Trusts often used in estate planning include:

• By-pass trusts — These are commonly used by couples but, in a year with no estate tax, check that the wordingof your trust doesn’t create other problems.

• Child trusts let you control children’s spending of what you leave to them.

• QTIPS — Under a QTIP (Qualified Terminable Interest Property), the income from the assets goes to the surviving spouse until his or her death, then the assets can pass to the children. A QTIP must give the surviving spouse a non-transferable income interest for life in all its assets, which will be included in the survivor’s estate but could be distributed to others as the original donor directs. A QTIP is a way to provide income to a new spouse while making sure your assets eventually go to your kids from an earlier marriage.

• Living trusts let assets in the trust avoid probate and go directly to the heirs. But don’t confuse estate tax and probate. Living trusts bypass probate but don’t affect estate tax liability.

• “Wealth-replacement trusts” consist of a charitable remainder trust and an irrevocable trust holding a life insurance policy. The charitable trust can sell low-dividend stock you donate to it, without paying tax on the appreciation,as you would if you sold it. The trust can reinvest the proceeds and generate a larger income stream for the beneficiary. The income could also pay premiums on an insurance policy on your life. When you die, the assets in the trust go to charity while the insurance proceeds go to your heirs free of income tax.

Instead of putting money in trust for a child, you may have your estate buy the child an annuity. Instead of setting up a life-insurance trust, you could have one of your children buy a policy on your life, or you could transfer an existing policy to one of them – so long as you don’t die in the next three years. As a gift, the transfer will eat up some of your $1 million lifetime gift tax exemption. You can give your child enough money each year to pay the premiums (which possibly won’t exceed the tax-free gift limit).

Does your employer offer an FSA or cafeteria plan for medical expenses not covered by insurance?

FSAs let employees pay some health-care expenses with pre-tax compensation dollars.

The tax savings can be substantial. FSAs may cover much more than you’d suspect, including expenses a medical insurance plan would not think of covering, such as non-prescription drugs or fertility enhancement. Prepaid orthodontist bills can be reimbursed up front from flex plans; workers can use remaining funds to pay dependent care costs that arise after they leave their job; and members without health

insurance can buy it out of their flex plans. Amounts in flex plans unused at year-end are forfeited, except that some plans give a 2½ month period after the end of the calendar year to use up contributions. If you or your spouse has a dependent-care flex account, and the employer prevents that spouse from making additional contributions (e.g., so as not to violate nondiscrimination rules), the other can start funding a flex plan. If both have flex plans and the total in their accounts at year-end may exceed the $5,000 annual cap, one spouse can stop the funding. If you use a flex plan for dependent-care costs for a disabled child, you might still be able to claim a credit for expenses that exceed the amount in your FSA. The credit applies to up to $6,000 of eligible expenses for filers with two or more kids under age 13.

As the weather begins to break, many think about updating their vehicles. The hype over the Volt, Leaf and other plug in vehicles will only intensify as new technology develops. The government is helping with generous tax credits, $7,500 towards the Volt in particular.

Certain street-legal electric golf carts can qualify for a credit of 10% of the vehicle’s cost. Although usable on
golf courses, these carts are made mainly for use on public roads with low posted speed limits. Max: $2,500.
The tax credit for the purchase of a qualifying plug-in electric vehicle continues through 2011: up to $2,500,
plus $417 for each kilowatt hour of battery capacity exceeding five hours. Maximum credit: $7,500.

Visit: The US Dept. of Energy for specific credit information… or give us a call.

This is “must read” information.

MICHIGAN CORPORATE INCOME TAX ACT
Act XX of 2011
AN ACT to meet deficiencies in state funds by providing for the imposition, levy, computation, collection, assessment, reporting, payment, and enforcement of taxes on certain commercial, business, and financial activities; to prescribe the powers and duties of public officers and state departments; to provide for the inspection of certain taxpayer records; to provide for interest and penalties; to provide exemptions, credits, and refunds; to provide for the disposition of funds; to provide for the interrelation of this act with other acts; and to make appropriations.

Read the document by clicking here.

There’s no estate tax regardless of the size of the estate.

$1.3 million of assets (plus $3 million for assets transferred to a surviving spouse) can pass to heirs with a “stepped-up” basis – the value as of the date of death. The executor will need to determine which assets receive the stepped-up basis. Any unrealized gains above the $1.3 million (or $4.3 million with spouse) amount will be subject to capital gains tax. The cost basis of those assets is the carryover basis – the value as of the date of purchase. So, the repeal of the estate tax eliminated one tax but raises another concern – capital gains tax. Why? Because if capital gains tax is due, it will be based on the carryover basis of the assets. This structure is advantageous to those with very large estates because the capital gains they may pay will likely be less than an estate tax. Those whose estates are smaller may pay capital gains on inherited assets that may have  passed tax-free under earlier estate tax rules. It’s possible (and widely assumed) that Congress will reinstate the 2009 rules for 2010 or come up with some other plan but it may not be settled until late in 2010. If the estate tax is reinstated, the exemption amount, the top estate tax rate and whether assets will use step-up or carryover basis will be important elements to note. The estate tax is scheduled to return in 2011 with a $1 million exemption amount and a top rate of 55%. In view of all this uncertainty, it’s more important than ever to consult with your advisors. Make sure your estate plan accounts for a year with no estate tax. Determine the cost basis of any appreciated asset as of the purchase date. It  may be wise for some to make transfers now (before death), and while interest rates and asset values remain low.
It’s easy to misjudge your estate’s size. It includes home equity, retirement accounts, foreign assets, coming inheritances and proceeds from life  insurance. Many of your assets should pass outside your will, through IRAs, qualified plans and insurance proceeds, so a precise designation of beneficiaries may be your most crucial planning issue especially in the event of divorce and other family changes. As baby boomers transfer assets to children, the latter must decide how to receive them. One method is an “inheritor’s trust” to receive even small inheritances. But trust  income is taxed as high as 35% for income above $11,201. Get help from your advisor. If you inherit an IRA, ask the estate executor for any Form 8606s that were attached. They track nondeductible contributions, and the IRS exacts a penalty for failure to file them. Otherwise you may pay too much tax. Assuming the estate tax is reinstated for 2010 (and we know it returns in 2011), consider these other ways to save more of the money from an inheritance:
If the inheritance will put your own estate over the exemption amount, you can renounce your share through a disclaimer and pass it on directly to later generations. Your estate will pay no tax.
You can value an estate’s assets either as of the date of death or six months later. (The estate tax return is due nine months after the death.) Check the value on both dates and try to use what date produces the least estate tax.
If property you inherited is later sold at a loss, you can deduct the loss on your return.
If the estate’s executor is a beneficiary, he/she should collect executor’s fees and deduct them from the estate.
The executor’s income tax rate may be far lower than the tax rate on the estate.
An estate must file an income tax return for the decedent on April 15 following the year of death even if no federal estate tax is due. Executors are liable for any unpaid estate tax and income tax, and often wait to distribute until the IRS agrees on its tax status. The estate may use a fiscal year rather than a calendar year to delay payment of income tax longer. A joint return will cover part of a year for the deceased but a whole year for a surviving spouse, who can make tax-saving moves in the meantime.

Examples:
Realize losses or gains to offset those of the deceased.
Deduct the decedent’s medical expenses, if an appropriate election is made on the return.
One of an executor’s essential roles is to determine the market value of all the estate’s assets, so that the heirs can use the proper basis when they later sell the assets.

Our team lives with taxes year round. We have the tools, talent and resources to maximize your refund. Now we offer a tool that provides you access to our resources for a fraction of the cost of the mass market tax preparation companies.

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In this year end guide you will find information about money, real estates, estate planning, family, business, investments, retirement and resources. Please download and review.

Click here to download the guide.

• The Standard Deduction amounts remain unchanged from 2009 except for head of household. (See the back inside cover.)The 2009 deduction for sales taxes on vehicles is gone.
• The personal exemption is still $3,650. No phaseout for high earners but it may return in 2011. You can take an exemption only for the regular tax; add it back when you calculate the AMT.
• For 2010 only, high-earners don’t lose any itemized deductions either, but next year, some of their itemized deductions will be subject to cuts.
• The refundable “Making Work Pay” tax credit of up to 6.2% of earned income, capped at $400 for singles and $800 for marrieds, continues in 2010. The phaseout range: $75,000-$95,000 and $150,000-$190,000 respectively. Whereas the credit was delivered in 2009 via reduced withholding over 9 months, in 2010 that period becomes 12 months.
• Certain street-legal electric golf carts can qualify for a credit of 10% of the vehicle’s cost. Although usable on golf courses, these carts are made mainly for use on public roads with low posted speed limits. Max: $2,500.
• The tax credit for the purchase of a qualifying plug-in electric vehicle continues through 2011: up to $2,500, plus $417 for each kilowatt hour of battery capacity exceeding five hours. Maximum credit: $7,500.
• There’s a new break for spouses of armed forces members: if their spouse’s duty moves them to another state, spouses can keep their home state for state income tax purposes. This change is retroactive to Jan. 1, 2009 and applies only to wages and personal services income (e.g. rental property income is excluded). Spouses from states with no or low state income taxes will benefit.
• The increase in the earned income credit (EIC) for taxpayers with three or more qualifying children extends through 2010, with a maximum credit of $5,666. For married taxpayers with children filing a joint return, it is phased out completely at AGI $40,545 for one child, $45,373 for two children and $48,362 for three or more. For filers with no children, the credit is gone at AGI $13,460 (singles) and $18,470 (MFJ).
• Taxpayers who work abroad and qualify get a higher foreign earned income exclusion, $91,500, and may be ableto claim a housing exclusion.
• These items expired at the end of 2009 but may be reinstated by year-end: Tax-free IRA distributions to charity; tax deductions for state and local sales taxes and teachers’ supplies; the college tuition tax break; and the extra standard deduction for real property taxes paid by non-itemizers.