ireland Ltd.

Google declined to say what its staff in Ireland do with contracts agreed with UK clients. When asked if they send out contracts to UK clients that have been agreed in principle by UK sales staff, Barron declined to comment.

A sales contract carrying the name of Google Ireland is not enough to ensure that Google Ireland has no taxable presence in the UK, said Angharad Miller, senior lecturer in tax at Bournemouth University, who worked for 13 years with large accounting firms before becoming an academic. "It can be enough (to establish a taxable presence) that the contract is in substance made in the UK," she said. "If they're closing deals (in the UK), they are living quite dangerously."

Google declined to comment on what impact negotiating sales in the UK would have on its tax status.

Dean, the tax attorney, said it was impossible to tell whether Google's activities were in line with the law without seeing the contract for services between Google Ireland and Google UK, but that negotiating deals could be problematic. "The best advice, in order to avoid a PE, is that negotiation can't take place in the UK," he said.

"Because the more of that decision-making process that you bring into the UK, that management process, and negotiation, is obviously of some relevance in the formation of contracts. That would generally be outside the scope of an agreement between the head office in Ireland and the UK subsidiary or the marketing company," he added.

Europe-wide arrangement

In France, the tax authority is investigating the company's claim that its French unit conducts limited support activities on behalf of Google Ireland. A source close to Google has confirmed news reports that France has demanded €1.7 billion in back taxes from the company on the grounds that it is really engaged in sales, not just marketing, in the country.

French tax officers raided Google's Paris offices in 2011 on a "presumption of fraud," according to court documents seen by Reuters and reported in French and international press. That was based in part on evidence including testimony from a Google customer who said advertising contracts came in Google Ireland's name, but were processed by Google representatives in Paris and that he had only had contact with Google France employees. The French tax authority and Google declined to comment on the investigation.

The UK authority has taken a less aggressive approach to big international companies. HMRC declined to say when it last raided the premises of a multinational seeking evidence of tax avoidance or evasion.

Some lawmakers said they were surprised the UK tax authority has not yet challenged the structures used by internet companies such as Google to avoid paying taxes on profits earned from UK customers.

"HMRC has to be much more assertive and aggressive on behalf of the UK taxpayer to ensure that we really do get the proper tax back for the economic activity that takes place in this country," Hodge said.

British Prime Minister David Cameron has responded to concern about corporate tax avoidance by saying he wants a change in international rules to ensure companies pay their fair share of tax. HMRC said it used a wide variety of information sources to ensure companies pay the right amount of tax. — Reuters

source: gmanetwork.com

Taking Advantage of Miscellaneous Deductions

Every tax season, frantic filers search for ways to reduce the checks they must write to Uncle Sam. A proven tax strategy is deducting as much as possible.

But sometimes, technically deductible expenses are wasted because they don't meet other Internal Revenue Service rules. This is often the case for most of the miscellaneous deductions found on Schedule A.

The roadblock preventing the write-off of these assorted expenses is the requirement that they total more than 2% of the taxpayer's adjusted gross income, or AGI. That means a taxpayer with $50,000 in AGI must come up with more than $1,000 in miscellaneous deductions before they do him any tax good. Even then, just the amount over $1,000 is deductible. So the 50-grand filer with $1,750 in tax-allowable miscellaneous expenses can only deduct $750, not the full $1,750.

While the 2% limit is tough for many filers to reach, it's not impossible. You just need to know exactly what the IRS considers as allowable miscellaneous deductions. The expenses fall into three general categories: unreimbursed employee expenses, tax preparation fees and "other" expenses.

Unreimbursed Employee Expenses

Remember that copier toner you bought that Saturday you had to work and the office machine ran dry? What about that fee you paid to become a notary public, a designation requested by your boss to speed up the flow of official documents? If you never got reimbursed for these costs, they could help reduce your personal tax bill as a miscellaneous deduction.

The IRS says you can deduct these expenses you paid out of your own pocket as long as they were required to do your job as an employee and were "ordinary and necessary" to your business or trade. An expense is ordinary if it is common and accepted in your type of business; it's necessary if it is appropriate and helpful to you in doing your job.

Because you have that percentage target to meet, be thorough here. Most taxpayers know to count the price of professional journal subscriptions and business-related meals and entertainment, but other items the IRS says you can deduct are the costs of work-related classes, legal fees and licenses. Don't overlook the price of job-required uniforms that you bought (and that aren't suitable as general attire), as well as amounts you paid for employer-required medical examinations. Even the fee to obtain the passport you needed for that overseas business trip is deductible here.

Certain home-office expenses also might count, as long as the residential workspace is for the convenience of your employer and not just to save you some commuting time. And don't forget about depreciation on personal computers and cell phones you use for work. These, too, must be for your boss's convenience and required as a condition of your employment.

What if you've had it with your job and all its ancillary costs? You can deduct as miscellaneous expenses the amounts you spent looking for other employment in the same field.

Some of these expenses require you to fill out an additional tax form, schedule or work sheet. But when you get the final amount that you can deduct, report it on line 21 of Schedule A.

Tax-Preparation Fees

If collecting all your potential work-related deductions prompted you to seek tax help, then the IRS has a tax break for you here. And you don't have to hire a CPA to get this deduction.

You can deduct the cost of tax-preparation software, tax publications and even costs for associated tax-filing duties, such as copying your returns or paying for return-receipt postage or overnight delivery when you mail them.

If you choose electronic filing, any fee you paid for that service is deductible here. The IRS now even lets you deduct the convenience fee you were charged when you paid your e-filed taxes by credit card.

Just remember, you deduct your tax-preparation expenses for the tax year in which you paid them, not the tax year for which you are filing. So on your 2009 return, you count the tax-related costs you incurred last year to prepare your 2008 taxes. Any expenses you fork over now to complete your current return will count when you file your 2010 forms next year.

Once you've totaled your tax-prep costs, enter them on line 22 of Schedule A.

Other Miscellaneous Deductions

The final 2% deduction category is "other" expenses. For most taxpayers, these are costs to produce or collect income, such as investment-related fees, or to manage or maintain property that provides you some extra earnings.

For the IRS to accept these deductions, the expenses must be "reasonably and closely related to" a taxpayer's income-producing efforts. Some common expenses that meet this requirement are clerical help in caring for investments, depreciation on home computers used to track and manage investments, and the fee for a safe-deposit box in which you keep investment data. If, however, your bank box holds only jewelry and other personal items, or even tax-exempt securities, the box rental fee is not deductible.

You also can write off several investment-related fees that, while small, could add up. They include service charges on dividend reinvestment plans and trustee's fees you paid for your IRA. Just make sure your retirement account fee is billed separately rather than included as part of your account's general management costs, and that you pay it separately.

Even costs associated with a recreational activity could come into play. Take, for example, an amateur photographer who snaps shots of graduations or weddings for the neighbors and gets a few bucks in return. The shutterbug can deduct camera-related expenses as a miscellaneous expense as long as the amount isn't more than the payments he got. The IRS frowns on using hobby expenses to reduce taxes.

All allowable "other" miscellaneous deductions are entered on Schedule A's line 23. Then all three category amounts (lines 21, 22 and 23) are totaled. Unfortunately, because of the AGI percentage limit, that's not what you can deduct.

Maximizing Miscellaneous Deductions

Now you must take your AGI (from line 38 of your Form 1040), multiply it by 2% and enter the amount on line 26 of your Schedule A.

If that income percentage is more than your miscellaneous deductions total, you're out of tax-deduction luck. You can't claim any of the expenses. But if your fractional AGI amount is less, subtract it from your miscellaneous deductions total -- the remainder is what you can claim as an itemized deduction.

In addition to your Schedule A calculations, you might have to complete additional tax forms or work sheets to claim some of these miscellaneous expenses. You can find a complete list of the IRS-approved deductions (and those that aren't OK), as well as the other tax paperwork each might require in IRS Publication 529, Miscellaneous Deductions. But if the extra paper gets you over the 2%-of-AGI hurdle, the time spent is probably worth it.

And what if your miscellaneous efforts fell a bit short this filing season? Then set up a deduction bunching strategy now to guarantee that future sundry expenses aren't wasted. This is simply bunching, or gathering your expenses into one tax year, rather than spreading the costs over several. By doing so, you often can accumulate enough expenses to exceed the deduction threshold.

For example, renew your business subscriptions in December instead of January or prepay your professional association dues early. This will help turn "nearly" deductible expenses one year into full-fledged tax breaks the next filing season.

The only downside of this plan is that it usually helps you out only every other year. When you push expenses into one year, you generally will find yourself short of the itemized deduction percentage requirement the next year. But getting the breaks on alternate tax filings is still better than missing out on them every year.

If you choose electronic filing, any fee you paid for that service is deductible here. The IRS now even lets you deduct the convenience fee you were charged when you paid your e-filed taxes by credit card.

Just remember, you deduct your tax-preparation expenses for the tax year in which you paid them, not the tax year for which you are filing. So on your 2012 return, you count the tax-related costs you incurred last year to prepare your 2011 taxes. Any expenses you fork over now to complete your current return will count when you file your 2013 forms next year.

Once you've totaled your tax-prep costs, enter them on line 22 of Schedule A.

Other Miscellaneous Deductions

The final 2% deduction category is "other" expenses. For most taxpayers, these are costs to produce or collect income, such as investment-related fees, or to manage or maintain property that provides you with some extra earnings.

For the IRS to accept these deductions, the expenses must be "reasonably and closely related to" a taxpayer's income-producing efforts. Some common expenses that meet this requirement are clerical help in caring for investments, depreciation on home computers used to track and manage investments, and the fee for a safe-deposit box in which you keep investment data. If, however, your bank box holds only jewelry and other personal items, or even tax-exempt securities, the box rental fee is not deductible.

You also can write off several investment-related fees that, while small, could add up. They include service charges on dividend reinvestment plans and trustee's fees you paid for your IRA. Just make sure your retirement account fee is billed separately rather than included as part of your account's general management costs, and that you pay it separately.

Even costs associated with a recreational activity could come into play. Take, for example, an amateur photographer who snaps shots of graduations or weddings for the neighbors and gets a few bucks in return. The shutterbug can deduct camera-related expenses as a miscellaneous expense as long as the amount isn't more than the payments he or she got. The IRS frowns on using hobby expenses to reduce taxes.

All allowable "other" miscellaneous deductions are entered on Schedule A's line 23. Then all three category amounts (lines 21, 22 and 23) are totaled. Unfortunately, because of the AGI percentage limit, that's not what you can deduct.

Maximizing miscellaneous deductions

Now you must take your AGI (from line 38 of your Form 1040), multiply it by 2% and enter the amount on line 26 of your Schedule A.

If that income percentage is more than your miscellaneous deductions total, you're out of tax-deduction luck. You can't claim any of the expenses. But if your fractional AGI amount is less, subtract it from your miscellaneous deductions total -- the remainder is what you can claim as an itemized deduction.

In addition to your Schedule A calculations, you might have to complete additional tax forms or work sheets to claim some of these miscellaneous expenses. You can find a complete list of the IRS-approved deductions (and those that aren't OK), as well as the other tax paperwork each might require in IRS Publication 529, Miscellaneous Deductions. But if the extra paper gets you over the 2-percent-of-AGI hurdle, the time spent is probably worth it.

And what if your miscellaneous efforts fell a bit short this filing season? Then set up a deduction bunching strategy now to guarantee that future sundry expenses aren't wasted. This is simply bunching, or gathering your expenses into one tax year, rather than spreading the costs over several. By doing so, you often can accumulate enough expenses to exceed the deduction threshold.

For example, renew your business subscriptions in December instead of January, or prepay your professional association dues early. This will help turn "nearly" deductible expenses one year into full-fledged tax breaks the next filing season.

The only downside of this plan is that it usually helps you out only every other year. When you push expenses into one year, you generally will find yourself short of the itemized deduction percentage requirement the next year. But getting the breaks on alternate tax filings is still better than missing out on them every year.

source: foxbusiness.com

Democrats try to build case for additional taxes

CARSON CITY — The top two Democrats in the Legislature are talking about taxes.

Indeed, as the legislative session enters week two, Democrats have held committee hearings and news conferences to have the promised discussion on taxes.

But so far, it’s come down to just that: Talk.

In a 10-minute news conference on tax reform Tuesday, Speaker Marilyn Kirkpatrick and Senate Majority Leader Mo Denis uttered the world “discussion” a dozen times. But they revealed little on their positions for what shape that reform might take.

Instead, the pair said they want to have a come-one, come-all data-driven discussion about what kind of state Nevada could and should be and how much taxpayers should should help pay for that vision.

Denis said the three broad objectives are to “create jobs, make education better and fix our failing revenue system.

“What we're trying to do is make the case for why we need to do what we need to do,” Denis said.

In a committee hearing later that afternoon, Democrats began building that case, taking on Gov. Brian Sandoval’s decision to extend temporary tax increases another two years and his call for a payroll tax cut.

“What I took away from this is that 75 percent of businesses don’t have skin in the game,” Assemblywoman Irene Bustamante Adams, D-Las Vegas, said during a hearing on Nevada’s payroll tax and Sandoval’s proposal to exempt another 2,883 businesses from paying it.

Republican leaders have expressed a willingness to join in the tax discussions early, and have indicated support for broadening the state’s tax base.

The goal?

“Change,” Kirkpatrick said of broadening the state’s tax structure. “Hold me to that.”

“We need to look at broadening the revenue structure in a revenue-neutral manner,” said Senate Republican leader Michael Roberson, R-Henderson. “We have a generally flat budget this session, and we’ll learn to live with that.”

All four leaders in the Legislature are new to their positions this year and have expressed an unusual desire to work together and have policy-oriented meetings.

“In the past, I don’t know that it was so open,” Kirkpatrick said.

Democrats have sprinted forward with tax hearings during the first and second week of the Legislature, but they are absent a tax plan. The choice word this week is still “discussion.”

Kirkpatrick said these conversations extend to Sandoval, a Republican, as well.

“He said we can meet on a weekly basis,” she said.

But openness doesn't necessarily mean agreement.

Although Denis wants to examine a margins tax proposal that the state teachers union hopes to pass on the ballot in 2014, Roberson said that’s a nonstarter — a position akin to that of Kirkpatrick.

“You’re not going to get a single Republican vote to support the margins tax,” Roberson said.

Sandoval has consistently said that he will not support spending beyond what he has proposed in his $6.55 billion budget. But he’s also indicated a willingness to look at a tax reform plan if one is presented to him.

“I think we do need to make the case to Sandoval,” Kirkpatrick conceded.

Democrats want at least $60 million more for public education programs than the governor, offering more schools all-day kindergarten and smaller class sizes.

They would have to find money somewhere to pay for those goals.

Kirkpatrick said data will drive the debate.

Holding a sheet of data in her hand in her office Tuesday, she said Sandoval’s proposal to exempt more businesses from the payroll tax would mean only one in four businesses would pay the tax.

“It’s harder to refute because I’ve got the facts,” she said.

Kirkpatrick and Denis also said this week they would like to talk about cementing some temporary taxes into the state’s tax structure, which would give the state more stability.

“We're not giving anybody any stability for trying to put new programs in place,” she said. “In two years, those come up, and they're now on the chopping block.

“Folks want stability and right now they don’t have any stability.”

Kirkpatrick asked Sandoval’s budget director, Jeff Mohlenkamp, what the governor plans to do with $1.2 billion in temporary taxes and diversions — almost 20 percent of total general fund spending — when the state crafts another budget two years from now.

“We don't know if the extensions will need to be extended again,” Mohlenkamp told a legislative tax committee. “We'll have to wait and see.”

source: lasvegassun.com