Category Archives: Financial Planning Tips

Year-End Gift Planning Strategies


There is much uncertainty surrounding the estate-planning options that may be available in 2013.  Until the end of this year it’s possible to give away up to $5.12 million per person ($10.24 million per couple), without incurring a gift tax of up to 35%. Currently you can give up to $13,000 each year ($14,000 beginning in 2013) to as many recipients as you would like without even dipping into the $5.12 million exclusion amount. Spouses can double up on annual gifts to jointly give $26,000 to any person tax-free.  However, once you’ve succeeded these limits you do you start drawing down the $5.12 million.

The easiest way to use the annual exclusion is to give cash or other assets each year to each of as many individuals as you want. Another possibility is to put money in Section 529 education savings plans. Establishing these plans for relatives could relieve siblings or children of the need to save for college at a time when they are overwhelmed with current expenses.

You can set up a separate account for each family member whom you wish to benefit. Although your contributions to a 529 account are considered gifts, there are two unusual benefits: money in these accounts grows tax-free and can be withdrawn tax-free, provided it is used to pay for college, a graduate, vocational or another accredited school, or for related expenses.

Unless Congress acts before year-end, at the end of this year the current $5.12 million per-person exclusion from the federal estate and gift tax will automatically drop to $1 million and the tax on transfers above that amount will go up to 55%. There is a question as to whether gift or estate tax could be owed on the value of the previously gifted asset if the exemption returns to $1,000,000 in 2013 or future legislation results in a gift and estate tax exemption in an amount less than $5,000,000.  This is referred to as the potential for “claw back.”

In the simplest terms, an individual can make a large gift in 2012 without owing any gift tax, while the same gift in 2013 would result in a large gift tax liability. For example, for a single person or married couple with a taxable estate of $3 million, the scheduled estate tax changes could mean a $945,000 federal estate tax bill next year, versus zero under current law.  That’s why it’s important to think about your estate and gifting strategies over the next few months, and to talk with your attorney about a plan that you can execute as the tax-law changes get closer. Future uncertainty should weigh into any decision you make.

For additional assistance, please contact Steve Siesser at


What You Need to Know When Starting a Business


The IRS wants you to know there are some things to consider when starting a business:

  • Type of Business One of the first decisions you need to make is what type of business you are going to establish. The most common types of businesses are sole proprietorship, partnership, corporation, S corporation, and Limited Liability Company. The type of business you establish determines which tax forms you will need to file.
  • Types of Taxes The type of business you operate also determines what types of taxes you will pay and how you will pay them. The four general types of business taxes are income tax, self-employment tax, employment tax and excise tax.
  • Employer Identification Number A business typically needs to get an Employer Identification Number to use as an identifier for tax purposes. Check to find out whether you will need this number, and, if so, you can apply for an EIN online.
  • Recordkeeping Good records will help you keep track of deductible expenses, prepare your tax returns and support items that you report on your tax returns. Good records will also help you monitor the progress of your business and prepare your financial statements. You may choose any recordkeeping system that clearly shows your income and expenses.
  • Tax Year Every business taxpayer must figure taxable income on an annual basis called a tax year. Your tax year can be either a calendar year or a fiscal year.
  • Accounting Method Each taxpayer must also use a consistent accounting method, which is a set of rules for determining when to report income and expenses. The most commonly used accounting methods are the cash method and accrual method. Under the cash method, you generally report income in the tax year you receive it and deduct expenses in the tax year you pay them. Under an accrual method, you generally report income in the tax year you earn it and deduct expenses in the tax year you incur them.

If you have any questions or need assistance, please contact Steve Siesser at or call 301-593-6766


Renting Your Vacation Home


Income that you receive for the rental of your vacation home must generally be reported on your federal income tax return.

However, if you rent the property for only a short time each year, you may not be required to report the rental income.

The IRS offers these tips on reporting rental income from a vacation home such as a house, apartment, condominium, mobile home or boat:

  • Rental Income and Expenses Rental income, as well as certain rental expenses that can be deducted, are normally reported on Schedule E, Supplemental Income and Loss.
  • Limitation on Vacation Home Rentals  When you use a vacation home as your residence and also rent it to others (mixed use property), you must divide the expenses between rental use and personal use, and you may not deduct the rental portion of the expenses in excess of the rental income.
    You are considered to use the property as a residence if your personal use is more than 14 days, or more than 10% of the total days it is rented to others if that figure is greater. For example, if you live in your vacation home for 17 days and rent it 160 days during the year, the property is considered used as a residence and your deductible rental expenses would be limited to the amount of rental income.
  • Special Rule for Limited Rental Use  If you use a vacation home as a residence and rent it for fewer than 15 days per year, you do not have to report any of the rental income. Schedule A, Itemized Deductions, may be used to report regularly deductible personal expenses, such as qualified mortgage interest, property taxes, and casualty losses.

Major sporting events, conventions, holidays, etc., provide an opportunity to rent out all or a portion of a main or second home on a short term rental basis.  Make sure your rental agreement includes a security deposit or other damage reimbursement plan since repair costs are not deductible where the number of days rented is less than 15.  If you need assistance or have questions, please contact Steve Siesser at


Is Your Gift Taxable?


The IRS wants you to know that if you gave money or property to someone as a gift, you may owe federal gift tax. Many gifts are not subject to the gift tax, but the IRS offers the following eight tips about gifts and the gift tax.

  1. Most gifts are not subject to the gift tax. For example, there is usually no tax if you make a gift to your spouse or to a charity. If you make a gift to someone else, the gift tax usually does not apply until the value of the gifts you give that person exceeds the annual exclusion for the year. For 2011 and 2012, the annual exclusion is $13,000.
  2. Gift tax returns do not need to be filed unless you give someone, other than your spouse, money or property worth more than the annual exclusion for that year.
  3. Generally, the person who receives your gift will not have to pay any federal gift tax because of it. Also, that person will not have to pay income tax on the value of the gift received.
  4. Making a gift does not ordinarily affect your federal income tax. You cannot deduct the value of gifts you make (other than deductible charitable contributions).
  5. The general rule is that any gift is a taxable gift. However, there are many exceptions to this rule. The following gifts are not taxable gifts:
    Gifts that are do not exceed the annual exclusion for the calendar year,
    Tuition or medical expenses you pay directly to a medical or educational institution for someone,
    Gifts to your spouse,
     Gifts to a political organization for its use, and
     Gifts to charities.
  6. You and your spouse can make a gift up to $26,000 to a third party without making a taxable gift. The gift can be considered as made one-half by you and one-half by your spouse. If you split a gift you made, you must file a gift tax return to show that you and your spouse agree to use gift splitting. You must file a Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, even if half of the split gift is less than the annual exclusion
  7. You must file a gift tax return on Form 709, if any of the following apply:
     You gave gifts to at least one person (other than your spouse) that are more than the annual exclusion for the year.
     You and your spouse are splitting a gift.
     You gave someone (other than your spouse) a gift of a future interest that he
    or she cannot actually possess, enjoy, or receive income from until some time in the future.
     You gave your spouse an interest in property that will terminate due to a future event.
  8. You do not have to file a gift tax return to report gifts to political organizations and gifts made by paying someone’s tuition or medical expenses.

For more information contact Steve Siesser at


How Taxes May Impact Your Retirement Venue


Location, as they say, is everything. In retirement, that’s especially true according to SunTrust. In a recent article, SunTrust ponted out that you might be looking for a place with favorable weather, a bevy of amenities and low cost-of-living that allows you to stretch your fixed-income dollars until they squeak. But how much you pay for a house or a loaf of bread in Boston, Massachusetts, vs. Boone, North Carolina, is only one factor in the total cost-of-living equation. Another is taxes, which vary wildly from one place to the next. Alaska’s typical tax burden is 6.3 percent, according to the nonpartisan Tax Foundation, and almost twice as much in New Jersey (12.2 percent). Types of taxes vary from state to state, but here are a few of the big ones to consider:

Personal income tax. Nine states don’t have a state income tax: Alaska, Washington, Nevada, Wyoming, South Dakota, Texas, Tennessee, Florida and New Hampshire. But New Hampshire and Tennessee tax dividends and interest, an important source of income for many retirees. On the other hand, 12 states, even though they may have a personal income tax, leave Social Security and pensions untaxed.

Property tax. For retired homeowners, property taxes are probably their biggest tax burdens and these have no relation to income or ability to pay. Louisiana’s mean property tax ran $243 in fiscal year 2009. But in New Jersey the mean was $6,579. New Hampshire has no income or state sales tax, but property taxes can run high. The good news is that some locales have tax abatement, deferment or tax-freeze programs for seniors.

Sales tax. Oregon, New Hampshire, Alaska, Montana and Delaware don’t have a retail sales tax. However, cities and counties within these states sometimes make up for this through sales taxes of their own. Other times, a town in a state that already has a sales tax may have one too, giving you a double tax whammy. In Tuba City, Arizona, for example, the sales tax is 13.725 percent, combining state, county and tribal sales tax.

Gasoline excise tax. Again, there’s a wide range of how much states tack on to the already climbing price of gas, from 8 cents per gallon in Alaska to 46.5 cents in California.

Bottom line. If your goal is to trim expenses in retirement, then moving to (or staying in) a state with a combination of low cost-of-living and low taxes is one way to do it. Not every type of tax is applicable to every retiree. The concerns for someone who lives mainly on Social Security and rents an apartment are different from a person who gets dividends and owns several homes. And for some, proximity to friends and family far outweighs these financial considerations.  If you have questions concerning the impact of taxes on retirement, contact Steve Siesser at