My aunt, 6 months ago added my name to her CD. Now she does not want to pay the estimated taxes on it so she wants her name off and I can pay the taxes on it. Do I pay taxes as if it were a gift or as if it were mine and only on the interest?

Believe it or not you have not asked a simple question.

If I understand you correctly, your aunt added your name to her CD. Her name was still on the CD. General tax law says that with regard to bank accounts, if your name is added to the bank account and you do not take any money out of the account, there is no taxable gift. The interest earned on the account will be taxed to the person whose social security number is on the account. If your aunt’s social security number has been on the CD, the interest income will go to her and she will be taxed on it.

Some things will change if she takes her name off of the CD. If she takes her name off of the CD, she will be giving you the whole CD as a gift. The gift tax, if any, depends upon the amount in the CD. We each have 2 gift tax coupons. The annual gift tax coupon is $13,000 and the lifetime gift tax coupon is $1 Million Dollars. Unless the CD is very large, there shouldn’t be a gift tax. Also, in general, any gift tax owed, will be owed by your aunt. When the CD changes hands and she gives it to you, her social security number will be removed and your social security number will be noted on the CD. At that time the interest income will be taxed to you.

As a side note, you might want to consider paying some of her income tax liability as a gift back to her, for her generosity. If you decide to pay some of her income tax liability, the same gift tax rules will apply to you.

This answer does not constitute legal advice and does not and is not intended to create an attorney-client relationship. The law may vary depending on the state in which you reside. It is intended only to give some direction in which to seek assistance.

Circular 230 Disclosure: Pursuant to recently-enacted U.S. Treasury Department Regulations, I am now required to advise you that, unless otherwise expressly indicated, any federal tax advice contained in this communication, including attachments and enclosures, is not intended or written to be used, and may not be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any tax-related matters addressed herein.

Everything was divided equally among the children according to their will.

There is a hierarchy to paying taxes when someone dies. The general rule is that the Trust must pay any tax liabilities. If the Trust does not pay the taxes and there are assets with which to pay the taxes, the Trustee may be personally liable. Finally, if the Trustee fails to pay, and the beneficiaries have received assets from the trust, the IRS may hold the beneficiaries responsible.

The simple rule is to pay the taxes first.

This answer does not constitute legal advice and does not and is not intended to create an attorney-client relationship. The law may vary depending on the state in which you reside. It is intended only to give some direction in which to seek assistance.

Circular 230 Disclosure: Pursuant to recently-enacted U.S. Treasury Department Regulations, I am now required to advise you that, unless otherwise expressly indicated, any federal tax advice contained in this communication, including attachments and enclosures, is not intended or written to be used, and may not be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any tax-related matters addressed herein.

What if someone wants to give you a Bank Account as a gift. General tax law says that with regard to bank accounts, if your name is added to the bank account and you do not take any money out of the account, there is no taxable gift. The interest earned on the account will be taxed to the person whose social security number is on the account. If the original owner’s social security number has been on the bank account, the interest income will go to the original owner and he or she will be responsible for the taxes on the account. Some things will change if the original owner takes his or her name completely off of the bank account or if you take money out of the account. If the owner takes his or her name off of the bank account, the owner will be giving you the whole bank account as a gift. At the same time, any money that you take out of the account is a taxable gift. The gift tax, if any, depends upon the amount in the account. We each have 2 gift tax coupons. The annual gift tax coupon is $13,000 for each recipient and the lifetime gift tax coupon is $1 Million Dollars. Unless the bank account is very large, there shouldn’t be a gift tax. Also, in general, any gift tax owed, will be owed by the original owner. That being said, if the original owner does not pay the gift tax, the IRS does have the power to go after the new owner for the tax that is due. Finally, when the bank account changes hands and the account is in your sole name, your social security number will be noted on the bank account. At that time the interest income will be taxed to you. This Guide does not constitute legal advice and does not and is not intended to create an attorney-client relationship. The law may vary depending on the state in which you reside. It is intended only to give some direction in which to seek assistance.

Circular 230 Disclosure: Pursuant to recently-enacted U.S. Treasury Department Regulations, I am now required to advise you that, unless otherwise expressly indicated, any federal tax advice contained in this communication, including attachments and enclosures, is not intended or written to be used, and may not be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any tax-related matters addressed herein.

The first answer to this question is always the same; check your divorce decree. The decree should spell out who gets to take the kids as dependents. Here are the general rules if the divorce decree is silent. The first matter to address is whether or not the child is a qualifying child. Under the IRS rules, a qualifying child is a child who is related to you, lives with you for more than one-half of the tax year, hasn’t attained a special age, and hasn’t supplied more than one-half of his own support for the calendar year. The age rule applies as follows: You can deduct the child if the child is no older than 18, the child is no older than 23 and the child is in school; or any age if the child is permanently and totally disabled. If the parent is the non-custodial parent, the child can qualify as your dependent if: The child receives over one-half of his support during the calendar year from you and the child’s parents meet one of the following requirements: The parents are divorced or legally separated; The parents are separated under a written separation agreement; or The parents live apart at all times during the last six months of the year. The best way to make certain that you comply with the rules, is to see a qualified income tax preparer. The preparer can help you through this maze of regulations. This guide does not constitute legal advice and does not and is not intended to create an attorney-client relationship. The law may vary depending on the state in which you reside. It is intended only to give some direction in which to seek assistance. Circular 230 Disclosure: Pursuant to recently-enacted U.S. Treasury Department Regulations, I am now required to advise you that, unless otherwise expressly indicated, any federal tax advice contained in this communication, including attachments and enclosures, is not intended or written to be used, and may not be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any tax-related matters addressed herein.

Additional Resources

If you are interested in reading more on this subject, click the link below for IRS Publication 503. This publication discusses child and depend care expenses.

Publication 503

If you have a family trust—or are considering creating a family trust—to protect your assets you may want to ask your attorney about creating an out of state trust. It’s a grantor’s market (so to speak) and creating a trust these days doesn’t mean you have to simply accept the tax laws of your state of residence. Creating a trust in another state—with tax laws that are friendlier to trusts—is a perfectly legal option, “the only real requirement is that [you] choose an in-state trustee.”

As we mention frequently on our blog, there are many reasons for families to create a trust: credit protection, keeping assets in the family, estate planning, educational savings, and many more. Furthermore, trusts are no longer an exclusive tool for the rich and famous; trusts are useful for just about everybody, and the states recognize this.

“States such as Alaska, Delaware, Nevada, New Hampshire, South Dakota and Wyoming have modified their trust laws in recent years to make them more attractive to individuals and families, including nonresidents, looking to minimize taxes, shield assets from creditors and preserve family assets in the event of a divorce, among other things.”

If you would like to explore your options for out-of-state trusts we recommend working with your local attorney, someone you trust who can meet with you when needed, who can draft the trust documents for you. Your local attorney can then have a licensed attorney from the state of your choice review the documents for state-specific issues.

www.blogprofs.com

You have many choices if you owe taxes to the IRS. You could owe taxes for yourself personally or you may owe taxes for a small business. Taxes owed by you for a small business are generally known as Trust Fund taxes. The IRS will set up an installment agreement with you depending upon many factors. It is best to contact the IRS and let them know you want to settle your tax responsibliity. Generally, the settlement can be handled in one of two ways; The first is an installment agreement; the second is an Offer in Compromise. An installment agreement is an agreement to pay the full amount of tax over a certain period of time. The amount of the payment and the number of months needed to pay the tax liability will be agreed to by you and the IRS. An Offer in Compromise is an offer made by you stating that you do not have the resources to pay this tax in full; The IRS and you will then agree to a reduced amount. Before the IRS will settle with you, you need to file form 433 for yourself. If there is a business involved, you will have to file one for your business as well. This form lists all of your assets and liabilities. It is with this form that the IRS is able to determine if you can pay the tax. Download the form from the link below. Take a look at it and fill it out. Under certain circumstances I would recommend that you work with a qualified tax professional to help with the negotiations.

Additional Resources

This Legal Guide does not constitute legal advice and does not and is not intended to create an attorney-client relationship. The law may vary depending on the state in which you reside. It is intended only to give some direction in which to seek assistance. Circular 230 Disclosure: Pursuant to recently-enacted U.S. Treasury Department Regulations, I am now required to advise you that, unless otherwise expressly indicated, any federal tax advice contained in this communication, including attachments and enclosures, is not intended or written to be used, and may not be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any tax-related matters addressed herein.

IRS Publication 433

My father passed away 4 yrs ago and he was settling a lawsuit. The lawyer that he dealt with is telling me that no one can come after me that he may of had owed debt to and that I will be granted x amount of dollars. Should I trust him? I know he is trying to collect for any money that was owed to him by my father, but don’t want to get screwed. Also what inheritance taxes am I looking at? He lived in NY and I live in PA. Besides the inheritance taxes, will I also have to pay taxes on this money at the end of the year?

You asked a lot of questions in your question. In general, estates may be subject to several types of taxes. The most common types of taxes that an estate could be subject to are 1. estate tax, 2. inheritance tax and 3. income tax. Estate tax and inheritance tax are generally due within 9 months of death, so if your father passed away 4 years ago, these tax returns were already filed.

The receipt of a settlement in a lawsuit is generally subject to income tax, with very few exceptions. I would recommend you contact the accountant and the attorney who handled your father’s estate. They will be able to recommend to you whether or not the settlement needs to be included as part of the estate. If so, the estate and inheritance tax returns may have to be amended.

However, even if the estate and inheritance tax returns do not need to be amended, the recipient of the settlement will probably have to file income tax returns on all or part of the settlement amount.

This answer does not constitute legal advice and does not and is not intended to create an attorney-client relationship. The law may vary depending on the state in which you reside. It is intended only to give some direction in which to seek assistance.

Circular 230 Disclosure: Pursuant to recently-enacted U.S. Treasury Department Regulations, I am now required to advise you that, unless otherwise expressly indicated, any federal tax advice contained in this communication, including attachments and enclosures, is not intended or written to be used, and may not be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any tax-related matters addressed herein.

It may seem like you just can’t catch a break when it comes to paying taxes, but according to this article in the Wall Street Journal there are a few little known tax breaks that could end up saving your family money. Some are new—so new, in fact, that it is still before the Senate—such as the tax exemption for employer provided cell phones and smart phones; and some—like the tax free income homeowners can earn if they rent out their home for 14 days or fewer during a year—have been around for a few years.

Of particular interest to our clients is the gift tax exclusion (another lesser known tax break that has been around for a few years.) As stated in the article, “Anyone may give anyone else up to [$13,000] per year in cash or property, free of gift tax. One partner of a married couple can double the gift and the exemption. So a couple with three married children and six grandchildren could give away over $300,000 a year, tax-free.”

We say that this gift tax exclusion may be of particular interest to our clients because if you are looking for a way to lower your estate tax, or anticipate applying for government medical services in the next few years, giving gifts to loved ones right now may help you achieve your goal—if you go about it the right way.

Contact our office for more information on how any of these “Robin Hood” tax saving techniques may help your family this year.

www.blogprofs.com

Tax day is coming up quickly, are you ready to file? And just as important—are you taking advantage of all the savings and deductions available to you? Most people who do their own taxes are unaware of some of the lesser-known deductions which can help you save money come tax-time. We have a couple of articles we’d like to share with our readers that may make it easier for your family come April 15^th.

A recent article on SmartMoney.com offers 3 often overlooked ways to save on your income taxes. Two of the three items have to do with parenthood and buying a home, but of particular interest to our readers is tip #2, Selling Grandma’s Stuff: “If you sold something last year that you inherited, understand that your tax basis for gain or loss purposes generally has nothing to do with what your benefactor paid for the asset. And that’s probably going to save you a bundle in taxes.” If you sold an asset from an inheritance last year (or if you received an inheritance last year at all, regardless of whether you’ve sold the asset or not) contact our office before filing your taxes.

Another potentially useful resource for tax savings is the ABC News article Top Ten Commonly Missed Tax Deductions to Put Cash in Your Wallet. This article reminds us to include the little things—such charity volunteer related expenses, the new car deduction, old school books used for work, and more. There are a number of tax deductions your family may be able to take advantage of… if you just know where to look.

www.blogprofs.com