Take advantage of a “stepped-up basis” when you inherit property
If you’re planning your estate, or you’ve recently inherited assets, you may be unsure of the “cost” (or “basis”) for tax purposes.
Fair market value rules
Under the fair market value basis rules (also known as the “step-up and step-down” rules), an heir receives a basis in inherited property equal to its date-of-death value. So, for example, if your grandfather bought ABC Corp. stock in 1935 for $500 and it’s worth $5 million at his death, the basis is stepped up to $5 million in the hands of your grandfather’s heirs — and all of that gain escapes federal income tax forever.
Read More
Fortify your assets against creditors with a trust
You may think of trusts as estate planning tools — vehicles for reducing taxes after your death. While trusts can certainly fill that role, they’re also useful for protecting assets, both now and later. After all, the better protected your assets are, the more you’ll have to pass on to loved ones.
Creditors, former business partners, ex-spouses, “spendthrift” children and tax agencies can all pose risks. Here’s how trusts defend against asset protection challenges.
Read More
External audits offer many benefits to nonprofits
Your nonprofit organization may be required to hire an independent outside CPA to audit its books, depending on its annual gross receipts and other factors. Even when external audits aren’t mandated, however, they’re often recommended. These audits can provide assurance to donors and other stakeholders that your organization is operating with integrity and within acceptable accounting guidelines.
Internal audits
Most nonprofits conduct internal audits on a regular basis, perhaps quarterly or annually. These audits are typically performed by a board member or a member of the organization’s staff. The objective is to review the organization’s financial statements, accounting policies and spending habits.
Read More
Form W-2 reporting of COVID-19-related sick leave and family leave
In Notice 2020-54, the IRS recently provided guidance to employers on Form W-2 reporting of qualified sick leave wages and qualified family leave wages. These are the wages paid to employees under the Families First Coronavirus Response Act.
The guidance requires employers to report the amount of qualified sick leave wages and qualified family leave wages paid to those employees. Doing so enables self-employed individuals who also receive wages or compensation as employees with the information they need to properly claim any qualified sick leave equivalent or qualified family leave equivalent credits for which they’re eligible.
Read More
Why do partners sometimes report more income on tax returns than they receive in cash?
If you’re a partner in a business, you may have come across a situation that gave you pause. In a given year, you may be taxed on more partnership income than was distributed to you from the partnership in which you’re a partner.
Why is this? The answer lies in the way partnerships and partners are taxed. Unlike regular corporations, partnerships aren’t subject to income tax. Instead, each partner is taxed on the partnership’s earnings — whether or not they’re distributed. Similarly, if a partnership has a loss, the loss is passed through to the partners. (However, various rules may prevent a partner from currently using his share of a partnership’s loss to offset other income.)
Read More
Even if no money changes hands, bartering is a taxable transaction
During the COVID-19 pandemic, many small businesses are strapped for cash. They may find it beneficial to barter for goods and services instead of paying cash for them. If your business gets involved in bartering, remember that the fair market value of goods that you receive in bartering is taxable income. And if you exchange services with another business, the transaction results in taxable income for both parties.
For example, if a computer consultant agrees to exchange services with an advertising agency, both parties are taxed on the fair market value of the services received. This is the amount they would normally charge for the same services. If the parties agree to the value of the services in advance, that will be considered the fair market value unless there is contrary evidence.
Read More
Businesses: Get ready for the new Form 1099-NEC
There’s a new IRS form for business taxpayers that pay or receive nonemployee compensation.
Beginning with tax year 2020, payers must complete Form 1099-NEC, Nonemployee Compensation, to report any payment of $600 or more to a payee.
Why the new form?
Prior to 2020, Form 1099-MISC was filed to report payments totaling at least $600 in a calendar year for services performed in a trade or business by someone who isn’t treated as an employee. These payments are referred to as nonemployee compensation (NEC) and the payment amount was reported in box 7.
Read More
Communicate carefully about compensation during the pandemic
The COVID-19 pandemic and resulting economic fallout have spurred layoffs and furloughs for many employers. As the months pass, organizations that have retained employees face another dilemma: How should we handle compensation changes?
Pay raises have been out of the question for some organizations. In fact, more than 25% of employers surveyed in June by global advisory firm Willis Towers Watson reported reducing salaries rather than increasing them. However you handle compensation this year, it’s critical to communicate clearly and carefully with employees.
Read More
Reopening concepts: What business owners should consider
A widely circulated article about the COVID-19 pandemic, written by author Tomas Pueyo in March, described efforts to cope with the crisis as “the hammer and the dance.” The hammer was the abrupt shutdown of most businesses and institutions; the dance is the slow reopening of them — figuratively tiptoeing out to see whether day-to-day life can return to some semblance of normality without a dangerous uptick in infections.
Many business owners are now engaged in the dance. “Reopening” a company, even if it was never completely closed, involves grappling with a variety of concepts. This is a new kind of strategic planning that will test your patience and savvy but may also lead to a safer, leaner and better-informed business.
Read More
IRS guidance on “coronavirus-related” retirement plan distributions
In Notice 2020-50, the IRS recently provided guidance on “coronavirus-related distributions” from retirement plans under Section 2202 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Here are some pertinent details for employers.
Pension plans
The Notice points out that Sec. 2202 doesn’t change the rules for when plan distributions are permitted to be made from employer retirement plans. Thus, a qualified pension plan isn’t permitted to make a distribution before an otherwise permitted distributable event merely because the distribution, if made, would qualify as coronavirus-related.
Read More
6 key IT questions to ask in the new normal
The sudden shutdown of the economy in March because of the COVID-19 pandemic forced many businesses to rely more heavily on technology. Some companies fared better than others.
Many businesses that had been taking an informal approach to IT strategy discovered their systems weren’t as robust and scalable as they’d hoped. Some may have lost ground competitively as fires were put out and employees got back up to speed in an altered working environment.
To keep your approach to technology relevant, you’ve got to regularly reassess processes and assets. Doing so is even more important in the new normal. Here are six key questions to ask:
Read More
Conduct a “paycheck checkup” to make sure your withholding is adequate
Did you recently file your federal tax return and were surprised to find you owed money? You might want to change your withholding so that this doesn’t happen next year. You might even want to do that if you got a big refund. Receiving a tax refund essentially means you’re giving the government an interest-free loan.
Read More
Family matters: Estate planning considerations if you have adopted children or unadopted stepchildren
If you have adopted children or unadopted stepchildren, estate planning is critical to ensure that your property is distributed the way you desire.
Adopted children
Adopted children are placed on an equal footing with biological children in most situations for estate planning purposes. Thus, adopted and biological children are treated the same way under a state’s intestate succession laws, which control who inherits property in the absence of a will.
Read More
IRS guidance provides RMD rollover relief
The CARES Act was enacted in an attempt to mitigate the economic effects of the COVID-19 pandemic. Among other things, it extends favorable tax treatment to qualified individuals who take so-called “coronavirus-related distributions” (CRDs) from IRAs, 401(k) plans and certain other retirement plans.
Specifically, the CARES Act waives the 10% early distribution penalty for CRDs taken between January 1, 2020, and December 31, 2020. Under the law, the waiver applies to CRDs made to an individual:
Read More
Some people are required to return Economic Impact Payments that were sent erroneously
The IRS and the U.S. Treasury had disbursed 160.4 million Economic Impact Payments (EIPs) as of May 31, 2020, according to a new report. These are the payments being sent to eligible individuals in response to the economic threats caused by COVID-19. The U.S. Government Accountability Office (GAO) reports that $269.3 billion of EIPs have already been sent through a combination of electronic transfers to bank accounts, paper checks and prepaid debit cards.
Eligible individuals receive $1,200 or $2,400 for a married couple filing a joint return. Individuals may also receive up to an additional $500 for each qualifying child. Those with adjusted gross income over a threshold receive a reduced amount
Read More
