Schedule A Deductions Disappearing Northbrook IL

Lets Talk About......Schedule A Deductions Disappearing
By Alan Orlowsky

According to the Huffington Post, former White House press secretary Ari Fleischer said he would likely give less to charity in 2013 because of new limits on Schedule A itemized deductions.

In talking with a number of Tax professionals, there seems to be a lack of consensus about how much the new law will actually reduce charitable deductions and other itemized deductions like those for state income tax, real estate and mortgage interest.

This article outlines what the new law really means in this area.

If you want to see how the new law affects you, follow the link to use an interactive calculator. http://inknowvision.com/agi_limits/agi_limits.htm

What does the new law do?

The New law brings back the Pease Amendment which was canceled during the Bush Tax Cuts. The Pease Amendment reduced itemized deductions for high income earning taxpayers. The effect was to make tax rates higher for those taxpayers without actually changing or increasing the rates.

What itemized deductions are subject to being reduced?

Deductions for mortgage interest, state income tax, real estate tax, sales tax, personal property tax, points paid for a loan, mortgage insurance premiums, charitable gifts, job expenses, and tax preparation fees.

What deductions are not subject to being reduced?

The reduction does not apply to deductions for medical expenses, investment interest, casualty and theft losses, and gambling losses (which can only offset gambling winnings included in income).

Who does it affect?

1. Married Taxpayers filling jointly earning over $300,000 per year.
2. Married Taxpayers filling separately earning over $150,000 per year.
3. Single Taxpayers earning over $250,000 per year.
4. Single head of household Taxpayers earning over $275,000 per year.

How much is the reduction?

The reduction is equal to 3% of the amount over the threshold.

Can you provide an example?

Let's say you are a married filling jointly taxpayer earning combined adjusted gross income of $500,000. In addition, you have mortgage interest, charitable deductions and state income tax totaling $80,000. You would lose $6,000 of your itemized deductions and you would be able to deduct $74,000.

If you have questions about this post or about a particular legal situation, please contact Alan Orlowsky by calling 847-325-5559 or visit our website at http://www.orlowskywilson.com

This video is from the Radio Show "Left Right & You"
Tax Discussion - part 2 of 2
With Tim Elanz & Paul Edwards

Guest Speaker Alan Orlowsky

If you have questions about this post or about a particular legal situation, please contact Alan Orlowsky by calling 847-325-5559.

This video is is from the radio show "Left, Right & You"
Tax Discussion
With Tim Elanz & Paul Edwards

Guest Speaker Alan Orlowsky

This is a Tax Discussion. Part 1 of 2

If you have questions about this post or about a particular legal situation, please contact Alan Orlowsky by calling 847-325-5559.

When to Use Life Insurance in Estate Planning - Lincolnshire IL

When to use Life Insurance in Estate Planning

Many of our clients have been watching the recent estate changes and wondering if they should continue to hold on to their life insurance. Others are asking if they should be purchasing life insurance. This article is not so much about different types of life insurance or an analysis of life insurance companies, but rather is a look at situations where life insurance can provide value to you and your family.

1. Estate Tax

The recent change in federal tax law raising the estate tax exemption to $5.24M means that fewer people will be subject to federal estate tax. However, for those who will be subject to this tax, life insurance remains one of the best ways to provide for payment of the tax.

Not every state has an estate Tax, but several do. If you own property in a state that has such a tax or if you are thinking about moving to such a state you will want to calculate the approximate tax due. Once done, you may want to consider life insurance for purposes of paying the state estate taxes.

Life insurance can create liquidation of valuable family assets such as business, art, and real estate and investment holdings.

2. Liquidity - Inheritance Balancing

Many clients own assets that are not readily susceptible to equal division among children or grandchildren. Examples include businesses, real estate  art, and collections where it might be better if not divided among family members. In such cases, life insurance can be used to equalize an inheritance allowing a business owner or collector to pass the business or collection to the child that is running the business or interested in collection and using the life insurance proceeds to equalize the family inheritance to other children.

3. College Education

Life Insurance can be helpful in the case of a breadwinner who dies while his or he children are still young. Proceeds can be made available for college, private school or trade schools. Of course, insurance can also be employed to provide education for grandchildren in the case of the death of a family patriarch or matriarch. People have also used a life insurance funded trust to provide a pool of education money for many generations to come.

4. Vacation Home Maintenance

Many Clients own second homes and want to pass those homes on to their children to enjoy. Unfortunately, home ownership has expenses associated with it and not all children have the wherewithal to fund those expenses. Here is another case where life insurance on the senior family members can be used to provide a fund that can perpetually maintain the family vacation home.

5.Special Needs Children

One area where life insurance can be extremely powerful is with regard to trusts funded with life insurance for special needs children. Such a fund may be set up to allow life insurance proceeds to be a supplemental benefit in addition to any state or federally provided benefits. This type of funding can make the difference between subsistence living and a better quality lifestyle. Keep in mind that this area of law is currently in flux and so be sure to check with us prior to establishing such a trust to make sure it will work as anticipated.

Life insurance is certainly not the answer to all estate planning issues, but should be considered if it can be used to help you accomplish your planning goals.


If you have questions about this post or about a particular legal situation, please contact Alan Orlowsky by calling 847-325-5559 or visit our website: www.orlowskywilson.com