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Estate Planning

Everything You Need to Know About “Below the Line” Deductions

By Estate Planning, Government Benefits, Tax Law

Below-the-line deductions, also known as itemized deductions, include any deduction reported under the line for AGI calculation on your tax return.

Each tax season, you can choose whether to itemize your deductions or take the standard deduction. The standard deduction refers to a set dollar amount, primarily based upon your filing status that non-itemizers subtract from their income before income tax is applied.

 

For the 2022 tax year, the standard deduction numbers were:

  • $12,950 for single filers and married individuals filing separately
  • $19,400 for the heads of household
  • $25,900 for married couples filing jointly

Itemized deductions include:

  • Out-of-pocket medical expenses exceeding 7.5% of your AGI
  • A maximum of $10,000 of state and local taxes combined
  • Interest paid on a maximum of $750,000 of home mortgage debt
  • Contributions made to a charity
  • Casualty losses due to a federally declared disaster

Aside from the deductions mentioned above, there is a catchall section for less standard itemized deductions, including:

  • Losses incurred from gambling
  • Amortizable bond premiums
  • Impairment-related work expenses incurred by individuals with disabilities

More information on claiming below-the-line deductions can be found on the IRS instructions for Schedule A.

 

At Bach, Jacobs and Byrne, P.A., we address tax issues as part of your estate planning, probate, and trust administration. If you live in Sarasota, Manatee, or Charlotte County, contact Bach, Jacobs and Byrne, P.A. at (941) 906-1231 to evaluate whether your estate plan is tax efficient.

August 17, 2022
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What are ‘above-the-line deductions,’ and why are they valuable?

By Estate Planning, Government Benefits, Tax Law

Before we get into above-the-line deductions, let us start with some helpful definitions:

Deduction: another way of saying ‘subtract.’ In the context of a federal tax return, a deduction is an expense you subtract from your gross income to determine your taxable income.

Itemized Deduction: the amount of money you spent on deductible expenses, for example: medical costs, state and local taxes, mortgage interest, and charitable expenses.

Gross income: the sum of all wages, dividends, capital gains, business income, retirement distributions, or other types of income.

Adjusted gross income (“AGI”): Your taxable income. (Gross income minus deductions)

An “above the line” deduction is a method by which you can reduce your taxable income. This type of deduction is subtracted from your gross income before determining your AGI.

 

You claim above-the-line deductions in Part II of Schedule I, some of which include:

  • HSA Contributions.
  • Moving expenses for members of the Armed Forces.
  • The deductible part of self-employment tax.
  • Contributions to self-employed SEP, SIMPLE, and qualified retirement plans.
  • Health insurance premiums for self-employed individuals.
  • Penalties associated with early withdrawals of savings.
  • Alimony payments (from divorce agreements before Dec. 31, 2018).
  • Traditional IRA contributions.
  • Contributions to an Archer medical savings account.

More details and rules for claiming above-the-line deductions may be found in the Form 1040 Instructions.

 

At Bach, Jacobs and Byrne, P.A., we address tax issues as part of your estate planning, probate, and trust administration. If you live in Sarasota, Manatee, or Charlotte County, contact Bach, Jacobs and Byrne, P.A. at (941) 906-1231 to evaluate whether your estate plan is tax efficient.

August 15, 2022
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What is the “Secure Act 2.0”?

By Asset Protection Planning, Elder Law, Estate Planning, Government Benefits, Tax Law

On March 29, 2022, the House of Representatives passed the Securing a Strong Retirement Act (“the Act”) with a bipartisan vote of 414 to 5.

The Act has been nick-named the “Secure Act 2.0” as it aims to build upon the 2019 legislation by improving employee retirement savings opportunities.

 

Noteworthy changes passed by the House include:

Mandatory Automatic Enrollment/Escalation: this would require employers to automatically enroll their newly hired employees in retirement contribution plans at 3% of the employee’s pay, increasing annually by 1% to at least 10% but no more than 15% of an employee’s paycheck.

Increase 401(k) Catch-Up Contributions: Keeping the existing 401(k) and 403(b) catch-up contribution limits for those aged 50, the Act would increase the annual catch-up limit for those aged 62-64 from $6,500 to $10,000 beginning in 2024.

Allow Roth Matching Contributions: Beginning in 2023, employers matching contributions would allow employees to elect some or all of their matching contributions to be designated as Roth contributions.

Delay Mandatory Distributions: the RMD distribution age would further increase to:

  • 73 starting in 2023
  • 74 starting in 2030
  • 75 starting in 2033

Expedite Part-Time Worker’s participation: The SECURE Act 2.0 would shorten the period for eligibility from three years to two years.

Authorize Student-Loan Matching: Under the SECURE Act 2.0, employers would have a statutory basis for matching contributions based upon employees’ student loan payments, regardless of whether the employee is making retirement contributions.

 

Incorporate tax planning for retirement accounts into your estate planning by contacting Bach, Jacobs & Byrne, P.A. at (941) 906-1231.

August 8, 2022
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How do these changes in the SECURE Act affect me?

By Elder Law, Estate Planning, Government Benefits, Tax Law
  • An older RMD age will allow IRA owners to defer withdrawals, allowing assets to continue growing for longer.
  • Removing the age limit for individuals to contribute to their IRA accounts benefits those who retire at older ages and seek to continue contributing to their IRAs.
  • IRA beneficiaries must withdraw assets in an inherited IRA or 401(k) within ten years.
  • Before the law, if you withdrew assets from your IRA before age 59.9, you were subject to an income tax and a 10% penalty. The secure act adds an exception to this rule for new parents, allowing for a $5000 withdrawal after the birth or adoption of a child.
  • Part-time employees who work at least 500 hours annually for three years may contribute to a 401(k) plan. This is a significant decrease from the earlier 1,000 hours per year requirement.
August 5, 2022
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Important changes in the SECURE Act

By Elder Law, Estate Planning, Government Benefits, Tax Law

Important changes in the SECURE Act include:

  • The required minimum distribution age (“RMD”) increased from 70.5 to 72 years old.
  • Removal of the age limit for IRA contributions.
  • The requirement that inherited retirement account distributions must be taken within ten years.
  • Penalty-free withdrawals for new parents.
  • Long-term employees working part-time can enroll in 401(k) plans.
August 3, 2022
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What is the SECURE Act, and how can it affect my retirement?

By Elder Law, Estate Planning, Government Benefits, Tax Law

The “SECURE” Act stands for ‘The Setting Every Community Up for Retirement Enhancement Act’ and was signed into law by former President Donald Trump on December 20, 2019.

The law changes many existing retirement rules to prevent elderly Americans from outliving their assets. This three-part series summarizes some of the changes in the law and describes how these changes affect Bradenton and Sarasota account holders of all ages.

August 1, 2022
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What can I do if Trust funds are not being properly distributed?

By Estate Planning

It is the fiduciary duty of the trustee to manage the assets of the Trust in compliance with the terms of the Trust and the Florida Trust Code and to act in the best interests of the beneficiaries. The trustee also has a duty of care, which requires him or her to manage the assets of the Trust as a prudent person would. This provides the trustee with broad but defined discretionary powers.

Unless the Trust document says otherwise, a trustee generally cannot be removed over small or petty disagreements. Rather, to be removed, he/she must have violated the terms of the Trust, violated the Florida Trust Code, or failed to perform the fiduciary duties of the role. Or, pursuant to the Florida Trust Code, a substantially detrimental lack of cooperation between trustee and beneficiary or a significant change in circumstances could convince the court to remove the trustee.

Attorney Sean Byrne is an experienced and dedicated trust and estate litigation attorney who can represent you in your case, whether you are the trustee or the beneficiary. If you want to remove a trustee, or if you are a trustee who wants to contest your proposed removal, call Bach, Jacobs & Byrne, P.A. at (941) 906-1231 to schedule a consultation.

July 23, 2019
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How can I minimize estate taxes?

By Estate Planning, Tax Law

Florida does not collect state estate and inheritance taxes, but there are federal estate taxes to which one might be subject. In 2018, the federal estate tax exemption is $11.2 million per individual. There are several ways one can plan their estate so as to avoid estate taxes. One of the first steps would be to schedule an appointment with the tax law and trust & estate attorneys of Bach, Jacobs & Byrne, P.A. to review and update your estate plan based on current tax law. Call us today at (941) 906-1231 to set up a consultation.

July 19, 2019
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Pros and Cons of Naming a Trust as Your IRA’s Primary Beneficiary

By Estate Planning, Tax Law

The reasons that a person might name a Trust as the beneficiary of his/her Individual Retirement Accounts (IRA) assets are many, but it is sometimes done in cases where the grantor has a minor child or spendthrift child. The Trust can keep the assets secure until the grantor’s child is prepared to handle the money as a beneficiary. Other pros of naming the trust as IRA beneficiary are that doing so can avoid the need for guardianship of the assets, if applicable.

Some of the disadvantages of naming a Trust as IRA beneficiary center around the immense tax consequences which can result from improper designation and if the Trust is not drafted in such a way that it avoids adverse tax treatment. For instance, to preserve tax deferral options, the Trust should qualify for “look through treatment” as a “conduit Trust,” wherein the life expectancy of the oldest Trust beneficiary is used for distribution purposes. In this manner, the tax benefits of IRA assets can be drawn out for as long as possible. If the right steps are not taken, however, significant tax losses can result.

It is important to have a thorough and well-crafted estate plan, but it is also important to have a well-thought-out backup plan for your estate, especially if one wants a different distribution of assets based on whether or not their spouse survives them and to avoid the negative tax consequences of having IRA proceeds distributed to an improperly drafted Trust. The elder law and trust & estate attorneys of Bach, Jacobs & Byrne, P.A. can assist you with the creation, revision, and review of your Trust(s) and estate plan documents and advise you about obtaining more favorable tax treatment of “qualified plan” accounts, such as 401(K)s and IRAs. Call us at (941) 906-1231 to set up an appointment.

 

July 15, 2019
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What is a pass-through entity?

By Estate Planning, Tax Law

A pass-through entity is a business the profits of which “pass through” to the business owner and are federally taxed at his/her individual rate. Pass-through entities can be both S corporations and limited liability companies. Electing pass-through tax treatment may avoid the double-taxation which might result otherwise, depending on one’s particular situation.

If you are interested in discussing business and estate planning, including electing to have your business designated as a pass-through entity, or if you would like to review your portfolio of assets to determine the best tax plan, attorney Fred Jacobs is a Florida Board Certified Tax Law attorney who can advise you with your case. Call (941) 906-1231 to set up a consultation.

July 11, 2019
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