Our Taxing Times

Bye-Bye, So Long, Farewell...

Okay, I’m really not going any where but I’ll be posting a lot less the next several weeks. I’ll try to do quick posts when I hear about something that needs to be shared. It just depends what I can do between clients or late at night.

Don’t forget you can search Our Taxing Times by using the Google search box to the right and marking to search the blog And the Facebook and Google+ are office pages where I try to post tips.

I will be back.

McIntire Tax Center - on Facebook - on Google+ - or Twitter @ mactax.

Happy Birthday MTC!

It was January 3, 2003, 9 years ago today that I opened my own office (It was McIntire Income Tax Center then). I had worked for someone else for years but his business changed and I was looking for a new job. I was playing with the idea of setting up my own office when I saw this little snowman. It made me giggle and I loved the feeling of freedom. The inscription on the bottom is from Virgil, "Fortune sides with him who dares."

Being independent has brought lot of hard work, frustration, good clients, and independence. But no regrets.

Here's to a new season!

Estate Portability

About a year ago, Congress finally caught up the work they had postponed while campaigning and extended the estate tax deductions which had expired and reverted to 2001 levels. The new law gave each taxpayer a $5 million dollar exclusion (exemption) before the estate tax would kick in. If the deceased estate was under $5 million, they don’t have to file an estate tax return. More than $5 million and the tax is figured on the difference. (Ok, estate and gift taxes are very complicated subjects and so please check with your tax professional. This post is for general info.)

Actually, the law gave $5 million exclusion to each person but $10 million to a married couple. The difference is portability. Joe and Mary are married. In 2011, Joe passes away with only a $1 million estate. He still has $4 million of his exclusion left. In 2012, Mary dies but her estate is $7 million. So, she uses her $5 million exclusion and files a Form 706 (Estate Tax Return) to pay the tax on the remaining $2 million – right? No, since Joe still had $4 million of his exclusion, Mary can use that in addition to her $5 million. She has a total potential exclusion of $9 million. That’s why the exclusion for a married couple is $10 million. The first taxpayer to die can use up to $5 million and the second to die gets what ever is left or $5 million, whichever is higher.

But – for portability to work there has to be a Form 706 filed for the 1^st taxpayer that dies. According to the current instructions for the 706, part 4 line 4, “the executor is considered to have elected to allow the surviving spouse to use the decedent’s unused exclusion amount by filing a timely and complete Form 706.” The Form 706 has to be filed even if the taxpayer would not be required to file it otherwise to preserve portability.

How does a surviving spouse, or their preparer, know when to file a protective portability claim? Well, it might be a good idea to do it every time. In the Joe and Mary example, Joe wasn’t required to file a Form 706. If it wasn’t filed, Mary would have only received her $5 million exclusion. But it would have been clear from looking at Mary’s assets that there was a good chance she would need the extra exclusion. But what about Ken and Barbie who together only have their house, a couple of cars and a few thousand in the bank? If Barbie dies, there would not be any reason to file an estate tax return. But if one isn’t filed, then Ken will only get a $5 million exclusion. He wouldn’t even need that unless there was a major change in his assets after Barbie died. But if he wins a $20 million lottery before he dies, his estate would really like the extra exclusion

This could have a major impact for tax professionals. If Ken and Barbie are my clients and I don’t offer to file the protective Form 706, I would be at risk for Ken’s estate to file a malpractice suit against me. I cost it the tax on an extra $5 million. It doesn’t have to be a lottery win. The surviving spouse could receive an inheritance, a court settlement or have surprise assets that could use the higher exclusion.

I first read about this issue earlier this week and made a note to check into it. But Professor Roger McEowen director of the Center for Agriculture Law and Taxation at Iowa State University presented the Estate Tax section at the Kansas Tax Institute and stressed this issue. His suggestion was file a Form 706 to preserve the portability for everyone. If the surviving spouse doesn’t want to do that, have them sign a release stating that it’s their decision not to file Form 706.

A quick review, the estate tax portability issue only applies to married couples. And it will only apply if both taxpayers die in 2011 or 2012 (the current estate tax extension is only good until Dec. 31, 2012) unless Congress keeps the rule when they deal with estate tax next year. But to protect the surviving spouse, an estate tax return (Form 706) should be filed for the first taxpayer to pass away. Then the second spouse retains the extra exclusion just in case they die while portability is in effect.

A Holiday Question

I finally started getting in the Christmas mood. I was out running errands and saw a star like the Christmas Star I drew as a kid. That did it.

So how about a Holiday question. Just for fun.

What broad profession is featured in so many Christmas stories, movies, and plays? AND.... what are the stories, movies and plays? Not looking for every version, spin-off and remake of an original. Think of everything that gets categorized as "Christmas" and what jobs the characters have.

I'll give everyone a few days and then combine the responses from here, the office Facebook page, and Twitter (mactax).

Have fun!

Security Plan

I go to a lot of tax meetings and workshops and the IRS usually has a presence there contributing speakers and/or brochures or other printed media. At one event a few years ago, I picked up a brochure on creating a security plan to protect client data. Once home, I skimmed the material and put it aside for further study. It has never been seen since nor could I remember the pub number. I tried searching the IRS web site but I must not have been using the right keywords or looked deep enough in to the results. Until yesterday, when I found the new version on the IRS website.

Publication 4557 – Safeguarding Taxpayer Data (download) is a pub that every tax pro should have. As the brochure points out, tax preparation offices are subject to the Federal Trade Commission’s (FTC) Financial Privacy and Safeguarding rules. A tax office needs to take responsibility for taxpayer info in their office. The office should take a hard look at their current security system, create a security plan, and follow the plan.  They should also regularly evaluate the plan and office and update the plan as necessary.

Pub 4557 helps the tax office evaluate their security with a very extensive checklist that covers not only computer and file security but employee issues and reporting requirements when there is a security breach. The pub also contains a list of resources for more info on privacy issues.

In very fortunate timing, the company who does my shredding left a poster when they emptied the bins today.  While mostly a promotional piece, the poster had several statistics concerning data breaches and security. Two jumped out at me. First, 56% of the businesses in the US and Canada don’t have a secure method of document destruction. This leads right into the second statistic; 43% of all data breaches are physical methods like skimming and dumpster diving. We hear about the hackers breaking into a company’s computers and stealing confidential info on millions of people but we rarely think about low tech theft. A taxpayer’s credit and life can be affected just as easily from a document tossed out instead of shredded or burned or even left on a desk where it can been seen by someone else. And don’t forget how much damage an employee gossiping about a client with friends can cause. It might not result in identity theft but it can be damaging in other ways.

Privacy should be a major priority for all tax office. Please use this publication to create a plan for your office (or at least increase your awareness of the problem). We all handle too much sensitive information to leave it to luck.

I Don't Need an Intervention! Do I?

I think I am now on every English language, non-adult or dating social networking web site.

Does that mean I’m addicted to the web? Do I need an intervention? Or, am I, like so many others, trying to use every bit of the internet to connect with others and promote my business?

I spent part of last weekend re-vamping my blog and signing up for new services to help with the blog and my business. When I finished, I decided to create a little cheat sheet of what I signed up for and the usernames and passwords to keep in the desk drawer for when I'm working on the PC. The concept of a small list soon disappeared. Using the master file in 1 Password on the Macbook, I created a spreadsheet of sites, usernames and passwords of social networking and blog related sites that was 25 usernames long. Then I remembered a few more. Then I realized I forgot the actual web sites. Whew, no wonder I’m so confused.

RSS Feed

Please help!

I use Google Reader to keep track of all the blogs I follow. This morning I noticed that this blog had not updated since Friday. The posts for Monday and Tuesday have not shown up. I've deleted and re-subscribed, but still no posts.

Is anyone showing this week's posts for Our Taxing Times in Goggle Reader or other RRS reader? Please let me know so I can track down the problem.

 

Thanks Trish

Taxing Redecoration

Yeah, like you haven't figured it out (unless you are viewing Our Taxing Times through an RSS reader) I've redecorated the blog.

It started simply. I just wanted to add the buttons at the bottom of the post for people to "like" or "re-blog". I thought I had seen it once before but I couldn't find it. To make sure I wasn't mistaken (crazy),  I looked a few other Typepad blogs and saw that it was possible to add the buttons. And while I was spying investigating, I found all sorts of other neat stuff to steal add to my blog.  So, I spent part of my Sunday registering and copying code to typelists and rearranging stuff. Also, I did some behind the scenes optimization work. The old place was starting to look pretty good.  Then finally  I found how to add the"like" chicklets - mission accomplished! I stepped back and looked at my days work and went, "Ew!"

All the little white chicklets stood out against the colored background. For most people. that wouldn't be a problem (and it wasn't when the white was bordered). But it bothered me. It still bothered me this afternoon so I did some changing to the whole blog. I've been in the mood to redecorate something and blog elements are easier to move than furniture and you don't have to clean too.

It's not perfect but I can live with it for a while. I don't think I've ever had such a sedate color scheme. We'll see!

Disasters 2011

Last night I quickly put together a post about casualty losses after reading the Twitter posts from several friends and acquaintances. In my inbox this morning, I found an e-mail from the Global Conference on Disaster Management. Usually this would be deleted with the other conference notices that I’m not interested in attending. However, the topicality and the statistics made this something I wanted to read and to share.

We have had nine disasters this year that have resulted in over $1 billion in damages each. Irene will make it 10. From their e-mail:

Pre-Irene, economic damage from natural disasters in the U.S. exceeded $35 billion this year, according to a National Climatic Data Center report released in August 2011. Those disasters were:

• Upper Midwest flooding (summer): At least $2 billion of damage as of mid-August
• Mississippi River flooding (spring and summer): $2 billion to $4 billion in damage
• Drought, heat wave and wildfires in the Southern Plains and Southwest (spring and summer): Over $5 billion in damage
• Tornadoes (May 22-27): At least $7 billion in damage in central and southern states, including the tornado that struck Joplin, Mo., killing 141
• Tornados (April 25-30): At least $9 billion in damage in central and southern states
• Tornadoes (April 14-16): More than $2 billion in damage in central and southern states
• Tornadoes (April 8-11): Losses exceeding $2.2 billion in central and southern states
• Tornadoes (April 4-5): More than $2.3 billion in damage in central and southern states
• Groundhog Day Blizzard: $2 billion in damage after a massive winter storm dumped snow across the central, eastern and northeastern sections of the country

Thanks to the Global Conference on Disaster Management for their timely info. (Link to their conference website.)