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Happy Belated Tax Day! Use the IRS extension of filing deadline as a tax and estate planning opportunity.

April 18, 2018

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Happy Belated Tax Day! Use the IRS extension of filing deadline as a tax and estate planning opportunity.

April 18, 2018

The IRS will give last-minute filers additional time to file and pay their tax returns after the online payment system used by the IRS crashed on Tax Day, April 17, 2018. The IRS expects to receive 17 million returns this week, along with 14 million extension requests.


Taxpayers who rushed to file yesterday should take advantage of this opportunity to leisurely review their filings and develop a tax and estate planning strategy for the 2018 tax year, when the Tax Cuts and Jobs Act of 2017, the most significant rewriting of the federal tax code since 1986, goes into effect. Below are a few planning tips to consider in light of the changes. 


Review and simplify your current estate plan


The Act increases the estate, lifetime gift and GST tax exemptions from a base of $5 million to a new base of $10 million (indexed for inflation). After taking into account inflation, in 2018, the exemption will be $11,180,000 (or a combined $22,360,000 for a married couple). These increases will only last until the end of 2025. 


As a result, there is an immediate need to review and simplify your previously drafted estate planning documents. Many estate plans are drafted with the primary purpose of providing for the surviving spouse yet require the creation of sub-trusts upon death. A common example is where a decedent leaves a value equal to the exemption in trust for the children, and the remainder to the surviving spouse. With the increased exemption amount, an $11 million estate, left unreviewed, would disinherit the surviving spouse and pass entirely to the children. Sub-trusts should only be used when necessary, as they burden a trustee with a plethora of duties such as tax filings, annual accountings, coordinating with attorneys and beneficiaries, and obtaining a tax-ID number. 


The new laws have likely simplified estate planning for many individuals. You should review, and possibly amend, your existing estate plans to save yourself, or your trustee, from the complexity, time and costs associated with administering an unnecessarily complex trust. 


Use of Pass-Through Entities


The Act implements a new 20% Pass-Through Deduction on Qualified Business Income (“QBI”) available for owners of “Pass-Through entities” to take on their 2018 income tax returns. “Pass-Through entities” include partnerships, limited liability companies, and S corporations.


If you are running a business operating as a C corporation or sole proprietorship, you should explore the use of a Pass-Through Entity as an alternative. 


Qualified Tuition Programs (529 Plans)


Under the old rules, 529 Plans could only be used to pay expenses at colleges and universities. 529 Plans may now be used to cover expenses at public, private, or religious elementary and secondary schools, however distributions to the expanded educational institutions is limited to 10,000 per year per beneficiary.


Contact our office today to discuss these and many other tax and estate planning opportunities. 


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IRS Circular 230 Disclosure: Any discussion of or advice regarding United States tax matters contained herein (including any materials made available for download) does not meet the requirements necessary to be a "covered opinion" as defined in Internal Revenue Service Circular 230, and therefore, is not intended or written to be relied upon or used and can not be relied upon or used for the purpose of avoiding federal tax penalties that may be imposed or for the purpose of promoting, marketing, or recommending any tax-related matters or advice to another party.

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