Retirement Plan and IRA Rollover Advice

When moving your retirement money to an IRA, you should follow this one rule of thumb.

If you fail to follow the rule I’m about to reveal, you can face two big problems.

• First, your check will be shorted by 20 percent.
• Second, you will be on the search for replacement money.

Here is this very important rule of thumb that you need to follow: Move the money using a trustee-to-trustee transfer. Nothing else.

There are two types of transfers that can be used to move qualified plan distributions into IRAs in a tax-free manner: (1) direct (trustee-to-trustee) rollovers and (2) what we will call traditional rollovers.

If you want to do a totally tax-free rollover, do nothing other than the direct (trustee-to-trustee) rollover of your qualified retirement plan distribution into the rollover IRA.

This is easy to do. Simply instruct the qualified plan trustee or administrator to (1) make a wire transfer into your rollover IRA or (2) cut a check payable to the trustee of your rollover IRA (this option is less preferable than a wire transfer).

Your employee benefits department should have all the forms necessary to arrange for a direct rollover.

If you want to discuss the trustee-to-trustee rollover with me, please don’t hesitate to call me on my direct line at (805) 264-3305.

Robert W Craig, EA Tax Services

P.S. Also use the trustee-to-trustee rollover when moving your IRA to another IRA.

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Tax Reform Changes the Alimony Game!

Tax reform changes the alimony game.

This may or may not have any relevance to you, but if it does, you will want to move quickly.

The Tax Cuts and Jobs Act (TCJA) eliminates tax deductions for alimony payments that are required under post-2018 divorce agreements.

More specifically, the TCJA’s new denial of alimony tax deductions applies to payments required by divorce or separation instruments:

• executed after December 31, 2018, or
• modified after that date, if the modification specifically states that the new TCJA treatment of alimony payments now applies.

Example. Betsy is divorcing Tim, and Betsy will pay $120,000 a year in alimony. If Betsy can deduct the $120,000 in her 50 percent combined federal and state income tax bracket, her net cost is $60,000 ($120,000 x 50 percent).

To look at the alimony in another light, with no tax deduction Betsy has to earn $240,000, then pay taxes of $120,000 in her 50 percent bracket, before she can give Tim the $120,000.

Regardless of how you look at the cost of alimony, the loss of the alimony tax deduction is huge.

Note: You deal with a judge (court) to finalize the divorce. This could take some time, so don’t procrastinate, or you’ll surely miss the deadline.

To qualify as deductible alimony, your divorce must satisfy a list of specific tax-law requirements. We should review your divorce if you are in this process.

Robert W Craig, EA Tax Services (805) 264-3305

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How To Handle a Traditional IRA Inherited from a Non-Spouse

Traditional individual retirement accounts (IRAs) became available in 1974 and have been around ever since. This makes your odds of inheriting a traditional IRA pretty good.  

The purpose of this letter is to look at some of the rules that apply when you inherit an IRA from someone other than your spouse.

  Traditional IRA Inherited from a Non-spouse

  Death after start date. If you inherit an IRA from an owner who dies upon attaining age 70 1/2 or later, the IRA must distribute any assets that remain to you (the beneficiary) over the longer of your expected life span or the deceased owner’s expected life span (before death).

  With the exception of separate accounts, if there is more than one beneficiary, the rule requires distribution of the deceased owner’s traditional IRA over the longer designated beneficiary’s life expectancy or the owner’s life expectancy. For this tax rule, the beneficiary with the shortest life expectancy (usually the oldest person) is the designated beneficiary.

  If the owner divided the IRA into separate accounts for the beneficiaries, the accounts act as separate IRAs for distribution purposes.

  Death before start date. If the owner dies before his or her required start date (age 70 1/2), the IRA must distribute any remaining assets under either


  • the five-year rule, which requires that the IRA distribute the assets within five years after the death of the owner, or
  • the life expectancy rule, which requires that all remaining assets be distributed over the life span of the designated beneficiary.

As you receive the monies from the inherited traditional IRA, you pay taxes at ordinary income rates.  

Planning Strategy  

To minimize taxes for your beneficiaries, aim to stretch out the distributions for as long as possible. This makes the five-year plan rarely a good idea. But it does shine the light on youth. The younger the surviving beneficiaries, the more stretch you create.  

By stretching out non-spouse inherited IRA distributions for as long as possible, you can turn a potential tax danger into a tax benefit. IRA stretching is a proven and widely used method in estate planning. It also allows the IRA’s assets to continue to grow tax-deferred, so with wise investments you could create your own legacy.  

You likely need to know the basic rules that apply to inherited IRAs because you have high odds of both inheriting a traditional IRA and leaving one to your named beneficiaries.  

If you would like to discuss IRAs in more detail, simply give me a call.  


Bob Craig
Robert W Craig, EA Tax Services
431 2nd Street, Suite 3, Solvang, CA, 93463
(805) 264-3305

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Tax Tips for Real Estate Investors

Tips For Real Estate Investors

If you are a real estate investor I’m sure you are familiar with a number of tax laws and strategies that real estate investors encounter frequently and not so frequently. Things like:

*Tax Rules and Solutions at Purchase and During Ownership of Real Estate *Living With the Passive Loss Regulations *Taxation at the Time of Sale *1031 or Like-Kind Exchanges *Real Estate in Troubled Times

More Specifically:

-Passive Loss Limitations may limit the amount of losses you can deduct each year -Depreciation – how to compute and what is the long term effect on my situation -Capital Gains versus Ordinary Gains -Exclusion Rules for Gain on the Sale of a Principal Residence -Converting a Principal Residence to a Rental or Vice Versa -Installment Sales of Real Estate -Office In Home Rules -Repossessions, Cancellation of Debt and Bankruptcy

As an investor you may or may not have a detailed understanding of how these areas affect your taxes and investment. But you should have at least a basic understanding of how different rules affect the types of investments you have. Details on the above are obviously beyond the scope of this text, but feel free to contact us if you feel less than confident in any of the areas or if you are thinking of buying, selling, renting, exchanging, executing a short sale, etc.

Here are some areas I get a number of questions about. If you have any other areas that you have questions, please use the ‘Ask a Tax Question’ button to the right on any page of this website.

1. Repairs versus Improvements – There is a distinct tax difference between “repairs” to a property and “improvements” to a property. On one hand, the cost of repairs made by a business is deductible. On the other hand, the cost of improvements must be capitalized and written off over time via depreciation deductions.

Check out this handout, click here: Is it a repair or improvement?

The life of improvements to a residential rental building is generally 27.5 years. On a nonresidential building it is generally 39 years. A real long time in either case.

A good strategy is to separate repairs from improvements when work is done on a business or rental building. For example, don’t lump standard repairs with a major renovation. If that occurs, it will take longer to write off the cost of the repairs.

Fix the broken window, replace the doorknobs, fix the leaky faucet and the like prior to the more renovation type of work.

A repair keeps the property in good operating condition over the course of its life. Conversely, an improvement extends the useful life of the property, increases its value or adapts it for a different use.

But check this out:

But even the Internal Revenue Manual that tells IRS agents how to audit you admits that distinguishing repairs from improvements is a gray area. You’d think that replacing a roof is pretty clearly an improvement, right? Common sense tells you it adds value and prolongs the property’s life. But a recent tax court case ruled that an investor could deduct a roof as a repair because it just helped keep the property in good operating condition over the course of its existing expected life.

Remember, this strategy is for business property, like rental properties. Personal home improvements are not deductible at all so, in the case of your home or vacation homes, it would be better to lump all little repairs in with a major renovation so it can be added to the cost basis of the property when sold.

2. Cost Segregation

The IRS says your clients can “depreciate” their property over a “class life” intended to approximate its useful life.

Residential property depreciates over 27.5 years. If they have an apartment house worth $500,000, they write off $16,666 per year. Not bad . . . .

Nonresidential property depreciates over 39 years. If they have, say, a medical office worth$500,000, they write off $12,820 per year. Not as good as the apartment – but still not bad.

But all real estate includes specific, identifiable components that depreciate faster.

For example, land improvements depreciate over 15 years. These include paving, landscaping, underground utilities, and site lighting.

And personal property depreciates even faster – just 5 to 7 years. For residential property, this includes flooring, cabinets and countertops, appliances, window treatments, and wall coverings. For commercial and industrial property, add equipment foundations, exhaust and ventilation systems, security systems, and electrical distribution systems.

If we just take the 27.5 or 39 year depreciation we could be wasting thousands in tax deductions we can take today.

A “cost segregation study” is an in-depth analysis, performed by specially-trained experts, that lets them identify and reclassify costs that qualify for faster depreciation.

Faster depreciation translates into immediate tax savings.

The best part is, new IRS rules let owners “catch up” any deductions they missed as far back as 1987. Without even amending old returns! You can do that simply by filing IRS Form 3115. And you can claim those savings in a single year.

That makes cost segregation the closest you’ll come to a real “tax time machine”! It’s all court-tested and IRS-approved. In fact, the IRS offers a 136-page Audit Techniques Guide that details exactly what to do and how to do it. It’s not for everyone but it can make a big difference in the right situation.

3. Depreciation Recapture

Remember that when a property is sold, all depreciation taken over the life of the investment will reduce your cost basis increasing the gain on the sale.

4. Converting Personal Residence to a Rental

You can convert a personal residence to a rental property and if time limits are adhered to, you can still take at least a portion of your tax exclusion for the sale of a personal residence. If you rent it out after 2008 there will be a proration of the exclusion. This can get complex so check it out with an your tax advisor or call us.

You can also go the other way and convert a rental property to your residence and if you live and own it for a long enough period you may be able to exclude some of the gain. Again, a complex issue, call us if you need help.

5. Inherited Property

If the owner of real property passes away, be sure to get an appraisal of the value of the property at the date of death. This will be the new basis for gain or loss on sale and for depreciation. You should get this appraisal even if there is no estate tax return (706) filing requirement.

Also important is if you own property with your spouse make sure that title is held as community property with right of survivorship (if you’re in a community property state such as California). This way the property will get a full step up in basis on the death of the first spouse. If you have a living trust, be sure to run this by your attorney or tax person to ensure it is setup properly.

Call me if you wish to discuss any of these issues. Thank you, Bob (805) 264-3305

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Tax Deal Made

Well, they did it. They drug it out to the last minute, but they did it. Weeelll, they did some of it. And I’d really like to thank all of them in Washington for dragging us through this during the holidays and leaving us to sort this all out this morning while at the same time trying to digest all the holiday turkey, food and fun.

Most taxpayers got the extension of the Bush-era tax cuts, a good thing. As you’ll read below, individuals making more than $400,000 single and married couples making more than $450,000 were not so lucky. For those of you in these income levels, we will be talking personally as soon as all the details are ironed out for where we go from here.

Also, the debt ceiling and spending issues have not been addressed, that’s been ‘kicked down the road ‘ a couple months. If we think this over the holidays bickering was nasty and ugly, I fear we ain’t seen nothin yet.

Tax changes included in Congress’ fiscal cliff legislation (01-01-2013)

Here is a summary of the provisions included in the bill, which the President is expected to sign.

Tax rates beginning January 1, 2013:
A top rate of 39.6% (up from 35%) will be imposed on individuals making more than $400,000 a year, $425,000 for head of household, and $450,000 for married filing joint.

2% Social Security reduction gone

AMT permanently patched
A permanent AMT patch, adjusted for inflation, will be made retroactive to 2012.

Dividends and capital gains
The maximum capital gains tax will rise from 15% to 20% for individuals taxed at the 39.6% rates (those making $400,000, $425,000, or $450,000 depending on filing status, as noted above).

Itemized deduction and personal exemption phase-outs
The Pease itemized deduction phase-out is reinstated, and personal exemption phase-out will be reinstated, but with different AGI starting thresholds (adjusted for inflation): $300,000 for married filing joint, $275,000 for head of household, and $250,000 for single.

Estate tax
The estate tax regime will continue to provide an inflation-adjusted $5 million exemption (effectively $10 million for married couples) but will be applied at a higher 40% rate (up from 35% in 2012).

Personal tax credits
The $1,000 Child Tax Credit, the enhanced Earned Income Tax Credit, and the enhanced American Opportunity Tax Credit will all be extended through 2017.

Other personal deductions and exclusions
The following deductions and exclusions are extended through 2013:

  • Discharge of qualified principal residence exclusion;
  • $250 above-the-line teacher deduction;
  • Mortgage insurance premiums treated as residence interest;
  • Deduction for state and local taxes;
  • Above-the-line deduction for tuition; and
  • IRA-to-charity exclusion (plus special provisions allowing transfers made in January 2013 to be treated as made in 2012).
Business provisions
  • The Research Credit and the production tax credits, among others, will be extended through 2013;
  • 15-year depreciation and §179 expensing allowed on qualified real property through 2013;
  • Work Opportunity Credit extended through 2013;
  • Bonus depreciation extended through 2013; and
  • The §179 deduction limitation is $500,000 for 2012 and 2013.

Remember, these are only tax changes with regards to the fiscal cliff legislation. As I have stated in prior emails, there are a batch of new taxes that went into effect on January 1st as part of Obama’s 2010 health care reform legislation. To avoid confusion, I will follow up this email with a separate one addressing these new taxes.

I will have a bit of work sifting through all this in the next few days and as details emerge There are sure to be things that were slipped in to this bill that will need to be looked at. For example, there is apparently a $59 million break to algae growers to encourage biofuel production and I will need to see who of you this may affect…

Please email any questions you may have on any of this and how it may affect your situation. For now, gotta hit the books.

Take care,


Robert W. Craig, E.A. Tax and Business Services (805) 264-3305

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2013 Tax Outlook: Facing the “Fiscal Cliff”

December 27, 2012

2013 Tax Outlook: Facing the “Fiscal Cliff”

The 2012 election left us with the same President, same Democratic-controlled Senate, and same Republican-controlled House of Representatives. But 2013 brings several new challenges. That’s because several important tax provisions are scheduled to expire at the end of the year, in what some observers are calling “Taxmageddon” – and others are calling a “fiscal cliff”:

• First, the Bush tax cuts are scheduled to expire. If Washington can’t find political agreement to extend them, top rates on ordinary income will return to their previous level, rising from 35% to 39.6%, top rates on capital gains will rise from 15% to 20%, and top rates on qualified dividends will rise from 15% to 39.6%.

• Next, the current 2% payroll tax “holiday” will end. This will mean as much as $1,000 in additional tax on workers earning $50,000 per year.

• Third, the Alternative Minimum Tax “patch” will expire, subjecting millions more Americans to the AMT.

• Finally, the Medicare tax provisions of the Affordable Care Act, or “Obamacare,” take effect. This will mean an additional 0.9% tax on earned income above $250,000 and a 3.8% tax on investment invome for taxpayers earning more than $200,000 ($250,000 for joint filers).

Right now, taxpayers across the country are waiting for Washington to act. And you can be sure we’ll be watching closely to see how it all affects your taxes!

This letter summarizes some of the future tax hikes we can expect and offers suggestions for avoiding them where possible. We look forward to discussing these threats and helping craft the appropriate response! Call us at 8052643305.

Tax Brackets Uncertain!
If Congress can’t agree to extend the Bush tax cuts, rates will rise automatically in 2013. Traditional tax planning wisdom suggests that if rates are set to rise you should consider timing your income and deductions where possible, for maximum tax advantage.

If you expect to earn less in 2013, consider delaying some of this year’s income (to subject it to tax next year, when you’ll be in a lower bracket). And pay deductible expenses this year, as much as you can.

Or, if you expect to earn more in 2013, consider accelerating income from commissions, bonuses, and qualified plan withdrawals into this year (to subject it to tax now, before you move up into a higher bracket next year). You might also delay paying deductible expenses until next year, to the extent possible.

The problem now is that we can’t be sure which way rates are headed. As previously mentioned, President Obama has proposed raising rates back to Clinton-era levels on income above $200,000 ($250,000 for joint filers). Republicans generally favor keeping current rates for all taxpayers. We’ll just have to wait and see whose plan prevails.

Itemized Deductions Going Down?
Over the longer term, President Obama has proposed limiting the value of itemized deductions to just 28%, even for taxpayers in higher brackets. Republican candidate Mitt Romney proposed limiting itemized deductions from all sources to a certain fixed number, such as $25,000 or $40,000, and this idea is also gaining favor. Either of these would amount to a “stealth” tax increase and cut the value of deductions for medical expenses, state and local taxes, mortgage interest, and even charitable gifts.

Tax Strategies for Healthcare Costs
Paying for medical care becomes harder every year. The recent healthcare reform act improves coverage and extends it to more Americans, but actually makes it harder to deduct unreimbursed expenses. (Under current law, you can deduct medical expenses exceeding 7.5% of your Adjusted Gross Income. Under the new law, starting in 2013, that floor rises to 10%.) It also limits contributions to employer-sponsored flexible spending plans to $2,500/year.

If you’re free to select your own coverage, consider choosing a “high-deductible health plan” and opening a Health Savings Account. These arrangements bring down premium costs and use pre-tax dollars for out-of-pocket costs, bypassing the floor on AGI. If you’re self-employed, consider establishing a Medical Expense Reimbursement Plan, or MERP. These plans let you pay family medical expenses with pre-tax business dollars. They may even help you avoid self-employment tax.

Audits Are on the Rise
IRS audit odds are increasing, basically doubling since the year 2000. But while your chance of getting audited is relatively small, certain income levels and certain items of income or deductions can really escalate the chance of audit. This being said, don’t take low audit rates as an invitation to cheat! But don’t let fear of an audit stop you from taking every deduction you’re entitled to.

New Tax on Interest Income
The healthcare reform act imposes a new “Unearned Income Medicare Contribution” of 3.8%, beginning on January 1, 2013, on interest income, for taxpayers reporting more than $200,000 ($250,000 for joint filers). This tax may make municipal bonds and money market funds more attractive relative to fully taxable vehicles. However, the recession has jeopardized state and local tax revenues, so there may be credit quality issues to consider. You might also consider deferred annuities and permanent life insurance for fixed-income portions of your portfolio.

New Tax on Dividend Income
Tax on “qualified corporate dividends” is currently capped at 15%, even for taxpayers in the highest brackets. However, beginning in 2013, the healthcare reform act imposes a new “unearned income Medicare contribution” of 3.8% on dividend income for individuals earning over $200,000 ($250,000 for joint filers). Consider favoring stocks that pay little or no dividend in taxable accounts and holding stocks paying higher dividends in tax-deferred accounts.

New Tax on Real Estate Income
The healthcare reform act imposes an “unearned income Medicare contribution” of 3.8%, effective starting in 2013, on income from real estate investments and taxable gains from the sale of your primary residence, for individuals making over $200,000 ($250,000 for joint filers). There are several strategies you can use to minimize taxable real estate income, including favoring tax-deductible “repairs” over depreciable “improvements” and cost segregation strategies to maximize depreciation deductions.

Higher Tax on Capital Gains
Tax on long-term capital gains (from property you hold more than 12 months) is currently capped at 15%, even if your regular tax rate is higher. President Obama has proposed letting that rate return to a Clinton-era 20%, for those earning over $200,000 ($250,000 for joint filers). We’ll just have to wait for Washington to act on the “fiscal cliff” to see where 2013 rates fall.

The recent healthcare reform act also imposes a new “unearned income medicare contribution”, beginning in 2013, of 3.8% on capital gains for individuals earning over $200,000 and families earning over $250,000. If you have appreciated assets such as securities, real estate, or a business you’d like to sell, consider doing so before new rates become effective. Check with us first, to discuss if you can use tax-free exchanges, installment sales, charitable trusts, or similar strategies to minimize or even eliminate tax on those sales.

Uncertainty on Estate Tax
The estate tax actually “died” for 2010. Washington brought it back to life, with a 35% tax applying on estates over $5.12 million per person. However, the new system applies only for 2011-2012. If Washington doesn’t act to extend it, the tax reverts to 55% on estates over $1.0 million, beginning January 1, 2013. This means that smart, flexible estate planning will still be part of most affluent families’ plans.

Next Steps
We’re sure you appreciate this brief outline of upcoming tax threats. While smart intelligence is crucial, intelligence alone is useless without the right action. If the threats we’ve discussed so far have you worried about your financial future, you owe it to yourself to take a more comprehensive look at your taxes and finances, so that we can determine exactly which concepts and strategies will work from here.



Robert W. Craig, E.A. Tax and Business Services
1444 Aarhus Drive, Solvang CA 93463
Tel: (805) 264-3305

Any tax advice contained in the body of this presentation was not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.

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January 2012 Newsletter

Robert W. Craig, E.A. Tax and Business Services
January 5, 2012

There are lots of things going on with all the turmoil in Congress and Washington as a whole. As you’ve probably heard, the payroll tax cut has been given a two-month extension. The feeling is that this being an election year, neither Democrats or Republicans want to be responsible for lowering workers take- home pay, and the cuts will most likely apply to all of 2012.

As for the Bush tax cuts, which are set to terminate after 2012, we forsee Congress approving a one-year extension giving Congress time to look at a larger overhaul of the tax current tax system in 2013. This is not a slam dunk but it appears the most likely scenario at this point. I will keep you updated as the year unfolds and developments surface.

As always, feel free to forward this newsletter to anyone you know who you think may benefit from the information.

Estimated Taxes
The 4th quarter 2011 estimated tax vouchers are due to be post- marked no later than January 17, 2012.

Estate Tax Alert – Deadline Approaching
If you are an executor, trustee, or a beneficiary of an estate or trust for a decedent who passed away in 2010, be aware that there may be a deadline on January 17, 2012 to file a Form 8939 to elect zero estate tax. This is complex so if you are involved in an estate or trust with decedents who died in 2010, be advised of this and get counsel on it if necessary.

Are Living Trusts Still Necessary?
A lot of people ask me if revocable living trusts are still some- thing to have or think about because of the new estate tax laws and increased exemption amounts.

My answer is usually that yes, they are still a great vehicle in estate planning. You see, estate tax savings is not the only reason for having a living trust. There is privacy, probate avoidance (big savings), ease of transfer, reduce family or beneficiary squabbles and more.

It’s important to get it done correctly and to make sure that everything necessary is included in the trust and titled properly. You may be able to get by without one but, as I always say, “you don’t know what you don’t know” so it’s best and less expensive to get great advice.

It is best to discuss your particular with a competent lawyer experienced in this specialized area of law. I’ve seen some terrible trusts drawn up or critical items left out of the trust and these are headaches at best and can be very costly to your loved ones.

For more information and a great recommendation for an attorney specializing in this area, call Sara A. Henry at (805) 693-9100 or check out her website at:

There is also an article on this website at “Do you need a professional
fiduciary or living trust” under Recent Posts to the right.

New Developments in Real Estate Financing
These newsletters are not just about taxes, they are about improving your overall wealth and success. In talking with David Brown of Residential Mortgage here in the Santa Ynez Valley, I discovered that there are some intriguing happenings in financing. I’ve included a sample of his article below.

If you could not refinance due to the lack of equity in your home the new Obama HARP 2.0 program may help. If your loan is serviced by one of the following GSE servicing entities you may be able to refinance to a lower rate. Unlike the first HARP program that limited the loan to value the new 2.0 program has higher or no limits. In fact many will not require a new appraisal. Click on the below links to see if your home loan is now with either of these servicer’s. If so, give me a call to discuss the economics of securing a lower interest rate.

For the entire article, look under Recent Posts on this website, “Time To Review Your Mortgage”, it’s very timely and important, and pass it along to friends as well. Or visit David’s website at

Gift Tax Alert – IRS Crackdown!!
Sometimes real estate is transferred from one person to another for little or no money or consideration. This can be parent to child or friend or another person for another reason.

This is okay but if the value transferred is greater than $13,000, a Form 709 Gift Tax return is required to be filed reporting the transaction. Apparently, in a study, the IRS has found that many times (50% to 90% of the time) the required forms are not filed.

In California and many other states, disclosure of this information must now be made available to the IRS. So, the IRS will get the names of people who transferred realty for little or no money, and will be able to go after them. Note that the Forms 709 must be filed even though no tax is due (which is most often the case) because this is an estate tax issue and by not reporting the excess of the annual exclusion of $13,000, the government may lose out on estate tax when the person giving away the property passes away.

Offshore Account Alert – Have An Offshore Account? Read!!
For many legitimate reasons you may have a foreign bank account. On the other hand, there a many illicit reasons that one may have offshore or foreign bank accounts (drug and terrorism money, laundering money, and tax evasion) and these illegal activities have given the government reason to become very ‘interested’ in any and all people with foreign bank accounts.

UBS, the giant Swiss bank, has ratted out over 4,500 U.S. citizens who were using the secrecy of Swiss banks to evade U.S. taxes. Many account holders, as many as 30,000 or so came forward and confessed under special IRS programs.

It has always been required to check a box on your tax return if you held a bank account in a foreign country. I assume this has been disclosed properly but, in case it was missed know that offshore foreign accounts are at the top of the IRS hit list.

U.S. citizens and residents are taxable on their worldwide income and are subject to all U.S. tax laws. The world is shrinking and this is really true when it comes to taxes, especially since 2008 when Senate hearings revealed that Americans were hiding assets in Swiss and other foreign banks.

To comply with the Bank Secrecy Act, you may be required to file as many as three disclosure forms depending on how much in aggregate asset balances one may have and where you reside.

The penalties for ignoring these rules and filing requirements are severe, comprising of monetary penalties and potential jail time. They are serious about this. I know this probably affects a small percentage of my clients but it is so important that I feel it necessary to spend considerable newsletter space to it. You may also know someone who this may affect and would wish to make sure they are aware of the rules.

That’s it for now, more to come.

Thanks for reading this months newsletter. If you have any ideas for topics or would like to feature information from your business that would be of interest, please shoot me an email and a blurb or article on your topic.

Remember, if you know or happen upon anyone who needs tax planning advice, tax preparation, or tax problem resolution services, feel free to give them my name and numbers and I will assist them in any way I can.

Sincerely, Bob
Robert W. Craig, E.A. Tax and Business Services
1444 Aarhus Drive
Solvang, CA 93463
(805) 264-3305

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Do You Need a Professional Fiduciary or Living Trust?

What Is a Professional Fiduciary and How to Know If You Need One
by Sara A. Henry, Attorney at Law

You are preparing estate planning documents (a Trust, Will and Health Care Documents) and your lawyer asks you who you want to name to the crucial positions of Executor, Guardian, Conservator and/or Trustee. Your lawyer explains the substantial importance of these positions to you.

1. This person must be trustworthy as they will be managing the finances for either you or your loved ones after your death.
2. This person must be unbiased and be able to carry out your wishes, not their own.
3. This person must be able to devote a substantial amount of time to the management of your affairs as there is much work that is needed after their appointment.

You draw a blank. You do not know anyone that has the time to set aside their own lives for a substantial period of time in order to take over management of your affairs. You don’t have someone that is sophisticated enough to handle your financial affairs. You don’t have anyone that can be unbiased. If you name a single family member will they be strong enough to stand up to the pressure of other family members’ demands and ensure that your wishes are carried out? If you name multiple family members (i.e. as Co-Executors) will they get along and work well together or instead will they fight over their own interests? You do not want your affairs to wind up in court litigation.

As our population ages the need for professional fiduciaries is increasing. Many factors contribute to the need for individuals to retain a professional fiduciary. The effects of not having an appropriate person to serve, mental/physical disabilities and illness, beneficiary/family conflicts and senior exploitation are only a few of the reasons why people may need to utilize professional fiduciary services. A “professional fiduciary” is an individual who is entrusted with your property or finances. The fiduciary’s sole objective is to ensure your wishes are fulfilled.

In CA, professional fiduciaries are regulated by the State and must be highly trained and educated. I have been an estate planning attorney for 20 years and with this specialized legal background, I am now pleased to also offer professional fiduciary services to the public. If you or someone you know would like further information about the services I offer, please feel free to contact me.

Feel free to check out my website at for more information on services and fees.

Attorney at Law/Professional Fiduciary
1607 Mission Drive, Suite 113
P.O. Box 704
Solvang, CA 93464-0704
Telephone: (805) 693-9100
*Also admitted to practice before the United States Supreme Court

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Estate Tax Update

The estate tax, that tax on the fair market value of a decedents assets, kind of “expired” in 2010. That is, if one passes away in 2010, there is no estate tax. I read that George Steinbrenner’s estate was worth something like $1.1 billion which means his estate gets a pass on $500 million to $600 in estate tax. This is all part of the 2001 tax act that was a slow burning fuse of tax changes. This fuse is set to burn out at the end of 2010. At this point all the Bush tax cuts and changes go bye bye and we revert to pre 2001 tax law. This includes the estate tax. Without any change, extension or revision, on January 2011 the estate tax freebie exemption on which no tax is paid, reverts to $1 million and a 55% top tax rate. It is likely there will be changes before the tax act sunsets at the end of this year. House Democrats have passed legislation to bring back the tax at 2009 levels ($3.5 million) and making it retroactive to January 1, 2010 (sorry George). In the Senate, legislation has been introduced to set the exemption at $5 million and a top rate of 35%. This proposed legislation would also let estates for decedents dying in 2010 to pay tax at this years 0% tax with no ‘stepped up’ basis (a revaluation of the tax basis of the assets), or keep the stepped up basis and pay tax under the new proposal. None of these proposals have been passed as yet but just wanted to give you an update of the doings out there in Washington. Stay tuned. If you have any particular questions for your situation, feel free to contact me at (805) 264-3305. Thanks for reading. Bob

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Why Do I Need A Living Trust?

I’ve gotten 5 calls this week asking essentially the same question…”do I still need a living trust since there is no more estate tax?”

First of all let me clarify that the “estate tax” is gone only for 2010.  It, unless there is some new legislation, scheduled to revert back to 2002 law.  It would allow an individual who passes away to pass $1,000,000 free of estate tax.  The excess over one million would be subject to tax. The use of the living trust can be a great tool for reducing or eliminating this onerous tax.

But tax savings are not the only reason to have a living trust.  Another big one is avoidance of probate.  With a properly drawn up living trust the assets of the decedent would not be subject to probate.  Therefore, the decedents wishes would be carried out properly and privately. Others are controlling assets, letting your affairs be managed in you become disabled.

It could be a complex area and you definitely want it done right, so you definitely want to discuss it with an advisor or attorney.  If you need more info on this topic, please feel free to call (805) 264-3305 or email me.

Thanks,  Bob

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