I was excited to start writing the blog this morning, until doing a little research on the topic has put me into an anxiety-ridden Monday morning state of mind. Late last week, I was scanning the numerous emails I receive regarding the latest happenings in the world of state and local taxes and something caught my eye.

I found it interesting that Florida is struggling to finalize two major elections, yet managed to pass an amendment to the State Constitution requiring judges in state court and hearing officers in administrative hearings to no longer defer to a government agency’s interpretation of a statute or rule. The ballot measure appeared like this:

A tried-and-true year end tax strategy is to make charitable donations. As long as you itemize and your gift qualifies, you can claim a charitable deduction. But did you know that you can enjoy an additional tax benefit if you donate long-term appreciated stock instead of cash?

2 Benefits from 1 Gift

Appreciated publicly traded stock you’ve held more than one year is long-term capital gains property. If you donate it to a qualified charity, you may be able to enjoy two tax benefits:

1. If you itemize deductions, you can claim a charitable deduction equal to the stock’s fair market value, and
2. You can avoid the capital gains tax you’d pay if you sold the stock.

Donating appreciated stock can be especially beneficial to taxpayers facing the 3.8% net investment income tax (NIIT) or the top 20% long-term capital gains rate this year.

If your estate includes forms of intellectual property (IP), such as patents and copyrights, it’s important to know how to address them in your estate plan. Although these intangible assets can have great value, in many ways they’re treated differently from other property types.

2 Estate Planning Questions

For estate planning purposes, IP raises two important questions:

1. What’s it worth? and
2. How should it be transferred?

Valuing IP is a complex process, so it’s best to obtain an appraisal from an experienced professional.

If you’re the owner of a small business, you may think of your tight-knit group of employees as a family. If you wish to include them as beneficiaries in your estate plan, it’s critical to be aware of possible unintended tax consequences.

Unraveling the (tax) Code

Generally, money or other property received by gift or inheritance is excluded from the recipient’s income for federal tax purposes. But there’s an exception for gifts or bequests to employees: Under Internal Revenue Code Section 102(c), the exclusion doesn’t apply to “any amount transferred by or for an employer to, or for the benefit of, an employee.”

The catchphrase “all politics is local,” most closely associated with former Speaker of the House, Tip O’Neill, can be and most certainly is interpreted many different ways by many different people. Regardless of the various interpretations, in my opinion the phrase can only have one meaning the day before possibly the most significant election since I have walked the face of this earth; get out and vote.

The phrases’ core meaning was and still means that a politician’s constituents are most likely to vote based on concerns that affect their day-to-day personal lives. While the core still rings true, in many ways the dawn of social media has made it more difficult than ever for us to determine what our elective representatives have done, will do, and plan on doing.

Some of your medical expenses may be tax deductible, but only if you itemize deductions and have enough expenses to exceed the applicable floor for deductibility. With proper planning, you may be able to time controllable medical expenses to your tax advantage. The Tax Cuts and Jobs Act (TCJA) could make bunching such expenses into 2018 beneficial for some taxpayers. At the same time, certain taxpayers who’ve benefited from the deduction in previous years might no longer benefit because of the TCJA’s increase to the standard deduction.

The Changes

Various limits apply to most tax deductions, and one type of limit is a “floor,” which means expenses are deductible only to the extent that they exceed that floor (typically a specific percentage of your income). One example is the medical expense deduction.

Because it can be difficult to exceed the floor, a common strategy is to “bunch” deductible medical expenses into a particular year where possible. The TCJA reduced the floor for the medical expense deduction for 2017 and 2018 from 10% to 7.5%. So, it might be beneficial to bunch deductible medical expenses into 2018.

If you hold significant real estate investments, tenancy-in-common (TIC) ownership can be a powerful and versatile estate planning tool. A TIC interest is an undivided fractional interest in property. The property isn’t split into separate parcels. Rather, each TIC owner has the right to use and enjoy the entire property.

TIC in Action

An individual TIC can’t sell or lease the underlying property, or take other actions with respect to the property as a whole, without the other owners’ consent. But each owner has the right to sell, mortgage, or transfer the TIC interest. This includes the right to transfer the interest, either directly or in trust, to heirs or other beneficiaries.

Fortunately, there were no winners in Saturday’s Mega Millions drawing. Why is this good news, you ask? It means that we all have a chance at Tuesday’s potential prize of $1.6 billion. It also means that we have an extra day to do some state tax planning before tomorrow’s drawing.

State tax planning and the lottery; what does that have to do with me? I buy a ticket, I win, I pay my federal and resident state tax, and I still walk away with a large sum of money, right? Well, yes, but if some states have their way, maybe a little less.

Many people choose to pass assets to the next generation during their lifetime, to reduce the size of their taxable estate, to help out family members, or simply to see their loved ones enjoy the gifts. If you’re considering lifetime gifts, be aware that which assets you give can produce substantially different tax consequences.

Multiple Types of Taxes

Federal gift and estate taxes generally apply at a rate of 40% to transfers in excess of your available gift and estate tax exemption. Under the Tax Cuts and Jobs Act, the exemption has approximately doubled through 2025. For 2018, it’s $11.18 million (twice that for married couples with proper estate planning strategies in place).

Even if your estate isn’t large enough for gift and estate taxes to currently be a concern, there are income tax consequences to consider. Plus, the gift and estate tax exemption is scheduled to drop back to an inflation-adjusted $5 million in 2026.

If you are about to receive an inheritance from a family member, you can use a qualified disclaimer to refuse the bequest. The assets will then bypass your estate and go directly to the next beneficiary in line. It’s as if the successor beneficiary, not you, had been named as the beneficiary in the first place.

But why would you ever look this proverbial gift horse in the mouth? For beneficiaries who already have large estates themselves, using a legally valid disclaimer can save gift and estate taxes, often while redirecting funds to where they ultimately would have gone anyway.