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  

2013 Estate Tax Changes Lincolnshire IL

by: Alan Orlowsky

The New Year brought with it some very Significant changes to the estate tax law. Without these changes, families with estate of $1 Million or more would have been subjected to estate and gift taxes.

The Good news is that for most families the primary goal for estate planning will be to make sure that your plan is comprehensive and remains up to date and relevant for you and your family. We suggest that you add this to your annual list of New Years Resolutions.

Some areas Orlowsky & Wilson often see opportunities:

1. Asset Preservation

This type of estate planning helps to protect your assets you leave for your children and grandchildren, thus preserving the assets for many years into the future and making sure they are used for good purposes. Failure to take advantage of available protections could mean that your hard earned assets end up being lost or wasted. Asset Preservation is a key part of estate planning that should not be ignored.

     2. Disability Planning

This type of planning makes sure that you and your loved ones are taken care of in the event that you become disabled. An Annual review can ensure that your disability planning documents are up to date.

     3. Planning to make a difference

Our colleagues report that many clients are asking about ways they can use their wealth to make a difference in their community or in the world. Often, this type of planning can be tied to helping children (and grandchildren  learn how to be responsible with significant sums of money. They opportunities for philanthropic giving are limitless and can be personally rewarding in addition to helping to reduce income tax.

Of course, these are just three ideas out of many that could provide benefits to you and your family.

Summary of 2013 estate tax changes:

The biggest impact for the new tax law is that the estate and gift tax exemption will not fall back to $1 Million as many experts had predicted.

The new estate and gift exemption is set at $5.12 Million per person ($10.24 Million for most married couples.) The exemption amount is indexed for inflation and is will rise automatically over time. The tax rate for taxable gifts and estates is set at 40%.

If you have questions, click here to contact us and set up a time to discuss your situation and how we can help.

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

Who Do You Trust? Lincolnshire Power of Attorney

Who do You Trust? Let's Talk about it.

An Article by Alan Orlowsky. For more information please visit our website.

What is Power of Attorney? A power of attorney is the grant of authority to act for another person in legal financial matters.

A Colleague recently related the following story, illustrating how powers of attorney can be abused. Her Client, Gloria had started thinking about going into an Adult Living Community because taking care of the house was getting to be more and more of a chore. Several of her clients Friends had already made the move and loved it.

Gloria called a Realtor who did research on the value of the home and came back with some disturbing news. The Realtor told Gloria the house was not worth as much as the mortgage.

This really caught Gloria by surprise. To her knowledge, the house mortgage had been paid off whether husband dies eight years earlier. She called the attorney who had been involved and asked for help. He told her that indeed the old mortgage had been paid off, but a new one had been put on the property by Gloria's son less than a year later for $300,000. All without her knowledge and permission.

Gloria had no idea how this had happened. The attorney told her that her son Mike had used the power of attorney she had given him to take out the mortgage.

When confronted, Mike admitted that he had borrowed money against the house. It turned out that he had a gambling problem and needed the money to pay outstanding debts. He had been paying the mortgage on the property from his cash flow but was just about out of money and it looked like the house might go into foreclosure.

Her lawyer contacted the police. The police said that it was a money matter between family members and that they were not going to get involved. Even if they had been willing to get involved, it is unlikely that Gloria would have pressed charges or that it would have solved Gloria's real financial issue, which was how to save her house from foreclosure.

With an aging population, this type of incident is starting to happen with more frequency. Enough so that lawmakers throughout the US are starting to pass laws to increase oversight, limit powers and make this behavior criminal.

While this is good, it may not be enough. What Gloria needed in her case was a greater level of oversight.

Orlowsky & Wilson have different methods for helping our clients work through these types of issues. But each family situation is different. If this is something you need to discuss, contact us today.

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

Considering the transfer of significant wealth in Illinois

Give it or Keep it (or Do Both) 
By: Alan G. Orlowsky, C.P.A.

Many planning professionals are talking about the fact that 2012 is a banner year for those considering the transfer of significant wealth. As many already know, the current federal estate and gift tax exemption is at an all-time high at $5,120,000. The bad news is that it is scheduled to go back to $1,000,000 unless action is taken by Congress and the White House causing a lot of uncertainty for the second time in three years. For a detailed explanation on Gift Taxes click here.

Some of our clients are seizing this opportunity to give away a substantial sum of money to their family. Others have decided that giving away money at this point in their lives is too stressful, not knowing what the economy or the future will bring. These families are concerned about whether they will have enough to live on if they make a substantial gift.

These last two groups of clients might find it easier to give if they were aware of a planning technique called spousal access trust. As with most estate planning strategies, this one has some complexity, but many find the advantages of these trusts to outweigh the time and expense that comes with this complexity.

The idea is to begin by creating a trust for your spouse and "gift" or transfer assets to this trust, using your exemption to cover the gift. Your exemption is the amount of money up to $5.12M in 2012 that you can pass tax free to your heirs. Transfers that exceed $5.12M is gifts will be taxed.

If your spouse needs the money, the trustee has the power to make a distribution. If not the trustee can hold the asset in the spousal access trusts to protect them from future estate taxes.

Careful consideration must be given to which spouse should create this trust and fund it. If the beneficiary spouse passes first, the surviving spouse would lose access to the funds. Many think the best way to avoid either spouse losing access to these funds in the event would be to have each spouse set up a similar spousal access trust. This is possible but expert guidance should be sought to ensure the language, structure and functionality of the trusts provide the desired outcome.

If you are hesitant about making such a large transfer of wealth to your children and grandchildren for fear of losing access to available funds, consider using a spousal access trust.

If you have questions, visit our website to set up a consultation and discuss options.