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Important IRS Update: Significant Interest Penalty Increase for Tax Underpayments
The Internal Revenue Service (IRS) has recently announced a critical change that could significantly impact taxpayers who underpay their taxes. This update is particularly relevant as we approach the next tax filing season. Previously, the IRS charged a 3% interest penalty on estimated tax underpayments. However, this rate has now been increased to a substantial
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Will Inflation Hurt Stock Returns? Not Necessarily
Investors may wonder whether stock returns will suffer if inflation keeps rising. Here’s some good news: Inflation isn’t necessarily bad news for stocks. A look at equity performance in the past three decades does not show any reliable connection between periods of high (or low) inflation and US stock returns. Since 1993, one-year returns on
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Maximize Your Charitable Impact with These Four Strategies
As the year draws to a close, it’s a perfect opportunity to rethink how you give to charity. This is important for managing how much tax you pay and how much help reaches those in need. Here are four effective strategies: Need Guidance? Reach Out to Us! These strategies are just a starting point. There
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Estate Planning for Non-Citizen Spouses
When one or both spouses in a married couple living in the United States are not citizens of the United States, special planning may be required to avoid hefty tax consequences for transfers during lifetime or at death of the spouses. This is because Gift and Estate tax laws treat non-citizens (permanent & temporary residents) residing in the United States differently than citizens.
Because the taxation system regards both spouses in a married couple as one, a spouse who is a citizen can receive unlimited tax-free transfers of assets & property from his or her spouse. This is known as the unlimited martial deduction. However, the rationale for treating non-citizens spouses differently is the government’s concern that a non-citizen spouse will receive this wealth without having been taxed and then subsequently move out of the U.S. and/or transfer it where it may never be taxed by the U.S. government. Therefore, this marital deduction is not an option for non-citizen spouses.
Here are some commonly used techniques to consider when trying to replicate the benefits afforded to citizen spouses to non-citizen spouses:
– Equalize the Estates for both spouses during their lifetimes. Although the amount changes every year to adjust for inflation, in 2009 a spouse may transfer by gift up to $133,000 of property to her non-citizen spouse without incurrence of a gift tax. This amount should be used to “even up” each spouse’s estate if the value of assets titled in each of the spouses names spouses is not even.
– Maximize the Estate Tax exemption. In 2009, upon his death, a spouse may transfer to his non-citizen spouse an amount up to the amount of the federal estate tax exemption amount without triggering the federal estate tax. Note that while this exemption amount is $3.5 million for 2009, the legislature is reportedly currently acting to either make this amount permanent or to reduce it.
– Use of a QDOT Trust. In addition to giving a non-citizen spouse the option to disclaim or “pass” on what he may be getting by including a disclaimer trust, a Qualified Domestic Trust or QDOT may also be used to postpone the estate tax when more than the amount of the personal federal estate tax exemption is left to a non-U.S. citizen spouse by the other spouse. This option allows flexibility for citizenship changes of the surviving spouse, law changes after death, and a re-evaluation of financial circumstances.
In conclusion, although Estate & Gift tax laws are intended to treat citizen spouses differently that non-citizen spouses, the implementation of available techniques with careful planning can produce favorable results under the current law while retaining flexibility for changing circumstances.