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If you make gifts, you may have to file a gift tax return
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Are you planning to give sizeable gifts to family members this year? Due to generous provisions in the tax code, you may not owe any federal gift tax, but you still might be required to a file a gift tax return.
Here's a quick review of the basic rules. Despite a common misconception, gift tax is paid by the gift giver, or "donor," not the recipient, or "donee." This applies to gifts of cash, property, and other interests. For 2013 and thereafter, the top gift tax rate is permanently set at 40%, a slight increase from 35% in 2012. However, you may be able to avoid gift tax liability due to two key tax breaks.
* Annual gift tax exclusion
Under the exclusion, annual gifts to a donee valued up to $14,000 in 2014 (the same as in 2013) are completely exempt from gift tax. Note that the exclusion is available for gifts to as many recipients as you choose.
* Lifetime gift tax exclusion
In addition to any amount covered by the annual gift tax exclusion, you can benefit from a lifetime gift tax exemption of $5 million, inflation-indexed to $5.34 million in 2014. However, this exemption is unified with the federal estate tax exemption, so amounts used for gifts will erode the tax shelter available for bequests from your estate.
Generally, you don't have to file a gift tax return, Form 709, for gifts covered by the annual exclusion, but you must file this form if you tap into the lifetime exemption amount. Also, when you make a "split gift" with your spouse, the annual exclusion amount is doubled to $28,000 per donee, but a gift tax return is required even if you don't owe any tax. Furthermore, if you give a gift of a "future interest," such as a transfer of assets to a trust, a gift tax return must be filed in any event.
In some cases, you might file a gift tax return when you're not legally required to. This starts the statute of limitations running on the time the IRS will have to challenge the valuation of the gift. It also discloses the gift for other purposes.
The deadline for filing federal gift tax returns is the same as the one for income tax returns. Thus, if you gave more than $14,000 to a donee in 2013, you have until April 15, 2014, to file the return, but you can apply for an automatic six-month filing extension. Caution: This extension is for filing only and not payment of any gift tax that is owed.
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Are you overlooking this business tax credit?
| | The health insurance premium credit for small businesses has been available since 2010. According to a recent report, many businesses that qualify for this credit have failed to take it.
Even if your business hasn't taken this credit in the past, you may want to look into it this year. For 2014, the credit increases from 35% to 50%. When you qualify, you can use the credit to offset your federal income tax liability by up to 50% of the cost of health insurance premiums you pay for employees.
Three general tests for eligibility are:
* Employing fewer than 25 "full-time equivalent" employees.
* Paying average annual wages of less than $50,000.
* Paying at least 50% of health insurance premiums for those employees.
Each test has specific requirements. For example, you may qualify for the credit, in full or in part, when you have more than 25 employees. That's because "full-time equivalent" is based on hours your employees worked during the year.
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New Business: Health insurance mandate extended again
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On February 10, 2014, the Treasury Department issued rules that will allow certain businesses to delay for one more year the requirement to provide minimum, affordable health insurance to their workers.
Businesses with 50 to 99 employees now have until January 1, 2016, to provide health insurance for employees or face penalties. In order to qualify for this extension, employers must certify that they have not laid off employees in order to come under the 100 employee threshold. Large employers - those with 100 or more employees - must still comply with the health insurance mandate by January 1, 2015.
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Do some planning before tapping your retirement nest egg
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Planning during retirement can be just as important as planning for retirement. Payments from pension plans, social security checks, withdrawals from 401(k)s, income from a part-time job - these become your paychecks. Planning during retirement helps ensure that you remain financially independent.
Two of the biggest financial decisions you're likely to face during retirement are when to start tapping retirement savings and how much to take out. Many people take out too much too soon. It's tempting to look at your 401(k) balance and to start dreaming about those exotic vacations you've always wanted to take or that fancy new car you've always wanted to drive. Slow down. You may be retired for the next thirty years.
That's why it's a good idea to set up a retirement budget. Based on your life expectancy, consider how much you'll need to cover expenses. Will you travel? Will you help a child or grandchild buy a house or pay for college expenses? Also, determine how much you've accumulated and how much that money will grow. A retirement budget can help ensure that you have enough money for the necessities - and for the luxuries.
When should you start taking money out of retirement savings? A good general rule is to withdraw retirement savings only when other sources of income aren't enough. If you can wait until age 70½ before taking money out of 401(k) plans and other tax-sheltered accounts, do so. The longer your money stays in such accounts, the longer you'll enjoy tax-deferred growth.
Whether you're about to retire or have been retired for a while, we can help you consider the implications, including the tax impact, of a withdrawal plan. Give us a call.
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| What's New in Finances: Don't fall victim to Obamacare scams | | The Affordable Care Act (called "Obamacare" by advocates and detractors alike) has become a fertile field for con artists. Here's a sampling of scams currently being foisted on an unsuspecting public.
* Get a new health insurance card or face jail time. It's true that most people are required to purchase health insurance under the new law. But jail time? No. The penalty (in 2014) for failing to buy insurance is 1% of your income or $95, whichever is greater. This is just another scare tactic designed to steal your identity. You're told to sign up for a (totally unnecessary) health insurance card via a website that collects confidential data. Don't fall for it.
* Sign in to my fake exchange. Under the new law, helpers called "navigators" have been given the job of assisting consumers who want to enroll via newly established state websites. Of course, fraudsters know how to set up websites too, even official-looking ones. Again, the goal is to get your personal information. If in doubt, contact your state's department of insurance.
* Young adult? You need our insurance. One provision of the new act allows young adults (under age 26) to remain on their parents' insurance policy. Confusion over this part of the law provides an open door for scammers. If your children meet the age requirements, they don't need to buy a separate policy.
* Don't forget your "death panel" insurance. Obamacare doesn't provide for "death panels" that make end-of-life decisions for seniors. You don't need insurance to protect you from this nonexistent contingency.
* Buy Obamacare insurance over the phone or at your doorstep. If someone calls on the phone or shows up at your front door claiming to be from the federal government, tell them to wait while you verify their credentials. They'll likely hang up or leave in short order. In fact, federal agencies don't make cold calls, send unsolicited emails, or go door-to-door trying to sell insurance or gather personal information.
Want to avoid becoming a victim of Obamacare fraud? Learn about the law. And, as always, keep your personal information under lock and key.
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What's New: myRA pilot program announced
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Watch for details on a new retirement savings account called the myRA. The Treasury Department has been instructed to begin a pilot program for this new savings vehicle by the end of 2014.
The myRA (my retirement account), would let workers open individual retirement accounts with as little as $25 that invest in government bonds. Contributions would not be tax deductible and could be withdrawn at any time without penalty.
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 * March 17 - 2013 calendar-year corporation income tax returns are due. * March 17 - Deadline for calendar-year corporations to elect S corporation status for 2014. * March 31 - Deadline for payers who file electronically to file 2013 information returns (such as 1099s) with the IRS. * March 31 - Deadline for employers who file electronically to send copies of 2013 W-2s to the Social Security Administration.
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Newsletter Policy
This newsletter is designed to present information on business and tax matters in general terms and is not intended to be used as a basis for specific action without obtaining further advice. Please contact your Nohre Account Manager @ 715.834.2225 or 800.960.2225.
Editor: Deb Barquist, Nohre & Co., S.C.
Please forward comments to nohre@nohre.com
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