Don’t Forget About State Estate & Inheritance Taxes

The federal “death tax” may or may not rise from the dead in 2010. However, Washington State may double its state estate tax to 38% for estates at or above $9 million. Will other states follow this year?

Washington state proposes ‘shocking’ estate tax changes

The Washington state Legislature has proposed a bill that would double the estate taxes for residents.

Currently, there is a $2 million exemption in that state, with a 10% tax that climbs up to 19% at $9 million and above. Under the proposed law, the range would jump to a 20% estate tax for more than $2 million, up to 38% at the $9 million mark.

If the latest proposal is enacted, 2011 could be a costly year for some Washington residents: Assuming that the federal estate tax, which lapsed at the end of 2009, comes back next year with a $1 million exemption at 55% as scheduled, Washington residents could be paying in excess of 75% in estate taxes, experts said.

“This is shocking and disturbing, and has very significant ramifications for the majority of our clients,” said Tom Gores, a partner in Perkins Coie LLP, a law firm with offices in Seattle and Bellevue, Wash. “We are contacting our state representatives to make sure they understand this.”

Already, a number of wealthy clients are discussing leaving the state due to the high estate taxes, and this number will only increase, said Dean Butler, an attorney at Carney Badley Spellman PS. The bill, HB 3184, was proposed Feb. 13 and has not yet been scheduled for a hearing, said Rick Person, a coordinator for the House Finance Services Committee. The legislative session ends March 11.

Small businesses already are planning to lobby against the bill. “Our greatest concern is that this bill is another threat to small businesses at a time when so many of them are still just holding on,” said Jocelyn McCabe, a spokeswoman for the Association of Washington Business, which represents 6,900 state businesses.

Experts predict that given the number of states with growing deficits, Washington won’t be alone in proposing such legislation this year.

For financial advisers, this means that it’s more important than ever to pay attention to what’s going on locally, said Gail Cohen, head of global wealth management at Fiduciary Trust Company International. “Don’t assume that just because there is no federal estate tax, there won’t be any estate tax at all,” she said.

Source: http://www.investmentnews.com/apps/pbcs.dll/article?AID=/20100216/FREE/100219915

There are currently 14 states and the District of Columbia which have state estate taxes. You can click here to see a chart of the states and the exemption amounts. Did you know that 7 states have an inheritance tax? Click here for a chart and be glad your state is not listed!

Washington Reforms Health Care And Taxes

Tax Attorney Ed Lyon comments on Sunday’s healthcare reform bill and how it could affect your tax bill and your clients’ tax bills.

Did you hear the reconciliation bill “adds a 3.8% ‘Unearned Income Medicare Contribution’ on investment income – specifically, interest, dividends, annuities, royalties, capital gains, and rents – for taxpayers with Adjusted Gross Income above $200,000 individuals and $250,000 families”? I wonder if AARP signed off on that little detail?

Washington Reforms Health Care And Taxes

Sunday’s night’s health care bill will go down as one of those once-in-a-generation accomplishments. I’m not here to debate the merits of the bill – historians will still be doing that decades from now. But it’s important to point out some important tax changes included in the bill and the companion “reconciliation” bill now before the Senate. (Just how important are they? Well, the Congressional Budget Office says the IRS will need $10 billion and 17,000 new employees to enforce its share of the new rules!)

Here are some of the key tax provisions:

• Starting immediately, certain small businesses with less than 10 employees will get a 35% credit for the cost of providing employee health benefits.
• Starting in 2011, employers will have to report the value of health benefits on Form W2.
• The penalty tax for Health Savings Account distributions not used for health care expenses doubles from 10% to 20%. This will discourage using HSAs for supplemental retirement savings.
• Starting in 2013, the 7.5% floor for deducting medical and dental expenses climbs to 10% (unless you or your spouse are 65 or older, in which case it remains at 7.5% until 2016).
• Healthcare flexible spending account contributions are capped at $2,500 per year.
• Starting in 2014, businesses with more than 50 employees will have to offer heath benefits or pay a penalty of $750/employee.

The reconciliation bill includes one more unwelcome surprise. Currently, the Medicare tax is limited to 2.9% of earned income. The reconciliation bill imposes an additional Medicare tax of 0.9% on earned income above $200,000 (individuals) or $250,000 (families). It also adds a 3.8% “Unearned Income Medicare Contribution” on investment income – specifically, interest, dividends, annuities, royalties, capital gains, and rents – for taxpayers with Adjusted Gross Income above those same thresholds. Those new levies would take effect in 2013.

The complete bill is 1,018 pages, so it’s going to take some time to analyze. But we’ll be paying close attention as details become available. In the meantime, call us with any questions!

Remember that the Reconciliation Bill still needs to pass the Senate. Democrat Senator Ben Nelson announced he will vote “No” because of the Medicare tax on unearned income. Let’s wait and see what happens. To learn more about Ed Lyon’s tax coaching solution go to www.taxcoachsoftware.com.

“For Good and Evil: The Impact of Taxes On the Course of Civilization” by Charles Adams

Today being March 15th, let’s celebrate “Tax Day” for corporations in America by taking a look at a wonderful book on the impact of taxation on throughout recorded history.

Charles Adams’ book helps us understand why historical events happened and offers many lessons to us today. Some simply are facinating:

• The Rosetta Stone’s words were literally written in stone to memorialize tax exemption for priests and were found in all temples.
• Egyptians taxed cooking oil at 20% and scribes “made regular inspections of all kitchens to make sure wives were not using free drippings in place of the taxed oil they were required to use.”
• Queen Elizabeth I once said, “To tax and to be loved is not given to man.” She chose to be loved by her subjects and “to accept what revenue they were willing to give her.” No oaths, no inquisitions, and no coercion. Yet when the need arose, she was given the tax money to defeat the Spanish Armada and position England to become a superpower.
• The Spanish Empire collapsed for the same reason as Rome: farmers were taxed heavily and civil servants were tax exempt. So farmers naturally quit farming to take government jobs.

You’ll also see why the power to tax and the power to spend should not be held by the same branch of government be it the King, the Parliament, or the Congress. For instance, Queen Elizabeth had the power to spend money on the army and navy but only Parliament could authorize new taxes.

This book should be required reading for all Congressmen. Why keep making the same tax policy mistakes which have plagued countries in the past?

Advisor Marketing: Taking Public Positions on Tax Increases

In this short video, Richard takes you into the “voting booth” and votes against 2 tax increases on the ballot in Oregon. What does this have to do with advisor marketing success?

Remember in most elections candidates and ballot measures win 51% to 49%. So whenever you take a public stand on a political matter you’ll likely to get half the voters mad. Your marketing mindset should tell you not to get your clients and prospective clients hopping mad with something you say!