This is a brief summary of Business, Tax and Estates Planning tasks that Wis can do for you. If you wonder if Wis can do it, call and see!

• TAXES
• Tax return preparation
• Tax Mastery© Analysis
• IRS Examinations
• IRS Appeals

• ESTATE PLANNING
• Revocable living trusts
• Wills
• Advance Care Plans
• Power of Attorney

• BUSINESS CONTRACTS
• Buy or sell businesses
• Form LLC’s & Partnerships
• Employment law
• Real estate contracts, leases
• Technology
• Confidentiality

Rental Real Estate Tax Strategies – more advanced
Real estate rental properties can be a fine tax shelter and a satisfying way to build retirement income if you know what you are doing. However, watch out for the complexities. The last WealthWISe discussed some of the basics. This article will get into more complex matters. These include a deduction of up to 20% of net rental income, taxation of gain at lower rates if you miss the traps for flippers, “phantom income,” PAL rules that limit rental operating losses, and the self-employment tax on rentals that provide significant services. Read more.

20% QBI Deduction. Is It For You? The new 20% deduction for domestic income from pass-throughs can apply to landlords if they have moderate incomes, but it is not automatic. Partnerships, S corporations, or sole proprietorships can qualify and can deduct up to 20% of profits from their taxable income. However, the rental activity must involve regular, continuous and substantial activities intended to make a profit. This does not mean a triple net lease. You may qualify for a safe harbor if you are an owner that devotes at least 250 hours to the rental activity. If your taxable income does not exceed a threshold of $315,000 (joint filers), or $157,500 (all other taxpayers), there are no further limits to this deduction. The deduction phases out as income exceeds $160,700 ($321,400 for a joint return).

Capital gain Rental properties held 12 months or more qualify for long term capital gain treatment. They are generally taxed at half of normal tax rates or less.

Dealer trap. Loss of capital gain trap: A property held primarily for sale does not qualify for capital gain treatment. So a real estate flipper, who is in the business of buying and selling properties, may not qualify.

Special rules must be strictly followed for the sale to qualify as a “like kind exchange rules.” Get professional advice to qualify.

“Phantom gain” is a taxable gain that occurs even though you have no equity because the property’s adjusted basis was decreased by depreciation or where you previously refinanced and took out cash.

Vacation Homes What about property you use personally and rent, such as a vacation home? This situation is complicated. You must divide all deductions between personal and rental use. The IRS and the courts disagree on how. The specifics are beyond the scope of this article.

Passive Loss Rules. Congress enacted the Passive Activity Loss rules (PAL) to fight tax shelters, and they automatically apply to most rental activities. Under PAL you must suspend rental losses until there is offsetting income from PAL’s or its sale. However, an exception allows rental property owners to deduct up to $25,000 of PAL in which you actively participate. Active participation means significant management functions but may include using a property manager. The $25,000 limit phases out as modified adjusted gross income exceeds $100,000, so at $150,000 in MAGI you deduct nothing. Married taxpayers filing separate returns may not use the $25,000 allowance unless they live apart during the entire taxable year.

Real Estate Pros If you spend most of your working time in the real estate business, rental real estate losses are exempt from the passive loss rules. We are talking about a majority of work hours and more than 750 hours per year. This means that if you have a full time job elsewhere, you most likely cannot qualify.

Bed And Breakfast Trap Watch out! If the operation of a rental property involves significant services, the IRS could treat it as a trade or business, subject to the self-employment tax (an extra 15%). For example a Bed and Breakfast. This rule is most dangerous to short term rentals like Airbnb.

After you die, who will own your business?

If you do nothing before you die, your business will pass as part of your estate, probably to your spouse. Is this what you want? More importantly, is this what your spouse wants? Would your spouse rather die? Would your spouse rather have cash? Does your spouse get along with your partner(s) or co-owners? There are many ways to accomplish what you want and I will discuss a few of them.

My advice would be to enter into a “Buy Sell Agreement” with your business partners, or if there are none, a valued employee or even a competitor. Buy sell agreements typically require an owner to first offer his interest back to the business or other owners if he dies, he wishes to sell it or he is no longer employed there. With such an agreement you can provide who will buy your business and for how much. That way, your spouse ends up with cash, and a person who wants and knows the business ends up with the business. Life insurance can be purchased to provide the cash needed to make the purchase. Make sure the buyer is the beneficiary. Another advantage of such agreements is that they keep ownership of the business in the family, so to speak.

There are two major types of buy-sell agreements, a “redemption agreement,” and a “cross-purchase agreement,” Under a redemption agreement, the business that is the expected purchaser owns and is beneficiary of a life insurance policy covering each shareholder. Under a cross-purchase agreement, each shareholder owns and is beneficiary of a policy on each of the other shareholders

There are a number of tax considerations in using buy sell agreements. With a cross purchase agreement, the remaining owners purchase the stock with untaxed insurance proceeds, which establishes their basis in the stock for future sale purposes. Under a corporate redemption agreement, a corporation that uses key man life insurance to fund its redemption of stock there is a definite risk of the alternative minimum tax.

I favor a hybrid buy sell agreement, often called a “wait and see” buy sell agreement. It lets the owners wait until an owner’s death or other sale to decide whether the business or the owners buy the stock. Such an agreement allows the parties to choose the best alternative at the time.

More Reasons to Give Your Family an RLT Package.

As I said in my last WealthWISe, estate planning is not just for the rich. Estate planning is for those who are rich in love for their family. My favorite estate planning approach is an RLT package. It contains a revocable living trust (RLT), power of attorney, backup will and advance care plan. As Trustee, you manage the RLT on your behalf as long as you are able.

Your surviving family members will be grateful for the RLT package. For example, a widow recently met with me to find out how to deal with her deceased husband’s trust. She had once been an executor. She was so pleased with the ease of the RLT that she bought one for her daughter and son-in-law. She exclaimed that she was not going to end up as executor for either of them!

In the last WealthWISe I gave five great reasons to give your family an RLT Package. Here you will find more, such as better management, simple taxation, asset protection, and privacy. Interested?

• The RLT package is easy to change. The RLT is called “revocable” because you can easily change or revoke it, in writing, signed and notarized writing. So you can test drive your trust and change it as you go.

• The RLT package offers superior management of your property. After your death or incapacity, your chosen successor trustee manages the trust according to your trust agreement. Your trust agreement instructs the Trustee to manage your estate pretty much in any way that you want. You can tell the Trustee how and when to use income and principal for the beneficiaries. For example, the trustee can provide needed funds for a minor child each year that then and then distribute his share to him at one or more ages of your choice. You can offer incentives to a student who meets certain standards.

• After you pass away, the RLT package protects trust asses from beneficiaries’ creditors. My RLT’s contain a “spendthrift provision” that protects a beneficiary’s share from his creditors, even from a divorcing spouse!

• The RLT package does not affect your income taxes during your life. The RLT is generally neutral, tax wise. It uses your social. security number so that during your lifetime, you pay taxes on Trust income and the Trust need not file a tax return or get a separate tax identification number. After your death the trust does pay taxes until it is terminated.

• The RLT package offers superior privacy. If you don’t have a RLT controlling all your assets, your family will probably end up in the Probate Court to manage your estate. Your will is filed at the Courthouse, where the whole world can see it. On the other hand an RLT is a private contract. In fact, Tennessee law allows me to draft a trust agreement that is kept secret, even from the family.

• There are many more good reasons for using an RLT Package. It is generally easier to use.

ConquerTax Reform Headaches!

As a result of Tax Reform, most of my clients had surprises on their 2018 tax returns. The best way to avoid surprises in 2019 is to understand and take control of your tax situation. You have a few months left to do it in 2019. Some taxpayers will be able to use their standard deduction for 2019 ($12,200 for singles and $24,400 for joint filers) instead of itemized deductions (medical, mortgage interest, etc.). However, most of my clients use itemized deductions. In the last WealthWISe, I showed you how to use less known charitable deductions to beat the standard deduction. In this WealthWISe I will focus on other itemized deductions, like unusua medical deductions. Read on.

Less known Medical Deductions Make the most of these because you can deduct only the excess of Medical Deductions over 7.5% of adjusted gross income. However, sometimes health insurance premiums alone, if not reimbursed, will so the job. You can deduct premiums for yourself, your spouse and your dependents. Don’t forget Medicare premiums that are taken from Social security benefits. You can deduct long term care premiums but not if paid for a “hybrid” policy that combines life insurance with coverage for long-term care.

Self-employed taxpayers who are not covered by health insurance subsidized by an employer can deduct their health care insurance premiums as adjustments to income on Form 1040 thus avoiding the 7.5% floor.

Less known medical deductions include just about anything prescribed by a doctor and the cost of acupuncture and chiropractor services. You can deduct laser eye surgery Also, you can deduct 20 cents per mile driven for medical reasons. For a service animal that helps a disabled person, you can deduct the costs of buying, training, and maintaining the animal. You can also deduct expenses for food, grooming, and veterinary care. See IRS Publication 502, Medical and Dental Expenses.
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Home modifications or improvements to help a medical condition, such as wheelchair ramps, support bars, and handrails can qualify, except to the extent that they increase the fair market value of your property. For example, one of my clients installed a heated exercise pool to help with recovery from knee operations. It cost $12,000 but it did not increase the value of the house. In fact, if the house were sold it would require a crane to remove it. So she could deduct $12,000. To be deductible, the improvements must be made for medical, not architectural or aesthetic reasons. and all or a part of physician-prescribed home improvements

One great trick is to prepay or delay expenses into a year so as to exceed the standard deduction then take the standard deduction in the year that is thereby lowered.

Unexpected Refunds Or Taxes Due?

Many of my clients ended up with unexpected refunds or taxes due for 2018. Consequently, they made poor decisions during 2018 based on having or not having those funds. It is clear that the withholding rules are not working well. You don’t have to put up with this.

See me right not for a free half-hour consultation so that you know where you stand.

Standard deduction. Many taxpayers will be able to use their standard deduction for 2018 ($12,000 for singles and $24,000 for joint filers) instead of having to report itemized deductions (medical, mortgage interest, etc). However with my help you may be able to exceed the standard deduction. Look for some ideas below.

Beat Tax Reform. Tax reform changes limited or eliminated a number of my favorite itemized deductions from Schedule A. Get them back by converting these deductions to business deductions where they lower your self-employment tax.

Charitable deductions were not limited by Tax Reform so I encourage clients to take advantage of them.

Goodwill. Don’t cheat yourself on charitable gifts of household items like clothing, books and so on. i definitely would not trust the IRS values. Many online sources undervalue such gifts because they use thrift shop prices or the gifts of the average American. Most of my clients are not the average American. They pay more for such items so they are worth more. I can help you value such gifts! Get a receipt and keep information like that found in my Charitable Record. No one loses except the IRS!

Donate appreciated assets. donate appreciated traded securities you have held for more than one year and get a charitable deduction equal to the security’s current fair market value. Pay no tax on the long-term capital gain you would incur if you sold the property.

Seniors tax shelter: IRA charitable contribution. Get a charitable deduction and more even if you use the standard deduction. If you are at least 70 1/2 years old you may contribute directly from your IRA to a charity. The value of the contribution is not included in gross income. An added bonus is that the contribution counts as a required minimum distribution.

WANT TO CREATE A LEGACY?

Magic! a Charitable Remainder Unitrust. The CRUT is a tax-exempt trust for the well to do client who has substantial appreciated investments, which would produce a lot of capital gain if sold. If instead, you contribute the investments to a CRUT, it can sell them tax-free and reinvest their full value. It can provide you income for your lifetime and thereafter distribute its assets to a charity of your choice. You get an immediate deduction for the present value of the delayed gift to the charity. A CRUT can make a great retirement vehicle.

The Community Foundation of Memphis for donations of $15,000 or more, can provide smaller versions of CRUT’s, “donor-advised funds” and more which give you some say so as to investments and charities to benefit and more.

Were you afraid to prepare your return this year? Who do you trust to prepare your taxes? Can you trust the IRS? No! The Taxpayer Advocate Service called the IRS toll-free helpline regarding the dependency exemptions and all the answers were wrong!

Why would you trust me, considering that a make a living doing tax returns? Perhaps because you can see my credentials and I get thank you notes from my tax return clients.

What do others advise? See the article, The 5 Types of Tax Preparers: Which One Is Best for You? by The Motley Fool.

Anyway, here are my thoughts.

Seasonal preparers like H R Block. There is variable expertise among seasonal preparers, so you have to judge each one.

How about TurboTax? TurboTax is no guarantee that you will get your return right. Don’t believe Turbotax claims that you don’t have to know about taxes to use it. Among my clients are several lawyers using TurboTax who made expensive mistakes. They paid thousands of dollars in excess taxes incorrectly. I likewise prepared tax returns for an accountant in a Fortune 500 company who could not understand how to use Turbotax to report a rental property.

TurboTax does not protect you from penalties. The Tax Court has upheld 20% penalties against several taxpayers who substantially misreported their taxes using Turbotax. The Tax Court said that using Turbotax “is no defense to accuracy-related penalties under section 6662.” Bulakites v. Commissioner, T.C. Memo. 2017-79 (2017).

What about your trusty CPA?
Like seasonal tax preparers, the tax expertise of CPA’s varies. Of course, CPA’s have to pass the CPA exam. However, only about 25% of the CPA exam is on tax matters. Many CPA’s spend most of their time dealing with financial accounting. I do tax preparation for CPA’s.

Tax Attorneys Tax attorneys like me are generally regarded as the ultimate tax experts but are thought to be too expensive. See the Motley Crew article. Yet my fees are competitive because of my experience in taxes. I don’t accept clients unless I can save then far more than I cost them.

Can you have your cake and eat it too? Can you get a better deal on a tax pro? Sure, particularly if you work with me. Some of my clients prepare their returns with Turbotax. They send me their Turbotax file and background information. I then fine tune the return using Professional software and my Tax Mastery tax planning software. I prepare a written Tax Mastery memo that tells you what steps to take to achieve the lowest legal taxes. This way my client gets the best of both worlds. Some clients have their CPA prepare their return and then I check it for a fee. That is more expensive because I must input the numbers.

Again, if you have a business, I advise you to hire a tax professional. With a free 1/2 hour consultation, I will give you a taste of professional tax planning.

Why did Forbes Daily Dozen say Aretha Franklin “was a startling example of terrible estate planning” (three handwritten wills). Read more.

Estate planning is not just for the rich. Estate planning is for those who are rich in love for their family. The clients who are most grateful for my RLT Package are the surviving spouses. one client couple had only about $180,000 in assets, owned mostly by the husband. They chose to obtain an RLT for him. After he passed away, she was so pleased with the ease of dealing with his trust that she immediately obtained one for herself.

If you know me, you know that the RLT package is my favorite estate planning approach. My RLT package consists of a revocable living trust (RLT), durable general power of attorney, backup will and advance care plan. A Trust is a legal relationship defined by a trust agreement under which you give your property to yourself Trustee, to manage for one or more Beneficiaries. The RLT begins during your life when you sign a trust agreement and place your property under its control. You are usually your own Trustee and beneficiary, so you manage the trust on your behalf as long as you can.

Here are my TOP FIVE reasons for my Revocable Living Trust Package.

First: The RLT package avoids the Probate process.

Without the RLT in most cases your family must ask the Probate Court for authority to use your will and to manage your estate. Why worry about Probate? Do you know anyone who has been an Executor? I regularly handle Probate Matters and my father was a Probate Judge. My father asked me to draft him an RLT. What does that tell you? The Probate process takes several months and costs several thousands of dollars in legal fees. It includes court appearances, deadlines, penalties, bonds, inventories, accountings, negotiations with creditors, banks, brokers and insurance companies, frozen property sales, and more. The last thing a grieving family needs is to deal with the government for several months.

The RLT package offers excellent health care choices.

Tennessee provides an “Advance Care Plan” that serves the purpose of a Living Will and names persons who can make medical decisions for you if you cannot. The Advance Care Plan also allows you to tell your doctor to what treatments you want or don’t want if you end up with specified serious medical conditions, like artificial feeding or breathing equipment.

The RLT package provides you a superior legal backup the DPOA

The Durable General Power of Attorney (DPOA) authorizes your”attorney in fact” to act on your behalf legally, such as signing contracts. The DPOA works even if you lose mental capacity. The DPOA works hand in hand with the RLT. For example, your attorney in fact can transfer stray property into the RLT. The DPOA is very handy document. If you are travelling or otherwise not available but need legal documents signed, the person you authorize can handle these matters for you.

The RLT package avoids a guardianship

The RLT package avoids the embarrassment and expense of a guardianship if you lose your mind! You are more likely to lose your mind than to die, as the result of illness or accident Without planning, if you do lose your mind, you will need a court appointed guardian, to manage your affairs. This is a costly and embarrassing experience. An RLT package handles incapacity and usually avoids a guardianship. The RLT .owns your property so if you lose capacity your successor trustee takes over. The Durable General Power of Attorney (DPOA)

The RLT package offers superior asset management and protection

The RLT package offers superior management and protects your assets for your family members. An RLT package works for those you love long after your death. For example, minor beneficiaries can own only a small amount of property, so without an RLT the Court will appoint a legal guardian to manage that property and report back to the court every year. You can provide a trust in your will, but a will with a trust will cost about the same as a RLT so why not get the best?