|I am writing this letter to apprise you of the estate and gift tax changes in the recently enacted 2010 Tax Relief Act. Before the new law, there was no estate tax for 2010, but some beneficiaries could have faced higher taxes because there were less favorable income tax basis rules. Also, under the prior law, estate and other transfer taxes were scheduled to rise substantially for post-2010 transfers.Overview of the new law.The 2010 Tax Relief Act provides temporary relief. Among other changes, it reduces estate, gift and generation-skipping transfer (GST) taxes for 2011 and 2012. It preserves estate tax repeal for 2010, but in a roundabout way: estates wanting zero estate tax for 2010 must elect that option, along with the less favorable modified carryover basis rules that were set to apply for 2010. Otherwise, by default, the estate tax is revived for 2010,with a $5 million exemption, a top tax rate of 35%, and a step-up in basis. Also, for estates of decedents dying after Dec. 31, 2010, a deceased spouse’s unused exemption may be shifted to the surviving spouse.However, these generous rules are temporary-much harsher rules are slated to return after 2012.
Lower rate and higher exemption for 2011 and 2012.For estates of individuals dying in 2009, the top estate tax rate was 45% and there was a $3.5 million exemption. The top rate was to rise to 55% for estates of individuals dying after 2010, and the exemption was to be $1 million. For 2011 and 2012, the 2010 Tax Relief Act reduces the top rate to 35%.It also increases the exemption to $5 million for 2011 with a further increase for inflation in 2012. But these changes are temporary. After 2012, the top rate will be 55%, and the exemption will be $1 million.
Special tax saving choice for 2010.
The 2010 Tax Relief Act allows estates of decedents who died in 2010 to choose between (1) estate tax (based on a $5 million exemption and 35% top rate) and a step-up in basis, or (2) no estate tax and modified carryover basis. Basis is the yardstick for measuring income tax gain or loss when an asset is sold. With a step-up in basis, pre-death gain is eliminated because the basis in the heir’s hands is increased to the date of death value of the asset. On the other hand, with a modified carryover basis, an heir gets the decedent’s original basis, plus certain increases, which can be substantial. Even so, if the decedent had a relatively low basis and significant assets, some pre-death gain may be taxed when the heir sells the property. These concerns factor into the special choice for 2010. The executor should make whichever choice would produce the lowest combined estate and income taxes for the estate and its beneficiaries. This would depend, among other factors, on the decedent’s basis in the assets immediately before death and how soon the estate beneficiaries may sell the assets.
Gift tax changes.
Years ago, the gift tax and the estate tax were unified-they shared a single exemption and were subject to the same rates. This was not the case in recent years. For example, in 2010, the top gift tax rate was 35% and the exemption was $1 million. For gifts made after Dec. 31, 2010, the gift tax and estate tax are reunified and an overall $5 million exemption applies.
GST tax changes.
The GST tax is an additional tax on gifts and bequests to grandchildren when their parents are still alive. The 2010 Tax Relief Act lowers GST taxes for 2011 and 2012 by increasing the exemption amount from $1 million to $5 million (as indexed after 2011) and reducing the rate from 55% to 35%.
New portability feature.
Under the 2010 Tax Relief Act, any exemption that remains unused as of the death of a spouse who dies after Dec. 31, 2010 and before Jan. 1, 2013 is generally available for use by the surviving spouse in addition to his or her own $5 million exemption for taxable transfers made during life or at death. Under prior law, the exemption of the first spouse to die would be lost if not used. This could happen where the spouse with resources below the exemption amount died before the richer spouse. One way to address that was to set up a trust for the poorer spouse. Now, the portability rule may make setting up a trust unnecessary in some cases. But there still may be other reasons to employ credit shelter trusts. For example, a credit shelter trust may protect appreciation occurring between the death of the first spouse and the death of the second spouse from being subject to estate tax. Such a trust also can protect against creditors. Plus, the transferred exemption may be lost if the surviving spouse remarries and is again widowed.
The estate tax relief in the new law is substantial, but it is temporary. Estate planning to reduce taxes remains an important consideration. Even if taxes are not a concern because an estate is below the exemption level, it is important to have a proper estate plan to ensure that the needs of intended beneficiaries are met. Please schedule an appointment with us to discuss how you and your family can make the best use of the new estate and gift tax rules.
Our services for tax return preparation include these key features:
Same Day and Next Day Service: 98% of my clients can get their taxes prepared and filed within 1-2 business days. (If your taxes require a bit more time, I will give you an accurate estimate of when they will be completed)
100% Accuracy: Every tax filing prepared by my office is reviewed by 2 career tax professionals (myself and a senior team member). We check and re-check every filing to make absolutely sure that it meets our high standards.
“Too Busy to Stop” Drop Service: You’ll love this. If you are short on time, just drop off your documents and we’ll call you when we’re finished. No need for you to wait.
Past 3 Year Refund Review: Bring your past 3 Tax returns and we will review them to make sure that you received your full refund from past filings. You’ll be amazed by how much money is left on the table by other tax preparers. We’ll make sure that you get all that you’re entitled to receive.
Year-Round Assistance: Most tax preparers drop out of sight after April 15th. Not us. We are here to answer your tax questions throughout the year.
Meet with me for your Free 30 Minute Consultation and we’ll review how we can keep more of your hard-earned money in your pocket. We’ll prepare your tax returns and electronically file them. An experienced tax accountant will accurately and professionally prepare your return. During your visit, I will make you 3 promises:
Promise #1: The Biggest Refund Possible: I guarantee that you will get the maximum refund possible. We will not leave any stone unturned and won’t quit until we’re absolutely sure that the IRS will send you the biggest check possible – or you get your money back.
Promise #2: 100% Accuracy: My team and I will expertly handle your return. It will be prepared and filed with ZERO errors. If there are any errors with your return – you get your money back.
Promise #3: World-Class Customer Service: Every single person in our office will treat you as if you are our only client. You will get the type of attentive and efficient service delivered in a 5 star hotel. Our goal is for you to leave our office worry-free and 100% satisfied – if you don’t then you get your money back.
Gift #1: Instant Private Rebate: Stop by our office and file your taxes before February 27, 2011 and we’ll take $29 off your tax preparation fees.
Gift #2: Free Report: I will send you my special report “how to drastically reduce your taxes by as much as 65% this year alone and put thousands back in your pocket”.
SK Financial’ “Tell-A-Friend” Program!
For every referral we will send you $23 cash in mail. Along with the $23 Cash bills in the mail, we giveaway special BONUS gifts for 3 or more referrals. The person you referred will get $29 off from the tax preparation fees.
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Free Business Check-Up
We are so convinced in our superior approach that we invite all prospective clients to come visit our offices and undergo our free no-obligation “check-up” of your business or individual health. We certainly believe that knowledge has a liberating power and sometimes even knowing what the possibilities are, can lead to meaningful change in your personal or business financial health.We encourage you to call us and make an appointment and see for yourself the difference a perspective can make
|Last Updated on Friday, 02 November 2012 20:30|