The IRS is pretty sure it owns the month of April. Well, at least April 18th (not April 15th this year). In the spirit of the tax day quickly heading our way, I have put together a brief tax guide to recap where we stand in the new Trump era.
Audits:
According to a Wall Street Journal article that you can read here, your chances of being audited are decreasing. For individuals, the IRS is doing more electronic audits at this point, matching up 1099’s, W2’s, etc. with their own computer records. Audits are fewer because the IRS is working with fewer staff. Wait times for IRS support are getting longer and longer. President Trump has said he wants to cut the IRS budget further, but the Treasury Secretary would like to see the IRS expand. My bet is the status quo remains.
Tax Reform:
Talk of tax reform is just beginning to ramp up in Congress and the White House. The last major tax reform package was under President Reagan in 1986. The President may settle for a tax cut rather than tax reform, but we’ll see.
Federal Estate Tax:
Speaking of tax reform, Trump did mention that he would like to get rid of the federal estate tax. The tax currently exempts $5.49 MILLION (or just about $11 million for married couples) of wealth before you’re hit with the tax. The tax affects very few people, but is still a popular punching bag. If you have a significant IRA or retirement account, you should be very concerned about your heirs cashing your IRA out and paying all of the INCOME TAXES up front. I think of this as a hidden estate tax. If you have questions about this, please contact me ASAP.
PA Inheritance Tax:
Pennsylvania is in the minority of states in that it still has an inheritance tax. There are hardly any exemptions (one notable exemption is life insurance proceeds). The tax rates are currently: 0% for property passing to a spouse or charity, 4.5% for children/grandchildren/parents, 12% for siblings and 15% for everyone else.
Gift Tax:
You can gift up to $14,000 per year, per person without paying any taxes and without filing any tax paperwork. For instance, if you have five grandchildren, you and your spouse can gift each of them $28,000, totaling $140,000 for the year without filing any paperwork. If you go over the exemption, you don’t have to pay taxes until you reach $5.49 million of lifetime gifts. However, you do have to file paperwork for gifts over the $14,000 exemption. Gifting is a great estate planning tool when used properly. If you’re considering gifting, please call my office to schedule a meeting with me. Casual gifting can have negative consequences on your estate if you’re not careful.
Best of luck with tax day (which, remember, is April 18th this year)! Please don’t hesitate to schedule time with me if you have estate planning, tax or other questions.