Harless Tax Blog

Harless Tax Blog

The Argot of Trusts, as Told in Acronyms

Monday, April 14, 2014

NING, Ding, Grat. Ilit, Crat, Crut, Qtip. And for those with short memories, Slats. [Source: NYTimes.com]

Is this code? The output of a broken keyboard? No, they’re acronyms that are commonly bandied about when discussing trusts. Always a rarefied space, the world of trusts is now awash in Washington-style shorthand. Unlike with that alphabet soup of government agency jargon, spelling out the names of these acronyms does not necessarily make it clear what the trust does. A Grat, for example, is a grantor-retained annuity trust, but it has nothing to do with annuities or insurance of any kind.

“I know a lot of very sophisticated people who are intimidated by these very same acronyms,” said Daniel D. Mielnicki, head of wealth preservation at Berger Singerman, a Florida law firm. And that feeling, Mr. Mielnicki said, prompts a flight response. “When in doubt,” he said, “their response is going to be no.”

Saying no won’t hurt most people. After all, most people do not have the kind of wealth or complicated assets that require a trust. On the other hand, the people who could benefit from a Ning or a Crat may not realize what the risks are or how much money and time need to be put into creating one to make it worthwhile.

“These complicated trust structures are not for everyone,” said Suzanne L. Shier, wealth planning practice executive and chief tax strategist at Northern Trust. “You don’t want to overplan for someone. They need to understand the amount of planning that is appropriate for their wealth levels and planning goals.”

Once a relatively straightforward legal structure to hold and transfer assets among the generations, trusts have grown in complexity along with the tax code they can shelter assets from and the financial instruments and investment vehicles they hold. Yet their very complexity means they carry the added risk of scrutiny from the Internal Revenue Service or of just not working as planned.

“If there is a risk of an audit of tax returns, the client has to be aware of that,” said Gail E. Cohen, vice chairwoman and general trust counsel at Fiduciary Trust. “You need a very skilled practitioner doing your gift tax return.”

So what are these oddly named trusts and what do people who need them need to know?

Grats are a way to transfer the appreciation of an asset, above a currently small interest rate, to a beneficiary tax-free. They are often used for closely held businesses or stock in a company that is about to go public. Their power comes in having a duration as short as two years.

“What you need to do is identify two to three assets that will pop in value,” said Daniel L. Kesten, a law partner at Davis & Gilbert. “The perfect Grat investment is a $10 Mega Millions ticket. The Grat has to pay you back $5 for two years. If it wins $100 million, all but $10 will pass to children free of gift tax.”

Read Full Story on NYTimes.com >>

What You Can Deduct on Your Taxes this Year

Tuesday, April 08, 2014

It's getting down to the wire and your taxes are due soon. You don't want to miss out on important tax credits and deductions that can save you money. Sharon Epperson talks to Elda Di Re, a partner and tax leader at Ernst & Young, about retirement plan contributions, job-relaxed expenses, charitable donations and other tax moves that can help filers save money, even in the 11th hour. This article and video from CNBC.com gives you eight way you can deduct and save money on your taxes.

With time running out to file your 2013 tax return, you want to make sure you're on top of the available deductions to maximize your tax savings.

Taxpayers may be aware of numerous tax breaks, but depending on your income, many deductions may no longer be as valuable—or you may be ineligible entirely.

Due to recent tax-law changes, anyone with an adjusted gross income above $250,000—for a married couple filing jointly, it's $300,000—will face a limit on itemized deductions that could thus limit their potential tax savings for the 2013 tax year. In addition, many upper-middle-income taxpayers who face the Alternative Minimum Tax—a higher tax than their regular income tax—will not be able to claim deductions that may be allowed on a regular tax return, according to tax analyst Mark Luscombe of CCH, part of Wolters Kluwer.

Still, there are money-saving tax deductions and other strategies that you may be able to take advantage of, no matter how much you make. Here are eight ways to save:

  1. Moving-expense deduction. If you moved to take a new job due to a change in your job or business location—and paid for the move out of pocket—you may be able to deduct your moving expenses.

    "Local moves don't apply. If you just moved to the other side of town, you won't be eligible" for this tax break, Luscombe said. If it's your first job, your new workplace must be at least 50 miles away from your old home to qualify. Other time and distance tests are required if you are moving to a new job.

  2. Capital loss deduction. The stock market had a very strong year in 2013, but some of your investments may not have fared as well. If your capital losses were more than your capital gains, you can claim a capital loss deduction of your total net loss up to $3,000, reducing your income dollar-for-dollar.

  3. Medical, dental expense deductions. Guidelines for tax-deductible medical expenses changed because of the Affordable Care Act. Your unreimbursed medical expenses must exceed 10 percent of your adjusted gross income to qualify for a deduction. That's up from 7.5 percent in the 2012 tax year.

    However, the lower 7.5 percent threshold still applies for people age 65 and older until the end of 2016. Typical expenses may include unreimbursed medical and dental bills, equipment costs and medical supplies and devices.

  4. Health savings account. If you're covered by a high-deductible health plan, you may be able to set up a health savings account by April 15 and contribute up to $3,250 if you're single and $6,450 for families to the account. Contributions to the HSA will lower your taxable income dollar-for-dollar. Plus, contributions, earnings and withdrawals are tax-free when used to pay for qualified medical expenses.

    If you have a small business or are self-employed, you have even more ways to reduce your tax bill.

  5. SEP IRA. If you're a sole proprietor, business owner or earn self-employment income, you also have until April 15 to set up and contribute to a SEP IRA for the 2013 tax year. You can contribute up to 25 percent of your compensation—or 20 percent of self-employment income—up to $51,000 in this account.

    Like a traditional IRA, "if the SEP-IRA contribution is made before the filing due date of your return, it is deductible on your 2013 tax return," said Elda Di Re, a tax expert for Ernst & Young.

  6. Home-office deduction. If you're self-employed and work out of your home, there's a new option for claiming a deduction for a home office. Your deduction is based on the size of your home office, using a simple calculation: Deduct $5 for every square foot of work space used—up to a maximum of 300 square feet. So the maximum deduction is $1,500.

    You can still calculate the home-office deduction the old way, figuring related expenses and how they may apply over the course of the year to a home office, but the new way is a lot simpler.

  7. Health insurance premium deductions for self-employed. Business owners and self-employed taxpayers may be able to deduct health insurance premiums, as long as they aren't already covered under their employer's or spouse's employer's plan.

  8. Business-expense tax deductions. If you're self-employed, a contractor or sole proprietor, you may be able to deduct qualified business expenses related to your work. Also, "if you are expending monies which are not reimbursed by the partnership, you can take those business expenses directly against your partnership income," Di Re said.

    The IRS requires eligible business expenses be "ordinary" (something common and acceptable in that particular business) as well as "necessary" (something appropriate and helpful to the business). But Luscombe noted that taxpayers should keep in mind that "business expense deductions can only be taken once, either on your individual income-tax return or a separate business tax return—but not on both."

Is it Time for Long Term Care Coverage?

Friday, March 07, 2014

By Caroline Harless and Wes Littlejohn, Peachtree Capital Corporation

Risk management is a key step in the financial planning process and protects your assets from being depleted in the event of an accident or decline in health. With proper planning, you can protect your assets and family from unforeseen events. One facet of risk management that many people overlook until it's too late is long-term care insurance.

Know the facts:

  • Currently, 70% of people who are age 65 and older will be unable to complete at least two activities of daily living over his or her lifetime.
  • The average national cost per month for an assisted living facility is $3,300.
  • The average national cost per month for a private room in a nursing facility is $7,000 while a semi-private room is $6,300.
  • Medicare does not currently pay for custodial care. It pays only for skilled care in very limited circumstances.

The long-term care (LTC) marketplace's reputation has been tainted by unstable pricing and carriers exiting the marketplace. Over the past two years, however, insurance companies have developed additional products that offer more stability and options for our clients, depending on their current circumstances and planning objectives. At Peachtree Capital Corporation, our job is to design a personalized solution that possesses flexibility while optimizing your costs/ benefits.

A quick glance of the products:

1. "Traditional"/ Stand Alone LTC

  • "Use it or lose it" policy
  • Annual premium structure
  • Most LTC coverage per dollar of premium
  • Policyholders have experienced substantial premium increases over the years and carriers exiting the market

2. Hybrid or "Linked Benefit" LTC

  • Combination of traditional LTC and life insurance
  • Most commonly funded with a single premium
  • Provides rate stability, principal protection, LTC benefit as well as supplemental life insurance coverage.

3. Life Insurance with LTC rider

  • LTC coverage equal to the death benefit
  • Flexible premium structures
  • Ability to turn LTC benefits "on" and "off" for multiple uses
  • Indemnity LTC rider allows benefits to be paid directly to policy owner

We are encouraged by the marketplace's recent developments, as they provide greater flexibility, higher plan certainty and more consumer-friendly features. We continue to objectively monitor the long-term care landscape for our clients and welcome the opportunity to do the same for you.

Caroline Harless is President of Peachtree Capital Corporation Wes Littlejohn is a Vice President of Peachtree Capital Corporation

FAQ: Conceirge Services

Thursday, February 13, 2014


  1. What if I need your concierge services after business hours?
    We are available 24/7/365 to meet your need.
  2.  
  3. How are you concierge services different from other concierge services?
    The State of Florida has mandated that we be Insured and Bonded. We also have a Fiduciary responsibility to you, and a strict code of Ethics we must follow or we could loose our ability to work in the state.
  4.  
  5. How do I know I will be getting the best service person to be doing work in my home?
    We solicit a minimum of 3 bids for every job and then sit down with you to help decide which is the best for the job at hand.
  6.  
  7. Will I get the best price available, no matter what my financial status (I am getting tired of being gouged due to my finances)?
    Not only do we solicit 3 bids, but the state of Florida prohibits us from receiving any compensation from those suppliers that we work with. Everything we do is 100% transparent.
  8.  
  9. While I do not have a yacht or airplane for you to help maintain, I do have an aging parent. How can your concierge services help me here?
    We work with the top Nursing Agencies in the area for in home services along with some of the best facilities for the aged, depending on your parent's needs. We also have on staff a State Certified Senior Advisor who is current on all the new laws protecting seniors.
  10.  
  11. What if my schedule is very full, and I really don't have time to wait for a roofer, electrician, plumber, etc. to come out to take care of my problem?
    EXACTLY, that is what we are for. Once we have a service contract, we will be on site to make sure the service is done correctly, on time, and on budget. No need for you to sit home and wait. we are here to make your life easier.

CNBC: Congress letting 55 tax breaks expire at year-end

Thursday, January 02, 2014

Wondering which of the 55 tax breaks that are expiring at the end of 2013? Here's an informative article about these expiring tax breaks.  Caroline Harless

In an almost annual ritual, Congress is letting a package of 55 popular tax breaks expire at the end of the year, creating uncertainty—once again—for millions of individuals and businesses.

Lawmakers let these tax breaks lapse almost every year, even though they save businesses and individuals billions of dollars. And almost every year, Congress eventually renews them, retroactively, so taxpayers can claim them by the time they file their tax returns.

No harm, no foul, right? After all, taxpayers filing returns in the spring won't be hurt because the tax breaks were in effect for 2013. Taxpayers won't be hit until 2015, when they file tax returns for next year.

Not so far. Trade groups and tax experts complain that Congress is making it impossible for businesses and individuals to plan for the future. What if lawmakers don't renew the tax break you depend on? Or what if they change it and you're no longer eligible?
"It's a totally ridiculous way to run our tax system," said Rachelle Bernstein, vice president and tax counsel for the National Retail Federation. "It's impossible to plan when every year this happens, but yet business has gotten used to that."
What to expect from DC in 2014?
CNBC's John Harwood shares his predictions for the budget and the Obama administration in 2014.
Some of the tax breaks are big, including billions in credits for companies that invest in research and development, generous exemptions for financial institutions doing business overseas, and several breaks that let businesses write off capital investments faster.

Going, going ... a number of tax deductions set to expire

Friday, December 13, 2013

posted by Caroline Harless

The New Year will bring with it both new taxes and expiring tax breaks that could affect anyone from a small business owner to a wealthy individual or teachers and retirees. Before the end of the year, it is vital that you find out what tax changes will be made in 2014 and plan accordingly. This could mean that now is the time to make some large business purchases, donate to charity or sock it away into your IRA … before it’s too late. Check in with your tax accountant this month about what expiring tax breaks will mean to you. 

Seniors and the Changing Health Care Climate

Thursday, October 24, 2013

Seniors and the Changing Health Care Climate
By Donna Holm, CPA, MST

Since 2010, there has been plenty of, sometimes confusing, news about the Affordable Care Act (“Obamacare”), a complex piece of legislation to say the least. However, few seniors know how they will be affected. In the last election, 73 percent of seniors considered this to be a major issue. This is the largest piece of legislation to affect the Medicare structure since the enactment in 1965, which also had a significant impact and its share of controversy at the time. 

As you watch the news every night and see stories about the problems with the health insurance exchanges in “The Market Place,” relax. This doesn’t apply to those over age 65. The Affordable Care Act (ACA) will actually attempt to give seniors more control over their health care. However, currently this is what seniors can expect:
•New Medicare enrollees get a no-cost “Welcome to Medicare” wellness visit with their
doctor. It is not a complete physical, but rather a conversation about your medical
history and about steps that can be taken to maintain your health. In addition, the doctor
is supposed to discuss your legal advance directives. It has been said that more than 82
percent of seniors in this country have not addressed these issues. This applies to
Medicare and Medicare Advantage (Part C) enrollees. Education is the key here.
• Certain preventive services, like mammograms or colonoscopies, will be covered and you
won’t have to pay any coinsurance or deductible under Medicare (about 15 services). 
• The Medicare Part D “donut hole” for your prescription drug coverage will be eliminated
by 2020. If you spend enough on prescriptions to reach the donut hole (where you begin
to pay out-of-pocket), you will begin to receive a 50 percent discount on brand-name
prescription drugs. You should receive the discount automatically at your pharmacy
without action on your part. In 2013 the donut hole was between $2,970 and $4,750. In
2014, expect a 4.6 percent decrease. 
• Some funding will be provided to promote home- and community-based long term care
options to allow seniors to age in place. 
• Funding will be provided to implement the Elder Justice Act to help prevent and eliminate
elder abuse, neglect and exploitation. In addition, regulations will be put in place to
improve the quality of care in nursing homes, including a nationwide program for
background checks. 

Medicare was originally predicted to be bankrupt by 2016; the new provisions will extend this date to 2024. Essentially, the ACA slows down the spending growth rate. As baby-boomers age, 11,000 people are turning 65 each day, a significant burden to the Medicare system. Couple this with a reduction in population, fewer children born and the concurrent decline in the work force contributing to the fund, and one can see why reform was needed. According to the Kaiser Family Foundation, Medicare spending was expected to grow at an average annual rate of 6.8 percent between 2010 and 2019. With the ACA savings, the growth rate will be slowed to 5.5 percent annually and will be held steady with further reductions if needed. The anticipated $716 billion in savings over this period will be derived from:
 Reduction in Medicare reimbursements to hospitals because hospitals should strive for productivity increases due to technology (35%)
 Reduction in payments to hospitals for seeing uninsured patients, because ACA should reduce the number of uninsured (5%)
 Reduction in payments to home care providers (8%)
 Reduction in payments to Medicare Advantage plans, thought to be a huge contributing factor to the insolvency problem costing 14% more per beneficiary than traditional Medicare (34%)
 Reduction of fraud and abuse in the Medicare program (16%)

The new Independent Payment Advisory Board (IPAB) made up of 15 medical experts appointed by the President and approved by the Senate will oversee the ACA. The Board will be prohibited by law from increasing revenues or co-pays, changing eligibility or altering benefits. Given the current political climate, this could all be problematic. 

The downside of all of this is that many of the spending reductions will directly impact Medicare providers. Physicians are facing a significant reimbursement reduction beginning in January 2014. This might lead to a significant reduction in providers willing to provide care for Medicare patients at a time when the population is aging at a record rate; a potential tsunami on the horizon. That discussion is currently being heard at the American Medical Association, and Americans will have to stay tuned. 

To summarize, the ACA provides new benefits (preventative care) and corrects some deficiencies in existing laws (the “donut hole”). The ACA also implements new taxes to extend the solvency of Medicare while providing new restrictions on future spending and program efficiency. Note that this discussion concerns traditional Medicare. If you have an Advantage Plan (Part C), you may still be forced to the market place or at the very least, be sure to review plan changes carefully. For the most up-to-date information, refer to www.MyMedicare.gov for the e-handbook.

Donna Holm, CPA, MST is an Associate with Harless & Associates. 

It’s time to establish your Safe Harbor 401(k) Plan!

Tuesday, September 03, 2013

By Caroline Harless and Wes Littlejohn, CPA

The deadline to set up a Safe Harbor 401(k) is approaching – for this year it is October 1. If you are a business owner with highly compensated employees that would like to maximize their 401(k) contributions, you may want to consider a Safe Harbor 401(k) Plan.

In many companies, Highly Compensated Employees (HCEs) might desire participating in a retirement plan to which they contribute the maximum annual deferral amount – this is $17,500 or $23,000 for those aged 50 and older.  At the same time, Non-Highly Compensated Employees (NHCEs) might prefer to contribute at a lower rate. This can be a problem because the plan must pass discrimination testing that helps NHCEs benefit as much as HCEs.

A Safe Harbor 401(k) Plan makes it easier for the business owner and HCEs to contribute the maximum amount regardless of what other employees chose to do.  Here are the common options:
  1. The simplest and most commonly used option is the non-elective contribution of 3% of annual compensation for everyone.  
  2. The Safe Harbor also allows for matching contributions as an alternative under acceptable formulas.

The Safe Harbor Plan has numerous advantages over traditional 401(k) plans for business owners. It helps to satisfy non-discrimination testing because it stipulates that the business owner contributes to the 401(k)s of both the employees and the business owner. With a traditional plan, HCEs can only contribute 2% more than the average contribution, but with a Safe Harbor Plan, what other employees are contributing is irrelevant. Contributions are still completely tax deductible.

It is important to note that businesses must contribute to employee and owner 401(k)s throughout the year, so the funds to do this must be readily available. If year-round contributions make sense for your business, then a Safe Harbor 401(k) Plan might too. This type of retirement plan is ideal for small business owners who want to contribute at a maximum and at the same time, keep employee costs down.

If you are interested in setting up a Safe Harbor Plan, talk with a tax accountant soon to make sure you have everything in place before the 2013 deadline.

Caroline O. Harless is a General Partner of Harless & Associates as well as the co-founder, president and CEO of the affiliated financial services firm, Peachtree Capital Corporation.

Wes Littlejohn, CPA serves as Vice President of Peachtree Capital Corporation and is a CERTIFIED FINANCIAL PLANNER™ practitioner.