Learning Center for Tax and Financial Insights

Article Highlights:Estate Tax ExclusionWhy a Will or Trust?Life-Changing CircumstancesBeneficiaries When was the last time you or your attorney reviewed or updated your will or trust? If it was some time ago before the passage of substantial tax law changes over the past few years, your documents may be out of date. Among the many changes was a substantial revision to the estate tax exclusion. No doubt your will or trust was prepared with not just estate taxes in mind but so that your assets will be distributed after your death according to your wishes. However, certain events besides the tax laws being revised can cause these documents to become outdated.Life’s ever-changing circumstances make estate planning an ongoing process. If you don’t keep your will or trust up to date, your money and assets could end up in the wrong hands. That’s why a periodic review of your will or trust is an essential part of estate planning. Here is a partial list of occurrences that could cause your will or trust to be outdated:Your marital status has changed.Your heirs’ marital status has changed.You have relocated to another state.You’ve had or adopted children.Your children are no longer minors.Your children are now mature enough to handle their own financial matters.Your assets have significantly changed in value.You have sold or acquired a major asset or assets.Your personal representative (executor, trustee) has changed.You wish to delete or add heirs.Your health status has changed.Estate laws have changed.

Article HighlightsOverlooked or Late Information Three Year Refund Statute Multiple Amendments Amending State Return If you discover that you forgot something on your tax return, you can amend that return after it has been filed. The need to amend can include a number of issues:Receiving an unexpected or amended K-1 from a trust, estate, partnership, or S-corporation. Overlooking an item of income or receiving a late or corrected 1099. Forgetting about a deductible expense. Forgetting about an expense that would qualify for a tax credit. These are among the many reasons individuals need to amend their returns, whether it is for the just-filed 2021 return or prior year returns.Here are some key points when considering whether to file an amended federal (Form 1040X) or state income tax return.If you are amending for a refund, you should be aware that refunds generally won’t be paid for returns if the three-year statute of limitations from the filing due date has expired. For example, the statute of limitations for the 2021 return will generally expire on the April filing due date for 2025. Some states have a longer statute. Generally, you do not need to file an amended return to correct math errors. The IRS or state agency will automatically make those corrections. Also, do not file an amended return because you forgot to attach tax forms such as W-2s or schedules. The IRS or state agency will send a request asking for the missing forms. If you are filing to claim an additional refund, we should wait until you have received your original refund before filing Form 1040X. If you owe additional tax, file Form 1040X and pay the tax as soon as possible to limit interest and penalty charges that could accrue on your account. Interest is charged on any tax not paid by the due date of the original return, without regard to extensions.When amending multiple paper-filed returns, send them in separate envelopes. Sometimes when filed together, they are mistaken for a single return, and the additional returns filed in the same envelope are not processed. If the changes involve a new schedule or form that wasn’t part of the original return, it must be completed and included with the amended return. And if there are changed forms, they must be included as well. In addition, it may be appropriate to include documentation related to the changes to avoid subsequent correspondence from the IRS or state agency. A detailed explanation of the changes must also be included. This is required to explain to the government’s processing staff the reason for the amendment. An insufficient explanation can lead to additional correspondence and delays. Depending on why an amended federal return is required, it may be necessary to amend your state return. However, if the federal amendment is filed to claim or correct a tax credit that the state does not have, no state amended return will likely need to be filed. In most other circumstances, we will need to amend the state return as well as the federal.

If you are considering earning money from your hobby, it's important to understand the tax implications. According to the IRS, any income generated from a hobby must be reported on your tax return, but it is not eligible for deductions like business expenses. So how does the IRS determine if your activity is considered a hobby or a business? Watch this video for a brief overview.

Article Highlights:Forgoing Vacation, Sick, or Personal Leave in Exchange for Ukrainian ReliefProgram DurationEmployee and Employer Tax ImplicationsIRS Notice 2022-28There is a little-known disaster provision of the tax code that, where if an employer has adopted a leave-based donation program, the employees can forgo paid vacation, sick, or personal leave in exchange for their employer making equivalent cash payments to qualified charitable organizations. This does not necessarily mean the employee also forfeits the time off; it will not be paid time off to the extent it is converted to leave-based donation payments.Employer leave-based donation payments made by an employer before January 1, 2023, to a qualified U.S. charitable organization to aid victims of the further Russian invasion of Ukraine will not be treated as gross income or wages (or compensation, as applicable) of the employees of the employer. Thus, the employee will not be taxed on the vacation, sick, or personal leave pay given up, but since it is not taxable the employee cannot also deduct it as a charitable contribution.

Article Highlights Filing status Adjusted gross income (AGI) Taxable income Marginal tax rate Alternative minimum tax (AMT) Tax Credits Underpayment of estimated tax penalty When discussing taxes, reading tax-related articles or trying to decipher tax form instructions, one needs to understand the lingo and acronyms used by tax professionals and authors to be able to grasp what they are saying. It can be difficult to understand tax strategies if you are not familiar with the basic terminologies used in taxation. The following provides you with the basic details associated with the most frequently encountered tax terms. • Filing Status - Generally, if you are married at the end of the tax year, you have three possible filing status options: married filing jointly, married filing separately, or, if you qualify, head of household. If you were unmarried at the end of the year, you would file as single, unless you qualify for the more beneficial head of household status. A special status applies for some widows and widowers. Head of household is the most complicated filing status to qualify for and is frequently overlooked, as well as often being incorrectly claimed. Generally, to qualify for the head of household status the taxpayer must be unmarried AND: o pay more than one half of the cost of maintaining his or her home, a household that was the principal place of abode for more than one half of the year of a qualifying child or certain dependent relatives, or o pay more than half the cost of maintaining a separate household that was the main home for a dependent parent for the entire year. A married taxpayer may be considered unmarried for the purpose of qualifying for head of household status if the spouses were separated for at least the last six months of the year, provided the taxpayer maintained a home for a dependent child for over half the year. Surviving spouse (also referred to as qualifying widow or widower) is a rarely used status for a taxpayer whose spouse died in one of the prior two years and who has a dependent child at home. Joint rates are used. In the year the spouse passed away, the surviving spouse may file jointly with the deceased spouse if the survivor has not remarried by the end of the year. In rare circumstances, for the year of a spouse’s death, the executor of the decedent’s estate may determine that it is better to use the married separate status on the decedent’s final return, which would then also require the surviving spouse to use the married separate status for that year. • Adjusted Gross Income (AGI) - AGI is the acronym for adjusted gross income. AGI is generally the sum of a taxpayer’s income less specific subtractions called adjustments (but before the standard or itemized deductions). The most common adjustments are penalties paid for early withdrawal from a savings account, and deductions for contributing to a traditional IRA or self-employment retirement plan. Many tax benefits and allowances, such as credits, certain adjustments, and some deductions are limited by a taxpayer’s AGI. • Modified AGI (MAGI) - Modified AGI is AGI (described above) adjusted (generally up) by tax-exempt and tax-excludable income. MAGI is a significant term when income thresholds apply to limit various deductions, adjustments, and credits. The definition of MAGI will vary depending on the item that is being limited. • Taxable Income - Taxable income is AGI less deductions (either standard or itemized). Your taxable income is what your regular tax is based upon using a tax rate schedule specific to your filing status. The IRS publishes tax tables that are based on the tax rate schedules and that simplify the tax calculation, but the tables can only be used to look up the tax on taxable income up to $99,999. • Marginal Tax Rate (Tax Bracket) - Not all of your income is taxed at the same rate. The amount equal to your standard or itemized deductions is not taxed at all. The next increment is taxed at 10%, then 12%, 22%, etc., until you reach the maximum tax rate, which is currently 37%. When you hear people discussing tax brackets, they are referring to the marginal tax rate. Knowing your marginal rate is important because any increase or decrease in your taxable income will affect your tax at the marginal rate. For example, suppose your marginal rate is 24% and you are able to reduce your income $1,000 by contributing to a deductible retirement plan. You would save $240 in federal tax ($1,000 x 24%). Your marginal tax bracket depends upon your filing status and taxable income. You can find your marginal tax rate using the table below. Keep in mind when using this table that the marginal rates are step functions and that the taxable incomes shown in the filing-status column are the top value for that marginal rate range. 2022 MARGINAL TAX RATES TAXABLE INCOME BY FILING STATUS Marginal Tax Rate Single Head of Household Joint* Married Filing Separately 10% 10, 275 14,650 20,550 10,275 12% 41,775 55,900 83,550 41,775 22% 89,075 89,050 178,150 89,075 24% 170,050 170,050 340,100 170,050 32% 215,950 215,950 431,900 215,950 35% 539,900 539,900 647,850 323,925 37% Over 539,900 Over 539,900 Over 647,850 Over 323,925 * Also used by taxpayers filing as surviving spouse • Taxpayer & Dependent Exemptions - Prior to changes made by tax reform legislation, you were allowed to claim a personal exemption for yourself, your spouse (if filing jointly), and each individual who qualifies as your dependent. The deductible exemption amount was adjusted for inflation annually; the amount for 2022 was supposed to be $4,400. However, the tax reform didn’t quite repeal the exemption deduction – it just suspended the deduction for exemptions for 2018 through 2025. Although there’s currently no exemption deduction, the $4,400 amount is used other place in the tax law. • Dependents - To qualify as a dependent, an individual must be the taxpayer’s qualified child or pass all five dependency qualifications: the (1) member of the household or relationship test, (2) gross income test, (3) joint return test, (4) citizenship or residency test, and (5) support test. The gross income test limits the amount a dependent can make if he or she is over 18 and does not qualify for an exception for certain full-time students. The support test generally requires that you provide (pay for) over half of the dependent’s support, although there are special rules for divorced parents and situations where several individuals together provide over half of the support. • Qualified Child - A qualified child is one who meets the following tests: (1) Has the same principal place of abode (residence) as the taxpayer for more than half of the tax year except for temporary absences; (2) Is the taxpayer’s son, daughter, stepson, stepdaughter, brother, sister, stepbrother, stepsister, or a descendant of any such individual; (3) Is younger than the taxpayer; (4) Did not provide over half of his or her own support for the tax year; (5) Is under age 19, or under age 24 in the case of a full-time student, or is permanently and totally disabled (at any age); and (6) Was unmarried (or if married, either did not file a joint return or filed jointly only as a claim for refund). • Deductions - A taxpayer generally can choose to itemize deductions or use the standard deduction. The standard deductions, which are adjusted for inflation annually, are illustrated below for 2022. Filing Status Standard Deduction Single $12,950 Head of Household $19,400 Married Filing Jointly $25,900 Married Filing Separately $12,950 The standard deduction is increased by multiples of $1,750 for unmarried taxpayers who are over age 64 and/or blind. For married taxpayers, the additional amount is $1,400. The extra standard deduction amount is not allowed for elderly or blind dependents. Those with large deductible expenses can itemize their deductions in lieu of claiming the standard deduction. The standard deduction of a dependent filing his or her own return will oftentimes be less than the single amount shown above.

The United States economy is nothing if not cyclical - which can be a good thing or a bad thing depending on when, exactly, you're trying to operate a business.According to one recent study, roughly 57% of small business owners say that they fear the U.S. economy will only get worse over the last year. Many are worried that if something doesn't change, things could get as bad as they were in April 2020. Keep in mind that many of these small business owners are still very much feeling the impact of the onset of the COVID-19 pandemic that took place during that period of time.But the key difference here is that nobody really saw the Coronavirus - or its long-lasting damage - coming at the time. Indeed, it took virtually everyone by surprise. Now, people have a chance to prepare themselves to hopefully mitigate as much risk from another such event as possible.Your Business and the Economy: What You Need to KnowBy far, the most important step that you can take to help protect and manage your business during an economic downturn involves paying more attention to your cash flow than ever.Cash flow was always one of the biggest reasons why small businesses prematurely shutter their doors and the risk is even greater during the unpredictability of a downturn.Therefore, to keep your business as healthy as possible, you need to do whatever it takes to bring in more income than you're spending on expenses each month. This isn't something you're going to be able to do overnight - it's not like flipping a light switch. You need to talk to your financial professional today to see what you can cut, if necessary, to help create a stable foundation from which to work from.Along the same lines, if yours is a business that keeps an inventory on hand, you'll want to take care to start reviewing your inventory management practices sooner rather than later.