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Articles Tagged with tax law

By Nathan Vinson, Attorney 
English, Lucas, Priest and Owsley, LLP

just married photoAs early as 2000, states began grappling with the issue of same sex marriage. Some states allowed unions. Some allowed marriage. Some didn’t allow either. Now, with the U.S. Supreme Court’s decision in Obergefell v. Hodges, all states must allow and recognize same sex marriages. So moving forward, what happens at tax time if you’re married in one state but live in a state that previously didn’t recognize same sex marriages?

The American Bar Association offered an online Continuing Legal Education seminar by attorneys Patricia Cain and George Karibjanian recently to help tax attorneys sort through some of the more difficult legal issues surrounding same sex marriage.

It’s been a mess, frankly, for same sex couples.

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By Nathan Vinson
Attorney, English, Lucas, Priest & Owsley, LLP

Tax season is behind us (ahh, it feels nice to type this…) but it’s never too early to remind folks what to look for in a tax preparer – particularly given the news out of the U.S. Department of Justice earlier this year.

2015-02-02 16.45.14The U.S. Department of Justice banned a Kentucky man from preparing tax returns for life after auditing several of his clients’ returns. He offered a service in which he would go to the home of a client and prepare their tax returns on the spot, but he filed fake deductions, including using his own relatives as dependents on their returns and falsifying letters from churches indicating that people had donated money that they had not. He is banned from preparing taxes for life, and rightly so. The Internal Revenue Service takes incidents like this very seriously and has taken a necessary step to help keep the tax preparation industry free of con artists.

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race ticket with cash
By Nathan Vinson
Attorney, English, Lucas, Priest & Owsley, LLP

Ah, spring in Kentucky. If you automatically think of horse racing when you read that statement, you’re not alone – lots of folks do. It’s a great pastime particularly beloved in the Bluegrass State.

This year, we’ve watched the rise of American Pharaoh as the horse that won the Kentucky Derby and Preakness. Next up is the Belmont Stakes, set for June 6 in Belmont Park, Elmont, New York. If American Pharaoh takes the Belmont Stakes, he will be the first Triple Crown winner since Affirmed in 1978. The allure of picking a Triple Crown winner often draws a lot of interest from long-time gamblers and novices alike, so we thought we’d review with you what happens if you do, indeed, win big at the track.

If you are clutching that winning ticket as your pony crosses the finish line, it’s a safe bet that the government wants a cut of those winnings.

There are two ways to win at the track: (1) bet on a horse or (2) own a horse. The government is only interested in knowing about your win as a gambler if you win $600 or more, and if your winnings are at least 300 times your wager (e.g. winning $600 on a $2 bet). Of course, all winnings, no matter what the amount, are taxable.

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computer Every tax season, there are at least a few of us who have some unwelcome surprises. Some discover they were not nearly as organized as they should have been, and can’t find receipts for items they wanted to write-off as business expenses. Others may discover that they made more income than they anticipated, and they owe additional unanticipated taxes.

There are plenty more unwelcome surprises, sometimes having to do with divorce or custody issues. Couples sometimes trade off who gets to claim a child as a dependent, and misunderstanding whose turn it is leads to confusion (and fighting).

If you own your own business, or just make some side income from consulting, you may find out that you owe taxes because you didn’t pay enough estimated taxes during the year. That’s a common problem that we see often with clients.

The best time of year to address these problems is right now. Tax attorneys, accountants and other financial professionals aren’t quite as busy as they are in the first and last quarters of the year executing year-end transactions, followed by preparing returns for clients, and the mistakes you made in 2014 are fresh in your mind. A few simple tips and tricks can get you ready for April 15, 2016.

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documents photoIn our last post, we discussed how divorce affects an estate plan. A thorough review of all estate documents is critical post-divorce to ensure you’ve covered every conceivable scenario and changed every document necessary. Allowing an attorney to do that review for you is always in your best interest, as attorneys have a keen eye for details and wording that may escape even a close reader who does not have legal training.

Taking this matter one step backwards, though, we’re examining annulment versus divorce in this post. While both lead to the same conclusion – you’re no longer married – these two scenarios have very different consequences when it comes time to pay taxes.

Both parties may file as married at tax time if they were still legally married at the end of the calendar year. Options include filing a joint tax return, as many married couples do, or checking the married but filing separately box.

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housesMany elderly clients feel the need (and rightfully so) to plan for the protection of their home from creditors, including government interests, during their elder years and after their death. It is too often forgotten the planning tools available that provide benefits now rather than later. In line with our recent posts regarding tax issues and real estate (see Life estates and Kentucky inheritance in estate planning), we would like to share some little known potential federal tax savings for the elderly community. Here are two illustrations of what you can do now to protect what’s likely your biggest asset: your home.

Having a child live with you

The United States Tax Court recently decided a case where a son moved into his mother’s home to take care of her after her divorce from the son’s father. The son could not afford to purchase an interest in the home, but he orally agreed to make the monthly mortgage payments, and in exchange, his equity interest in the home would gradually increase (presumably by the amount of principal on the mortgage that the son paid down). The son filed his IRS Form 1040, claiming a mortgage interest deduction for the tax year that he first began living in the home and caring for his mother. The IRS denied the deduction and imposed a substantial penalty. The Tax Court held that the son’s deduction was proper, and thus generally held that interest paid on another’s mortgage can be deducted. The Court explained that even though the son was not liable on the home loan secured by the mortgage, and that the ”indebtedness generally must be an obligation of the taxpayer and not an obligation of another,” the son could claim a deduction for the mortgage interest he paid because he was an equitable owner of the home (Phan v. Commissioner, Tax Court Summ. Op. 2015-1).This case represents a unique planning tool for the elderly community.  A person may planto pass down his or her home to a child or children at death, but would like to remain in the home. However, the person may also have trouble paying the mortgage on the home. A child or children may move into the home, agree to pay the monthly mortgage in exchange for equity in the home, and properly claim a mortgage interest deduction for federal tax purposes.

tax law booksBy Nathan Vinson, attorney

English, Lucas, Priest and Owsley, LLP

Life estates have long been an efficient and simple succession planning device for those who want to leave their homes to loved ones when they die.

Here is a basic illustration of how it works:  Mom has survived Dad and owns her house outright.  She still lives in the home, which has a value of $300,000.  Mom wants to leave the home to her Son at her death.  So, Mom gives her house to the Son (the “remainder interest”) and reserves the right to live in the home during her life (the “life estate”).

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