Monday, October 31, 2005

2006 Inflation Adjustments Widen Tax Brackets, Change Tax Benefits

Category: Estate and Inheritance Tax, Tax Law and Planning

From the IRS, a quick summary of some inflation adjustments to 2006 tax planning. Revenue Procedure 2005-70 contains a complete list of all 2006 inflation adjustments.

2006 Inflation Adjustments Widen Tax Brackets, Change Tax Benefits

WASHINGTON - Personal exemptions and standard deductions will rise, tax brackets will widen and individuals will be able to make larger tax-free gifts in 2006, thanks to inflation adjustments announced today by the Internal Revenue Service.

By law, a variety of tax provisions must be revised each year to keep pace with inflation. As a result, more than three dozen tax benefits, affecting virtually every taxpayer, are being modified for 2006. Key changes affecting 2006 returns, filed by most taxpayers in early 2007, include the following:

The value of each personal and dependency exemption, available to most taxpayers, will be $3,300, up $100 from 2005.

The new standard deduction will be $10,300 for married couples filing a joint return, $5,150 for singles and $7,550 for heads of household. Nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions, such as mortgage interest, charitable contributions and state and local taxes.

Tax-bracket thresholds will increase for each filing status. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15% bracket from the 25% bracket will be $61,300, up from $59,400 in 2005.

The annual gift tax exemption will be $12,000, up from $11,000 in 2005.
Revenue Procedure 2005-70, containing a complete rundown of inflation adjustments, is posted on the IRS Web site and will appear in Internal Revenue Bulletin 2005-47, dated Nov. 21, 2005.

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Friday, October 28, 2005

Judge Orders IRS to Pay $23 Mil in Taxes and Interest

Category: Tax Law and Planning

From Yahoo News....a win, but not exactly for the little guy:

Judge Orders IRS to Pay Buffett's Firm - Yahoo! News: "A federal judge on Friday ordered the Internal Revenue Service to pay billionaire Warren Buffett's investment company more than $23 million in taxes and interest for disallowing certain deductions.

The ruling by U.S. District Judge Lyle Strom ended some three years of legal wrangling between Berkshire Hathaway Inc. and the IRS.

The case stemmed from two lawsuits that alleged the IRS made an 'erroneous, wrongful and illegal' interpretation of the U.S. Tax Code when it denied the deductions."

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Shareholder/Partnership Agreements: Creating a Buy-Sell Agreement

Category: Business Law and Planning

From Bplans Blog, and excellent essay on the value of a Buy-Sell Agreement, and the issues you need to think about in creating one.

"Think of a partnership agreement as a "prenuptial" agreement between you and your business partners. You don't expect to have the partnership break up, but you just never know what could happen down the road. "

The article focuses on a discussion of what valuation means in relationship of a Buy-Sell agreement, including different valuation approaches, and the need to revisit the approach taken as the business grows.

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Thursday, October 27, 2005

Financial Planning For Kids With Special Needs

Category: Estate Planning

From Financial Planning For Kids With Special Needs: "Many parents with physically, emotionally or developmentally disabled children have not secured the child's financial future, a survey conducted for MetLife found.

Sixty percent of parents don't expect their child with special needs to be financially independent, but 68% of parents haven't written a will, and 29% have done nothing to plan for the child's financial future.

Parents are aware of the need to make plans, but 66% say there is little financial planning information available that focuses on children with special needs. Surprisingly, 85% parents turn to their doctor for financial advice. "

A child with special needs requires special planning. Some questions to consider:

  • Is the child mentally competent? If not, you may need to seek a guardianship after age 18.

  • Does the child have his or her own money? Perhaps from a court settlement? If so, consider placing the funds in a (d)(4)(A) Special Needs Trust. This type of trust is authorized by federal statue to allow the child to have funds, yet qualify for state and federal program for people with special needs, including house and medical care. This is done by limiting trust distribution to the child's non-support needs, and requiring that any public dollars expended on the child's behalf be repaid from the trust at death.

  • Will the child be inheriting money from parents or otherwise? Inherited funds should also be held in a carefully crafted trust so that the inheritance does not disqualify the child from any public benefits or programs. A trust created by a third party can have more flexibility in giving the assets to the disabled child, and do not need to have the pay-back provision of a (d)(4)(A) Special Needs Trust.

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Wednesday, October 26, 2005

Who will take care of an older population? - Yahoo! News

Who will take care of an older population? - Yahoo! News: "Americans are living longer and better than ever. The Census Bureau predicts the nation will have more than 1 million centenarians in 2050, up from 71,000 today.
That's the good news. Now the bad: The cost of health care and retirement benefits of an aging population threatens to bankrupt the nation unless dramatic changes are made.
The average American retires five years earlier than in 1950 and lives 12 years longer. This phenomenon - work less, collect more - has ripped a hole in the senior citizen safety net. The longer we live, the bigger the hole."

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Tuesday, October 25, 2005

Medicaid Reform - Contact your Congressman

Category: Elder Law

From the National Academy of Elder Law Attorneys (

"October 24, 2005

Dear NAELA Member:

The Chairman's 'mark' that will be considered by the Senate Finance Committee on Tuesday does not include the two punitive Medicaid proposals currently being considered by Congress: changing the Medicaid penalty period start date to the date of application and increasing the lookback period from three to five years.

Your efforts are still needed!!
� Thank your Senators on the Finance Committee for their support of the elderly and individuals with disabilities across the nation.

� Contact the Members of the House Energy and Commerce Committee and ask them to oppose these two punitive proposals. Key states with more than one member on this committee include: California, Florida, Illinois Michigan, New Jersey, New York, Ohio, Pennsylvania, Tennessee and Texas.

To call Members of Congress dial the Senior Flash Hotline at 1-800-998-0180 to communicate our concern and to urge them to oppose cuts to the Medicaid budget and to oppose changes to the nursing home transfer of assets rules.

To write your Representative or Senator, click here

Since Congress is in session, fax or e-mail your letters to their Capitol Hill offices as soon as possible. Encourage your clients to call too!

Thank you for helping NAELA with this critical issue.


Lawrence E. Davidow, CELA
NAELA President"

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Friday, October 21, 2005

Free Medicare Prescription Drug Coverage Booklet - From AARP

Category: Elder Law

The New Medicare Prescription Drug Coverage--What You Need to Know. AARP. 28 Pages.

This free booklet from the AARP provides a thorough overview of the new Medicare prescription drug benefit that will go into effect on January 1, 2006. The booklet explains, in simple language, how the benefit works, the cost, what types of drug plans will be available, how to choose a plan, how to join, and what extra help is available for low-income individuals. Helpful charts and tables illustrate how the benefit works. The booklet also provides examples to help you understand this new benefit and decide whether you should sign up for it at all.

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Thursday, October 20, 2005

Katrina (and other disasters) Tax Relief Act - You can be Generous with Charitable Gifts

Category: Tax Law and Planning

In order to help charities assisting in the Hurricane Katrina relief, Congress recently passed the Katrina Emergency Tax Relief Act (KETRA) which allows unlimited gifts to charity up to a donor's total income until the end of 2005. Normally, there are percentage of income limitations on charitable deductions.

KETRA Qualifying cash gifts must be made between August 28, 2005 and December 31, 2005 to a public charity. For individuals, the contribution does not have to be earmarked for Hurricane Relief.

If you are over 59 1/2 and considering making a large charitable contribution this year, consider withdrawing money from and IRA, 401(k), 403(b), or other qualified retirement account, to make the gift. Generally, withdrawals from qualified retirement accounts are subject to income tax in the year made. Under the normal tax code, the charitable contribution deduction to a public charity is limited to 50% of your income. Accordingly, when you make a withdrawal from a qualified plan and donate the entire amount to charity under the normal rules, you must pay tax on 50% of the withdrawn amount, even though 100% went to charity. Under KETRA, 100% of a qualified plan withdrawal that passes to charted may be deducted.

For more information on Katrina tax relief, see the IRS website.

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Wednesday, October 19, 2005

Are you Missing Education Tax Breaks?

Category: Tax Law and Planning

From James Jimenez, CPA of Fass and Associates, CPAs:


A recent report by the Government Accountability Office pointed out that 27% of 1.8 million taxpayers eligible for education-related tax breaks did not take advantage of them on their income tax returns. As a result, they paid from $169 to over $500 more in taxes than necessary.

If the complexity of the tax credits and deductions for education expenses is keeping you from claiming them, you, too, may be paying higher taxes than necessary. With a little effort, you can get the details and advice you need to make the wisest choices for your particular situation. Here’s a brief rundown of what’s available.

* Education savings accounts let you set aside up to $2,000 per year per child in a tax-deferred account for elementary, secondary, or higher education expenses at either private or public schools.

* Section 529 plans include tax-favored college savings plans and prepaid tuition accounts. Tax-free withdrawals can be used to pay for tuition, fees, supplies, equipment, and certain room and board expenses.

* The college expense deduction lets you deduct up to either $2,000 or $4,000 (depending on your income) for tuition and related college expenses. If you qualify, you can deduct these expenses whether or not you itemize

* Student loan interest of up to $2,500 is deductible, subject to income limitations.

* A Hope credit of up to $1,500 per student can be claimed for tuition and fees relating to the first two years of post-secondary education.

* A lifetime learning credit of up to $2,000 per family can be claimed for post-secondary education expenses and certain job-related courses."

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Tuesday, October 18, 2005

You're Dead, Now What? -

A tounge-in-cheek, but informative article about how to get the most out of estate planning - You're Dead, Now What? - "Contemplating your demise isn't easy.

But failure to draft an estate plan, or writing one poorly, adds delay, legal problems and uncertainty to all the emotional turmoil your family faces when you die. "

Also contains link to 10 Must-Know Estate Planning Terms.

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Friday, October 07, 2005

Harriet Miers - The Unknown Nominee - From the ABA

Category: Miscellaneous Musings

From the American Bar Association Journal, a look at the Supreme Court nominee from the perspective of the attorney bar.

"'Rather an unknown.' That's a statement that could describe Harriet Ellan Miers, President Bush's latest nominee for associate justice of the U.S. Supreme Court. But it's actually a headline topping a 1981 New York Times news analysis about President Reagan's then-nominee Sandra Day O'Connor. "

The story continues at HARRIET MIERS� �UNKNOWN� STORY:

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Thursday, October 06, 2005

Form 706 for 2005 Published - New Form shows new State Death Tax Deduction

Category: Estate and Inheritance Tax, Probate and Estate Administration

At long last the Form 706 - Federal Estate Tax Return - for decedents dying in 2005 has been released by the IRS. The form adds a new Line 3b for the "State Death Tax Deduction", recognizing the change from a State Death Tax Credit to a Deduction for State Death Taxes paid.

The Form 706 Instructions set forth how to claim the new Deduction as follows:

"The estates of decedents dying after 12/31/2004 will be allowed a deduction for state death taxes, instead of a credit. Beginning in 2005, the state death tax credit is repealed. You may take a deduction on line 3b for estate, inheritance, legacy, or succession taxes paid as the result of the decedent’s death to any state or the District of Columbia. You may claim an anticipated amount of deduction and figure the federal estate tax on the return before the state death taxes have been paid. However, the deduction cannot be finally allowedunlesss you pay the state death taxes and claim the deduction within 4 years after the return is filed, or later (see section 2058(b)) if:

1. A petition is filed with the Tax Court of the United States,
2. You file a claim for refund or credit of an overpayment which extends the deadline for claiming the deduction.

Note. The deduction is subject to no dollar limits.

If you make a section 6166 election to pay the federal estate tax in installments and make a similar election to pay the state death tax in installments, see section 2058(b) for exceptions and periods of limitation.

If you transfer property other than cash to the state in payment of state inheritance taxes, the amount you may claim as a deduction is the lesser of the state inheritance tax liability discharged or the fair market value of the property on the date of the transfer. For more information on the application of such transfers, see the principles discussed in Rev. Rul. 86-117, 1986-2 C.B. 157, prior to the repeal of section 2011.

You should send the following evidence to the IRS:

1. Certificate of the proper officer of the taxing state, or the District of Columbia, showing the:
a. Total amount of tax imposed (before adding interest and penalties and before allowing discount),
b. Amount of discount allowed,
c. Amount of penalties and interest imposed or charged,
d. Total amount actually paid in cash, and
e. Date of payment.

2. Any additional proof the IRS specifically requests."

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Wednesday, October 05, 2005

Supreme Court to Revisit Assisted Suicide

Category: Elder Law

Supreme Court to Revisit Assisted Suicide - Yahoo! News: "The Supreme Court will revisit the emotionally charged issue of physician-assisted suicide in a test of the federal government's power to block doctors from helping terminally ill patients end their lives.

Oregon is the only state that lets dying patients obtain lethal doses of medication from their doctors, although other states may pass laws of their own if the high court rules against the federal government. Voters in Oregon have twice endorsed doctor-assisted suicide, but the Bush administration has aggressively challenged the state law."

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Tuesday, October 04, 2005

Qualified Retirement Plans for Solo Business Owners - The Solo Defined-Benefit Plan

Category: Business Law and Planning, Financial Planning

From Tax Matters: The Solo Defined-Benefit Plan: "If you're the sole proprietor of a small business, you probably know that you've got some terrific options to choose from when it comes to setting up a tax-advantaged retirement account. But here's one you might not have thought of: a solo defined-benefit plan. These traditional pension plans have been around for years, but get relatively little attention compared with other retirement-savings plans. This shouldn't be the case, however, since solo DB plans allow people to contribute perhaps $100,000 a year.

The generous contribution limits make these plans worth serious consideration by people who are late to the retirement savings game and who are prepared to set aside serious dollars to make up for lost time. Sound familiar? Here's what you need to know. "

The article goes on to describe various retirement planning options for small business owners.

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Monday, October 03, 2005

Average Cost Nursing Home Room - $74,000 a Year!

Category: Elder Law

According to the 2005 MetLife Market Survey of Nursing Home and Home Care Costs the average daily cost of a private room in a nursing home in the United States is $74,095 a year, or $203 a day, and the the average cost of a semi-private room, is $64,240 a year, or $176 a day. This breaks down to $6,174 or $5,353 per month respectively - the State of New Jersey finds the average costs of a nursing home to be $6050.

The study also found that the cost of a home health care aide averaged $19 per hour nationally,and homemaker/companion care averaged $17 per hour.

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