By Nathan Vinson, Attorney
English, Lucas, Priest and Owsley, LLP
Most of us want to do the right thing when it comes to taxes.
MOST of us. Or, perhaps we just don’t look good in orange.
If we legitimately owe taxes on our income or an inheritance, we understand we have to pay. This is part of being an adult. (The boring, terrible part.)
But it’s not as simple as writing a check to pay an invoice. Taxpayers, especially in Kentucky, are left to decipher the state’s tax laws and decide if it applies to their situation. More often than not, Kentucky tax laws are not black and white.
An example of this is paying taxes on inherited Individual Retirement Arrangements (IRAs). If someone dies with funds still in an IRA, and it goes to the beneficiary, are there situations where a nonexempt beneficiary can still avoid paying inheritance tax? You may not be surprised that you will get two completely different answers to this depending on who you talk to.
It’s this type of contradiction that brought the Kentucky Chamber of Commerce and the Kentucky Society of CPAs to form an alliance to work with Kentucky government to provide consistent answers to consumers and tax professionals who are seeking tax advice. This is a much needed step in the right direction in Kentucky, which needs to update its tax code and make the state much friendlier to businesses, their owners and their executives who want to locate here. These steps are also great for consumers, who need good resources and consistent information on tax policy so they understand how to comply with tax law.
The Kentucky Chamber reports that the measure they pushed for this past legislative session didn’t pass, but some good first steps came out of those meetings. First, the Department of Revenue reviewed its tax notification system, which is very much needed, and second, the Department of Revenue created a tax-practitioner only hotline. This is good for our clients, as we aren’t spending our time – that our clients are paying for – on hold waiting for help, and we’re more likely to speak with someone who is closer to the policy-making level who can give us solid advice.
Kentucky tax law is only one aspect of what makes determining tax liability difficult. On top of that, there are of course federal tax laws. Those laws change depending on who is in Congress, and how the political winds are blowing. In times of prosperity, the rally cry may be to reduce taxes, and in lean times, Congress may be more invested in eliminating loopholes for the wealthy. Estate taxes are one of those areas that tends to wax and wane. How all of that interacts with state law is confusing at best.