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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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Loop Hole or Opportunity? High State Tax Residents Use Nevada and Delaware Trusts to Avoid Tax.

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Category: Taxes

Today’s high net worth individuals are deeply sensitive to the risks they face with state income taxes. Since state income taxes can be such a burden for a wealthy person, more individuals are transferring billions of dollars’ worth of assets to trusts in states without tax, like Alaska, Nevada, and Delaware.

While these moves are currently quite legal, they are getting attention from officials in places like New York. New York officials have recognized a $150 million a year loss from avoiding taxes using out of state trusts. Wise wealth planners are clued in to these kinds of strategies, recognizing that many clients are concerned about the negative hit their assets will take when subject to such taxes. Wealth planners report that more clients are asking for assistance in protecting their money wherever possible, and out of state trusts are proving to be a vibrant market with many opportunities.

Loop Hole or Opportunity High State Tax Residents Use Nevada and Delaware Trusts to Avoid Tax
(Photo Credit: localsmile.com)

Although these transfers are happening at the individual level, they seem to mirror corporation behavior, too. Companies like Google have moved across national borders in order to cut down on the high taxes they are forced to pay if they stay in the U.S. Likewise, some people who want to sell their companies move shares out of home states and into out-of-state trusts to protect gains from state income taxes.

Estate attorneys that are in the know look at every aspect of a client’s portfolio to find the best ways to promote growth and protect from risk. Any client with a substantial portfolio might want to consider this strategy to cut down on the high state taxes that would otherwise be paid. Clients have been successful and satisfied with moving assets across the spectrum from several hundred thousand all the way up to hundreds of millions.

Nevada and Delaware have been engaged in a decades-long battle to get business from wealthy Americans through trusts. Part of the strategy for getting this business is by writing laws that make it simpler to transfer property across several generations and reduce the risk that assets will be attacked by creditors. As a result, Nevada has no state income tax and Delaware doesn’t place a tax on any out-of-state beneficiaries.

One of the most popular strategies is to use a Non-Grantor Trust, known as NING (Nevada Non-Grantor Trust) and DING (Delaware Non-Grantor Trust). Wealthy individuals who live in high-tax states can make the best of friendly policies in other states without the fear of violating any state or federal laws. In fact, a growing number of individuals are moving the assets just far enough outside their control so that they aren’t responsible for state income tax while also protecting them from being hit with a 40 percent gift tax. Most of these trusts are private, so there’s no clear data yet about just how many people are taking advantage of these incredible trust opportunities, but planners and attorneys are both reporting higher numbers of clients getting on board.

The Entrepreneur’s Dilemma: Success Tips For Passing The Family Business On To Children

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Category: Family Business

Owning and operating your own business is an exciting venture, but it can present you with challenges when you are unwilling or unable to continue managing the business. If you are considering passing the company on to your children or grandchildren, make sure you put some time into the planning process so that the transition is as smooth as possible.

Darlingonlinemarketing.com
(Photo Credit: Darlingonlinemarketing.com)

Start Early

The best recommendation for succession planning is to start five years in advance of when you might need an exit strategy. Many people make the mistake of assuming that they will only need to consider this need later in life. With rising numbers of people impacted by a disability, succession planning is something you should consider early. Getting the planning done well in advance gives you room to alter your plan if needed. Throughout this process, keep your family members engaged in the conversation so that relevant individuals understand their role.

Consider Options

While you have many options as a business owner, you should consider the talent of your children and grandchildren in order to decide how they might fit into the bigger picture. It’s critical that you are realistic about this decision. While it’s important for whoever takes over for you to have the passion and interest in running the business, you should also evaluate business skill and potential in making your decision. If you have several children, it may not be feasible for them to each own an equal portion of the company. In this circumstance, you should plan to transfer the whole business to a child who wants to follow you as the owner. Other assets can then be transferred to other children. This may be the most effective move for your business and future family harmony, too.

Plan For Existing Employees

Unless you are the sole person managing a company, it’s likely you have a team behind you. Make sure you have considered what will happen to these employees after you go as well. Will then be incorporated into the transition phase? Are there key employees who could help your children understand the big picture and smaller operational issues as well? Remember that in the event of a major disruption in a company such as the departure of a longtime leader, key employees may not want to stay. Having a conversation with them about your succession plans, as well as providing incentives for them to stay, may be in your best interest. Keeping valuable and knowledgeable employees on the team after you leave will make the transition easier for all and is less likely to cause financial issues for your business.

Train and Document

Once you have decided the best approach for your planning, train those individuals that will play a role at the time of your departure. Keep them clued in to vital issues. Remember that it’s much easier to update your succession planning once it has been documented. Working with an experience estate planning attorney will give you confidence and peace of mind about your decision.

Guarding Against Risk, While Saving on Taxes: Biggest Advantages of Captive Insurance Companies

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Category: Captive Insurance Companies

Captive insurance companies are private insurers that are owned by a parent company. Although a captive insurance company has some of the same benefits of a regular insurance company, captives collect the premiums that a company would have paid over to a regular insurer while taking the responsibility for any claims against the parent company. Captive insurance companies are uniquely situated for certain situations.

saveourpostoffice
(Photo Credit: saveourpostoffice.com)

Manage Risk and Protect Assets

Many businesses have particular needs for risk management because the risk it outside the typical market. In that case, insurance either can’t be purchased or the price is so high that the company is forced to self-insure. In still other cases, the business might have insurance for some risks, but that comes at a cost of premiums and deductibles. This is just the type of risk that sits well with a captive insurance company. Typical general liability insurance seems like a “coverall”, but in reality there are so many exclusions that a business still stands exposed to high risk. That’s where insurance from a captive company can help by filling in the gaps from those exclusions.

Every dollar spent by the company and sent to the captive serves as a $1 reduction in operating business assets. In the event that the business collapses, the company is not at risk of losing those dollars that have been transferred out of company property and over to the captive insurance company. Captive insurance companies are known for accumulating high amounts of assets through reserves and surplus. In certain disaster situations, some of those funds may be available for a business owner. Although a business owner might face some tax consequences of doing so, you can think of those funds as an emergency fund that could be there if you need it. It’s an extra layer of protection that can give a business owner peace of mind.

Exert More Control

Captive insurance companies typically create customized policies for the needs of each specific business. Unlike many commercial policies, policies through captives have the added benefit of drafting the policy in a manner that makes it virtually impossible for third-party claims against the business from being approved. The individualized nature of policies means that protection is aligned directly with business needs rather than generally accepted amounts and terms.

Going through a commercial carrier has another downside: you give up the option to select your own attorney. Defense counsel connected with insurance companies often handle large volumes of cases, taking away that personalized attention for your case. The fact that these counsel handle upwards of 200 cases each year from referrals also calls into question whether that attorney is looking out for your best interests- or the hand that feeds them. Since insurance companies that hire counsel are budget-minded, you also don’t know the quality of attorney you’ll be receiving through the appointment process. With captive insurance carriers, business owners control the captive and therefore maintain control over selection of an attorney.

From a business owner perspective, these few advantages represent big benefits. Guard yourself against risks, protect existing and growing assets, and exercise more control over how things are handle by working with a captive.