Archive for category: Taxes

The Disappearing Deduction for Colorado State Income Tax Purposes

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by Kami Pomerantz

On June 23, 2021, Governor Polis signed Colorado House Bill 21-1311 into law. The Bill makes significant changes to a number of Colorado state income tax laws. One change of note is an amendment to C.R.S. § 39-22-104. The amendment limits the amount of itemized deductions under Section 63(d) of the Internal Revenue Code that a high-income taxpayer may claim for Colorado state income tax purposes. The law is effective for tax years beginning on January 1, 2022. The limit applies to taxpayers who have a federal adjusted gross income of $400,000 or more in the tax year. For a taxpayer who files a single return, the taxpayer’s itemized deductions are capped at $30,000 for state income tax purposes. For taxpayers who file a joint return, the taxpayers’ itemized deductions are capped at $60,000. This limitation does not apply to taxpayers who take the standard deduction for federal income tax purposes. Read more

Preparing for Potential Tax Reform – Consider Wealth Transfer Planning in 2020

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by Kami Pomerantz

Current planning environment. While 2020 has been challenging in many ways, it has also provided favorable conditions for tax and wealth transfer planning. The U.S. is experiencing historically low interest rates, some assets have low valuations due to economic volatility, and current tax laws are favorable for wealth transfer planning transactions. These factors combine to allow individuals to transfer assets out of their taxable estates at a reduced transfer tax cost.

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Tax and Estate Planning Perspectives

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by Kami A. Pomerantz

From a tax and estate planning perspective, we would like to make you aware of the following:

Tax Filing Extensions:

The IRS has extended the filing and payment deadline for all 2019 income tax returns to July 15, 2020. This means that no penalty or interest will be assessed for an individual’s failure to file or pay income taxes, regardless of amount, until after July 15, 2020.

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New IRS Addresses for Filing Estate Tax Returns

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by Jody H. Hall, Paralegal

The Instructions for Form 706 released in November 2018 included new addresses; however, we felt a reminder could be useful since the filing address changed mid-year.  Effective for United States Estate (and Generation-Skipping Transfer) Tax Returns (Form 706) filed after June 30, 2019, Form 706’s should no longer be sent to the Cincinnati campus for filing, but should instead be sent to:

Department of the Treasury
Internal Revenue Service
Kansas City, MO  64999

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Possible Legislative Change for Retirement Planning

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by Kami Pomerantz

On May 23, 2019, the U.S. House of Representatives passed the Setting Every Community Up for Retirement Enhancement Act of 2019 (H.R. 1994) referred to as the SECURE Act.  The SECURE Act passed with broad support in the House with a vote of 417-3.  The SECURE Act incorporates many provisions in Retirement Enhancement Savings Act of 2019 (S. 972), also known as RESA, which has extensive bipartisan support in the Senate.  Recently a small group of Senators blocked passage of RESA in an attempt to allow 529 Plan funds (educational savings account funds) to be used to support home-schooling.  However, due to generally strong bipartisan support in the Senate and House as well as retirement plan industry support, it is expected that some form of RESA will ultimately pass, the two bills will be reconciled, and that the reconciled bill will become law. 

The SECURE Act makes it easier for many Americans to save for retirement.  Most of the provisions provide more flexibility to employers and reduce administrative costs regarding creation and implementation of employer related retirement plans.  It is hoped that these reforms will allow employers to create more robust retirement plans and to encourage their employees to participate in such plans. 

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Understanding the Child Care Contribution Tax Credit

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by Kami Pomerantz

The Child Care Contribution Tax Credit (the “CCTC”) provides a valuable tax credit against a taxpayer’s Colorado state income tax.  The credit equals 50% of the amount of a contribution made to a qualifying Colorado charitable organization that promotes child-care.  At the end of August, the IRS issued proposed regulations amending Treas. Reg. Section 1.170A-1.  The proposed regulations would limit the deductibility for federal purposes of charitable donations that qualify for a state or local tax credit like the CCTC.  While at a glance the proposed regulations seem to have a negative impact, in reality, for most taxpayers who itemize their federal deductions, the CCTC will remain an effective way to make charitable contributions at a substantially reduced net cost.

The CCTC applies to contributions of cash, (contributions of stock do not qualify) to Colorado institutions that support child care for children under 12 and to certain approved charities.  Under prior law, these contributions were deductible as charitable contributions for federal and state income tax purposes.  In addition, a taxpayer could credit 50% of the contribution against the taxpayer’s Colorado state income tax liability.  These deductions and credits substantially reduced the after -tax cost of such donations to taxpayers.  A taxpayer in the 35% federal tax bracket and subject to the 4.63% Colorado state income tax rate could make a charitable contribution of $30,000 for a net out of pocket cost of $8,847.

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Planning Opportunities Under the New Tax Cuts and Jobs Act

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By Chelsea May

In December, President Trump signed into law what is commonly referred to as the Tax Cuts and Jobs Act.  This legislation, which is mostly effective as of January 1, 2018, is the first major reform to the federal tax code since 1986 and affects almost every individual and business taxpayers in some way or another. For individuals, the top tax rate has temporarily dropped from 39.6% to 37% and the standard deduction has nearly doubled.  Personal exemptions are repealed and the mortgage interest deduction is limited to interest on a mortgage of $750,000 or less per married couple. The AGI limitation for deductions of cash donations to public charities increased from 50% to 60% and the deduction for alimony payments was repealed (for divorces or separations executed after December 31, 2018).  Corporate tax rates have dropped from a 35% top rate to a permanent 21% flat rate, a 20% deduction is now available for certain pass through entity income and the corporate AMT has been repealed.

The new tax act also increased the federal estate and gift tax exemption amount. Specifically, for lifetime gifts and the estates of any decedents passing between January 1, 2018 and December 31, 2025, the estate tax and GST tax exemption amounts were increased to $10 million per person, adjusted for inflation occurring after 2011 (expected to be about $11.2 million for 2018). The marginal transfer tax rate remains at 40%. Read more

Identity Theft Isn’t Just for the Living

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by Kimberly K. Rutherford

With income tax season upon us, we are inundated with warnings from the IRS to take extra caution when filing our individual income tax returns with identity theft on the rise.  But identity theft also happens to Decedents.

We recently had an estate that filed a final individual income tax return for a Decedent and the estate was expecting a sizeable refund.  When the refund check did not arrive, we attempted to track it down with the IRS.  All calls to the IRS hit dead-end after dead-end.  No agent at the Service would talk with us even though we had the Personal Representative on the phone line with us and all necessary information to validate our identity. Read more

Will the Estate Tax Really Go Away?

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by Carol Warnick

Will the estate tax be eliminated as part of the tax reform promised by the incoming administration?  Unfortunately, my crystal ball is not working well and I don’t have an answer for that question.  I would, however, like to share a bit of the tortured history of the estate and gift tax since the Civil War in the hope that it might give us some perspective when wondering what the future will bring.

A series of Acts between 1862-64 created an inheritance tax which helped finance the war effort.  Rates were between .75% and 5% and there was an exemption of $1,000.  In 1870 the inheritance tax was repealed.  An estate tax was again instituted to fund a war effort in 1916, in response to World War I.  The rates were between 1% and 10% and there was an exemption of $50,000.

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