As part of 2017 Tax Act, beneficiaries of inherited IRA’s no longer could take required minimum distributions (RMDs) over their life expectancies. Instead except for spouses and disabled children, they must do so within 10 years. There was a question as to how beneficiaries were to go about removing the funds. Could they wait until the 10th year and remove it all or did they have to take it out periodically. The answer as always is, “it depends”.
If prior to death, the account holder was taking required minimum distributions, then the beneficiaries have to continue taking decedent’s RMDs and close the account in the 10th year. If decedent was taking no RMDs prior to death, then the beneficiary doesn’t have to remove funds until year 10. This means that the money can grow tax deferred creating a larger return over the 10 year period. Unless you have qualified Trust provisions, Trusts must take the funds out within 5 years. So, it is not necessarily good to name your revocable trust as a beneficiary on your IRA.
2025 is inching closer
All of the Trump era tax cuts expire in 2025. One of the primary ones is the Estate Tax Exemption amount was raised from $5 Million per person to $10 Million per person ($20 Million per couple). If you’re estate is above $10 Million, now might be a good time to start making gifts. The IRS has issued guidance stating that if you made gift before 2025, the gift will be honored. (Of course Congress can always change that). There are a number of Trust options available to you to allow you to keep the income from the property and give away a remainder. Also with interest rates jumping up 1000% in 2022 (0.44% to 4.8%) , some planning techniques should be explored sooner rather than later as the Federal Reserve continues to tighten the money supply.
Weed Store Whacked by Tax Court
In San Jose Wellness v. Commissioner 156 TC 4 (2021), the Court ruled that depreciation and charitable deductions made by the business were not deductible.
Section 280E reads:
“No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.”
The Tax Court opined that since marijuana is a controlled substance, that 280E applied to the pot store. Thus essentially, Pot stores are taxed on their gross income.
Remarkably though Pot stores can deduct costs of goods sold however. CHAMP v. Commissioner 128 TC 173 (2007).
Student Loan Forgiveness
While the details are still sketchy, persons earning less than $125,000 may be permitted to have their student loan interest forgiven. The press release mentioned household income. So, it is unclear what that means. However, if a child is not counted as a dependent on your return and files a separate return, and if they earn under $125,000 (for one year when they apply), they get their student loan forgiven up to $10,000 ($20,000 for Pell Grant recipients). So, once regulations are released, you might want to revisit this issue when you consider declaring that recent grad as a dependent. You know, the one who is lounging in your basement.
87,000 New Revenue Agents
If I was Commissioner of the IRS, how would I task that many new agents. My first step would be to task them on processing the backlog of un processed tax returns. My second step would be to institute early intervention into payroll tax deficiencies. Because of the shortfall of agents, many employers fall behind by 9-12 months in their employment tax payments. These can total in the hundreds of thousands of dollars. These small businesses many are corporations or limited liability companies are owned by folks who are not sophisticated in finance. They figure that the IRS can wait, but the landlord can’t. There is one huge nuclear bomb difference. You can walk away from a lease guarantee in bankruptcy or a guaranteed loan, but not a payroll tax debt. That sticks with the owner for ten years as well as anyone who signed a check when the payroll taxes were not being paid. Now they might have a defense that it wasn’t willful but that requires proving a negative. So, I hope that many of the new agents will jump on these payroll tax deficits in the first quarter they are behind. If they do, they will save lots of businesspeople from committing financial ruin and actually perform a service.