Categorized | Tax Talk

Listen to this weeks Tax Talk with the 6 bullets Your Simple Will Can’t Dodge.

Patrick: And welcome to Tax Talk. We’re actually looking for ways to help you save taxes on your money. I’ve got Jeff Pickering CPA, Master’s in Taxation, on the air today as well as Rex Hogue, an Attorney in the North Texas area.
Today, we’re going to be talking about and giving you answers on this attack of the IRS this last week. Audits are going up. Some people will be paying more taxes while the government has no estate tax. Now, that’s a twister. And then, we’ll also be reporting on the escape from New Jersey. You won’t want to miss that. Jeff, I know we’ve got some deadlines coming up this month?
Jeff: Definitely. The tax world is definitely deadline driven. So, we have our deadlines at the end of this month. We got W2s, W3s, 1099s, 98s and 96s due to the IRS on February 28th.
March 15th, calendar year corporations have to file an extension March 31st. If you’re interested in buying the hybrid, the Ford Hybrid or the Mercury Hybrid, March 31st is your last day to buy it and get that $750 credit.
You know, I just found out that they’re coming out with an electric vehicle also. Who’s putting that out? GM, I think. It has a plug-in and that’s going to have a $7,500 credit on it. So, that’s coming out later this year.
But, April 15th, individuals, partnerships, trusts, property tax renditions. If you are in business at all, you’ve got your personal property tax renditions due on April 15th as well as everything else. And the first payment, if you’re making quarterlies, your first quarterly payment is due April 15th.
Patrick: Outstanding. I know that a lot of people want to call in, so let me give you the numbers. It’s 214-78-1570. We will be taking your calls. 214-787-1570. If you’re outside the DFW area, 800-583-1570 or if you’re on a Sprint phone, it’s #KLIF.
Well, I know that it’s been in the news all week, but maybe we can just add some finishing understandings of this attack of the IRS. In Austin, we had a guy fly into a building. At first we were thinking, “Oh, my God. More terrorism.” But now, it wasn’t just that. It wasn’t terrorism, but it was a real attack and he could’ve alleviated some of his frustrations by just talking to you, Jeff. Wouldn’t that be correct?
Jeff: You know, I would’ve loved to have talked to this person before he did this thing. So, he ran into the IRS building as we know and he made a huge tirade on his website, and he talked about his tax issues with the IRS.
His main issue was really about the independent contractor status. He failed to report income and they caught him through the document matching process because the IRS has computers and they expect income to be reported.
His wife, apparently, made some income as well and it wasn’t reported. He believed that since he didn’t have any income, that he wouldn’t have to file his return.
Patrick: Oops.
Jeff: So, that was not a good thing and a lot of his issue had to deal with the independent contractor status; the treatment of independent contractor and he could’ve avoided the whole issue very, very easily; very simply. All he had to do was incorporate. It doesn’t cost that much to incorporate in Texas.
Patrick: Nope.
Jeff: It’s cheap. We can do it. The returns aren’t really that much more. You would think that you would have to pay a lot of money for a corporate return. No, it’s not really that much money. So, if he had only done that, he could’ve taken the independent contractor status issue off the table.
Patrick: I know that it isn’t that hard to do it. When I set up my S Corp, it wasn’t very hard at all. So yeah, you’re exactly right. Well, I know that he could’ve solved that problem, but some people are going to be looking at taxes, more taxes, in the next few years.
Jeff: Right.
Patrick: But, it has to do with actually passing money on to their heirs, so how is that going to take place? What’s going on there?
Jeff: Okay. So, this is a strange – whenever tax laws come out, people come, and the run scenarios and they test stuff. So, these people came out and tested and they found out that some people are actually going to be paying more taxes with no estate tax law.
The reason is because of a rule that goes along with the estate taxes which is called a step-up in basis. It means that if you inherit some property under the old rules, if you inherit something, you get to claim the cost as the fair market value on the date of death or the alternate valuation date if that’s what happened.
So, it allows people to take stuff that has a very low tax cost and bump it up to fair market value. That’s why, for the most part, you’re not going to pay any income taxes on your inherited money.
Rex: Yeah. And one of the problems that created – Jeff, I had an example. In 1999, a guy called me. He owned a farm in North Carolina and he wanted to know if he sold the farm, how much in capital gains tax would he pay.
Well, the typical formula, as you know, is you simply take the sale price and you subtract from that the amount you paid for it, plus improvements. So, I asked him, “How much did you pay for it?” And he said, “I didn’t.” I said, “How’d you get it?” He said, “Well, dad gave it to me.” And I said, “Well, was dad alive or dead at the time?” And he said, “Dad was alive.”
So, I said, “That means you took dad’s basis. How much did dad pay for it?” He said, “Dad didn’t pay for it. Dad got it the same way from granddad.”
Granddad had given it to his dad while he was alive and that went back to about 1960. Granddad got it somewhere around 1930 in the same exact way. His great granddad had given it to him while he was alive.
So, I told this guy, “Well, your basis is the same as great granddad’s. When did he get it?” And he says, “Well, he bought it 1898.” I said, “Oh, that’s great. Now, we have a basis to go back to.”
And I told him, “I’m sure your great grandfather was a brilliant man and when they came up with the income tax in 1913, he went out and established what the basis was so they would be able to calculate that on down the road.” Right?
Of course not. That means the whole thing was subject to capital gains tax. And that’s an example of how difficult it’s going to be to track basis from one generation to the next.
And if you think about other issues that come up; house fire, tornado, flood like we had in Katrina – all kinds of things can go wrong with having those records available when your heirs when they go to sell it.
Patrick: How much did that person end up paying in taxes?
Rex: I don’t know what the sale price was. It was several hundred thousand dollars. The number 800,000 kind of sticks in my mind.
Patrick: So, how much did he pay in taxes?
Rex: That would’ve been, I believe – I don’t remember whether it was 15 or 20% of that, but it was a chunk of change.
Patrick: A couple hundred grand.
Rex: Yeah.
Patrick: And if they had just done a couple of easy steps. In fact, that kind of leads me to a thing. We’re about to go on the break and I’ve got some callers on the line. I encourage you to call in while we’re there. It’s 214-787-1570 to call in and get your answers to your questions. Jeff Pickering CPA, Master’s in Taxation. Rex Hogue, Attorney in the North Texas area. I know you deal a lot with estate planning and helping people save money just like we were talking about.
The last thing that I want to do is just say get these guy’s special reports. I know that Jeff has a tax planner, a tax organizer and Rex has Six Bullets Your Simple Will Can’t Dodge. So, with that, we’ll be right back.
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Patrick: And welcome back to Tax Talk. This is Pat Dougher. I am really excited about this show because when I first heard about it, I thought, “Man, our government has gone to a point of writing what I call almost kite checks or hot checks,” where you’ve got this huge credit that we just signed up for and we’ve expanded all this income or spending that they’re doing, but at some point, you have to pay for that credit card bill.
And I know where that’s going to come in. that’s going to come in the form of taxation whether it’s estate or it’s just income, it’s all taxes. So, really, the more you know, the more you get to keep.
In fact, one of the things that I heard recently is there are two tax structures in America; the informed and the uninformed. And the uninformed have a much higher tax rate than the informed.
So, with that, I’m brining you Jeff Pickering CPA, Master’s in Taxation, Rex Hogue, Attorney in the North Texas area, estate tax planning help for your company, for passing your wealth down to your heirs. These guys are specialists at this.
Let me put it this way. They’re excellent at it. With that, one of the things that really hits home with me is the whole fact that if the bill has to be paid, how’s the government going to do it?
Well, they’re going to have to increase and maybe even build an Army of auditors. And you know what? They did. The number of auditors have doubled and so, audits are going up. Jeff?
Jeff: Yeah. There’s money in the new budget. There’s money in President Obama’s budget to increase the number of auditors. Specifically, even the issue that the airplane guy, when he crashed into the IRS building, they’re going to focus on that as well. That’s one of their hot buttons is the independent contractor issue.
So, incorporating is one way to get rid of it. There’s something called Section 530 Relief which is available. You wouldn’t want to try it on your own, but if you want to call your tax advisor and ask him about Section 530, then it’s not based on the IRS code – I won’t go into it.
But, Section 530 is another way to get rid of the independent contractor issue. It’s something that employers should look into.
Patrick: Well, that really raises a big point to me. I’m thinking there are lots of people out there that do their own taxes. It’s a little bit like doing mind surgery to me. But, you actually run into some folks that if they had just let you help them, things would’ve changed.
Jeff: Right. So, there’s something called the substantial understatement penalty. If you use a tax professional, you can get out of the substantial understatement penalty if you took the tax professional advice.
So, I had this guy. He did his own taxes. He spent endless hours with multiple choice questions. He did it with some software and he did it wrong just like Timothy Giethner did. He got the penalty and we were looking at it and I would have – if he had used a tax professional, even if he had got it wrong, he would’ve gotten out of that penalty and it doesn’t apply to software.
You can’t get out of the penalty with the software. You’ve got to use a professional. So, I could’ve saved him a couple thousand dollars. For anybody else, that’s one reason – a good reason – to use a professional.
Patrick: And I know that you have a tax organizer.
Jeff: Yes. We have a tax organizer. If anybody would like to call our office at 972-378-5200, we can get you a tax organizer to help you get prepared for your tax professional. It’ll get you in the mind. Things will click and you’ll be ready for your appointment.
Patrick: I will tell you. I got mine today, folks. I was blown away at the volume of material that was available to me just by asking Jeff, “Hey, can I have one of those organizers?” And he printed it off and handed me this, almost, booklet.
But, the point is, it was the right information. You need the right information in dealing with the IRS. I kind of say IRS, KGB – aren’t those the same letters in some other language?
With that, I want to make sure we get some calls. It’s 214-787-1570 in the DFW area. Outside of the area, it’s 800-583-1570 or if you have a Sprint phone, it’s #KLIF. You’re listening to Talk Radio. This is Pat Dougher on Tax Talk.
I know that one of the things I want to get right into as we’re having people call in is, Rex, you have Six Bullets that Your Simple Will Can’t Dodge. What are some of the six bullets?
Rex: We have this report, Six Bullets Your Simple Will Can’t Dodge, why even a simple situation needs more complex planning and there’s actually seven. It’s kind of a seven shot, six-shooter.
The first one is incapacity. Most people don’t realize that your will does not work until you die and until it’s been probated. A lot of people are surprised by that.
Another problem with a simple will is that it can actually leave your spouse high and dry which surprises people because they think, “Hey, if I give it all to my spouse, that’s taken care of them, isn’t it?” Well, it may not be.
First of all, they might not know what to do. But, you may also be creating problems for your spouse if you’re in a second marriage and if they get remarried, that will create problems for your kids.
The third bullet is getting even with minor children. Minor children can’t own property. If you use a simple will to pass it to them, other people can go find out when they’re going to be getting the money. Some people ask me about, “What about a minor’s trust?” I tell them it’s a great idea, but it’s no longer a simple will once you put a trust in it.
The fourth bullet is what we call the law of title; how you lose control of property. Most people don’t realize, you go prepare a will, you say I want everything to go to my spouse, but the life insurance beneficiary is your previous spouse and you’ve never changed it or you own it with right of survivorship with your children and one child, the one child whose name’s on it gets it instead of all the kids regardless of what your will says.
The fifth bullet is the dangers of probate. Now, probate isn’t always bad, but probate can cost a lot of money. It can take a lot of time. The big thing is families lose control. It puts the family last. It’s very public. If you own property in more than one state, you’re going to have probate in all of those states. It creates a place where creditors and other people can bring disputes.
The sixth bullet is that estate tax planning is really for everyone. That surprises people because they think, “Well, we don’t have that much.” Well, some good reasons to do estate tax planning is it gives the first decedent control over where some of the property passes. It can preserve family relationships, particularly in second marriage. It can help the surviving spouse qualify for Medicaid without completely going broke. It’s a great way to protect the surviving spouse against creditor lawsuits and it allows you to pass twice as much estate tax free.
And our last bullet, number seven, is it creates a false sense of security. A lot of people get their will done and they think, “We’re finished. We don’t have to do anything else.” Folks, there’s always more you have to do. I would love to send you this report. We talk in here. Not only do we explain all the problems, we talk about solutions that we don’t have time to go into here on the air.
Patrick: That is awesome. Rex, thank you so much. Yes, one of the things you want to do, you can email Rex at Rex@bigtexlaw.com or you can call their office at 972-309-0104. Leave your name, and address and phone number in the general mailbox and they will get back with you in the next, essentially, 24 hours and get some information out to you.
Well, we’ve got some callers on the line. I want to go to Janet; Janet, in Southlake. Go ahead, Janet. You’re on the air.
Janet: Hi. About 15 years ago, my father-in-law

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