The good news is that you have options available. You may even be eligible to get a “fresh start” through a relatively recent IRS initiative. At Resnick Law, P.C., we are here to help and make sure that you have the information, tools, and resources you need to protect your rights and interests. 

What is the IRS Fresh Start Program?

In 2011, the IRS created the “Fresh Start” Program to help individuals and small businesses struggling with tax debt. The primary purpose of the program is to give the agency additional flexibility when dealing with struggling taxpayers, and to help them get back into good standing with the federal government. The program provides the IRS with significantly more authority to settle outstanding tax debt for less than the remaining balance. 

A Taxpayer May Qualify for an Offer in Compromise (OIC)

Most notably, the Fresh Start program grants the IRS greater authority to enter into an Offer in Compromise (OIC) with a taxpayer. Simply put, an OIC is an agreement between the IRS and an individual taxpayer or small business that settles tax debt for less (often, this can be much less). 

The IRS has the ability to narrowly tailor a tax debt settlement agreement to meet an individual or company’s unique circumstances and ability to pay.  Oftentimes, this allows a federal tax debt to be settled for pennies on the dollar. 

Key Factor: Reasonable Collection Potential 

While the IRS Fresh Start program certainly makes it easier for people and small businesses to resolve tax debt, the IRS can still be challenging to deal with (as you probably already know). The IRS is not in the business of simply writing off tax obligations without good cause. So, in part of reaching an Offer in Compromise (or settlement agreement) with the taxpayer, the IRS will look at and determine an applicant’s “reasonable collection potential.” 

Put another way, the IRS tries to calculate how much a taxpayer can pay without putting a serious financial burden on themselves or their family. If you are seeking an OIC through the Fresh Start program, it is crucial that you submit a strong, well-documented case. An experienced Michigan tax relief lawyer can help you get a favorable settlement with the IRS. 

Call Our Detroit, MI Tax Debt Relief Lawyers Today 

At Resnick Law, P.C., our Michigan debt relief attorneys have the skills and experience to help clients resolve and deal with tax debt issues. If you have any questions about the IRS Fresh Start program, we are here to help you find the best solution and provide the best resources. Contact our firm today for a free, fully confidential consultation. With a main office in Bloomfield Hills, we represent clients throughout the region, including in Oakland County, Wayne County, Macomb County, Livingston County, and Washtenaw County. 

There are many consumers who look forward to getting substantial tax refunds each year. These funds may be used as savings, to pay for various expenses, or to pay off existing debt. Consumers who have made plans to spend their tax refunds may be concerned about the ability of existing creditors to garnish those tax refunds.

Generally, private creditors – creditors who are not government creditors – cannot garnish a person’s federal tax refund. Federal tax refund garnishment is usually restricted to garnishment by government agencies that are owed money by the taxpayer. In Michigan, however, a private creditor can have a state tax refund garnished by first petitioning a court for a judgement.

With a judgement in hand, the private creditor can seek a writ of garnishment from the Michigan Department of Treasury to intercept a debtor’s tax refund. The writ can apply to garnish or intercept a debtor’s refund once to settle a debt owed to the judgment creditor. There is a fee for garnishment, and the creditor can make one payment when filing for several garnishments.

When a creditor has initiated a garnishment with the Michigan Department of Treasury, the debtor who owes the debt, and the court that permitted the garnishment, are notified of the impending garnishment. If the debtor does not wish to have his or her tax refund intercepted, he can make arrangements to pay the debt in advance and avoid the garnishment.

The debtor may try to avoid losing the tax refund by negotiating with the creditor to set up a payment plan to pay off the debt gradually instead of all at once. Once the creditor has already received a final judgment on the debt, and has taken steps to start garnishment, the creditor may not be willing to negotiate with the debtor. If the debtor has not been successful in keeping to a payment plan in the past, he is not likely to keep up with a plan unless the debtor’s financial circumstances have changed. The creditor has to consider issues such as how much of a refund a particular debtor may receive in deciding whether or not to allow the debtor to pay off the debt in installments.

In addition to seeking to garnish a debtor’s tax refund, a creditor can seek garnishment of a person’s wages as well as lottery winnings. Creditors can also choose to sell a debt that is considered uncollectible to a collections agency or firm, often for pennies on the dollar. If the debtor has filed for bankruptcy before the creditor has been fully repaid, the creditor may still have an opportunity to collect on the debt if the debt is recorded and secured.

Contact an Experienced Creditor’s Attorney

For more information on how you can best collect a debt with minimal costs to your organization and how to deal with debtor bankruptcy, you need to consult an experienced creditor’s rights attorney. Contact us at Resnick Law, P.C., in Bloomfield Hills and Detroit, Michigan to schedule a consultation.

(image courtesy of Sharon McCutcheon)

Most people never think about what the gift tax is because a combination of annual exclusions and a lifetime exemption prevents taxpayers from owing any actual tax, currently. Might that change after 2017?

How the Gift Tax Works

When it comes to gift taxation, the U.S. uses a system that combines gifts made during one’s lifetime with bequests left in one’s estate at death. The person who gives the gift is the one who may owe gift tax.

Thankfully, lawmakers didn’t want to charge the IRS with policing every minor gift that people made, which is why there’s an annual exclusion amount that exempts you from having to pay any gift tax. For 2016 and 2017, you can give up to $14,000 per year without any gift tax liability, according to the U.S. Dept. of Treasury. In addition, you can make as many of those $14,000 gifts to different people as you want, because it’s a per-person limit, not a total limit.

Yet, what happens if you give someone $15,000? The $1,000 in excess of the annual exclusion amount is “theoretically” subject to gift tax and you’ll have to file a gift tax return. However, most taxpayers also have access to what’s known as the lifetime exemption. For 2016, that amount is $5.47 million, and it goes up to $5.49 million in 2017.

So, if this were your first such gift, then the taxable amount of the gift would use up $1,000 of your lifetime exemption, leaving you with $5.489 million to use for the remainder of your life — and in calculating estate taxes after your death. You wouldn’t actually owe any out-of-pocket tax until you used up your lifetime exemption amount, which is rare for any but the wealthiest Americans.

Different Gifts, Different Limits

The gift tax rules also acknowledge several types of gifts for which higher limits, or no limits at all, apply. There are four categories that are most frequently used:

1. The marital deduction allows most spouses to make unlimited gifts to each other without any gift or estate tax liability.
2. The charitable deduction exempts any charitable gifts from the gift tax rules.

3. You can make payments for educational expenses on behalf of a student, and as long as you pay the money directly to the educational institution in question, you can avoid gift tax on the full amount. (This provision is not available if you write a check to the student and the student then uses that money on educational expenses.)

4. Similarly, you can make payments to cover medical expenses for someone else without owing gift tax. However, those payments must be made directly to the doctor, hospital, or other medical services provider. If the money goes through the person owing the medical expenses, it won’t qualify, and you could potentially have to pay gift tax on any portion that exceeds annual exclusion amounts.

The True “Taxable” Gift

The only situation where you have to file a gift tax return with the IRS (on Form 709) is if your total gifts to any one person exceed the annual exclusion amount of $14,000. That keeps most people from having to file returns at all. For more on Form 709 and how to fill it out, consult your trust and estate attorney or your Certified Public Accountant.

As the holiday season begins to peak remember that, for most people, the gift tax shouldn’t be a concern. Only those making large gifts will need to pay closer attention to the gift tax rules and the ins and outs of filing returns with the IRS.

Net Operating Losses

For many investors, buying income-generating real estate isn’t too different from buying corporate bonds or stocks. But there is one major advantage: losses on rental properties can be deducted from taxable income.

Getting that provision into the tax code was a rocky road. In 1986, Congress passed a law that treated virtually all investments in rental real estate properties as passive investments (much like stocks or bonds).

This meant property owners could no longer deduct any operating losses on their properties from their taxable income. In the following years, property prices went into a tailspin. Legislators blamed the 1986 law in part for causing the Savings & Loan crisis by discouraging investment in real estate, according to a 1994 Chicago Tribune report. So they changed the rules again.

Since 1993, rental property owners can deduct operating losses on their properties from their taxable income, provided they spend at least half their working hours and at least 750 hours a year as a “real estate professional.”

Other Mechanisms of Tax Reduction

Depreciation is the most famous — and counterintuitive — way real estate investors can shrink their tax bill. The IRS treats real properties as assets that lose value over time, along with cars, desks and refrigerators.

Property owners can deduct a certain portion of a property’s value every year until that value reaches zero. For residential rental properties, the typical depreciation period is 27.5 years, according to the IRS website.

As useful as depreciation is to property owners, it is a gradual process and rarely generates a sudden sizeable loss.

Another way developers can lower their tax exposure is through cancellation of debt, or outstanding debt that has been forgiven after negotiations. Typically, this kind of debt forgiveness is treated as income on a tax bill, but current laws allow taxpayers to deduct this debt if it is tied to Chapter 11 bankruptcy or if the taxpayer is insolvent — meaning their debt is greater than the total market value of all assets

Developers have long used these strategies. After a recent article in The New York Times about Donald Trumps reported losses — $915,729,293 — on his tax forms in 1995, tax services firms sought to seize the moment by sending out email blasts advertising their tax reduction services.

One email from South Florida-based Property Tax Appeal Group, titled “Donald Trump Knows How to Avoid Taxes in Real Estate,” urged investors to file property tax appeals and “take advantage of what the law allows.”

“This is truly a win-win situation,” the email read.

Photo courtesy of seniorliving.org

That April 15^th (or this year, April 18^th) deadline looms large over many of us, causing us to put all sorts of items on our financial and business plan to-do list on hold, held in a stasis until our filing is complete.

But now the taxes are hopefully behind you (expect for you extension filers). It’s a great time of year to do some reflection and consider what you have been putting off for far too long:

• Updating and/or creating your estate plans. Estate plans are not a one-shot document. Life changes occur. New children, grandchildren, marriages, even illnesses or debilitating events may have an impact as to how your finances are organized. Now is a good time to review your documents and discuss them with your attorney to make sure they are current and reflect what you want.
• Tax planning far in advance to alleviate the sting of April 15, 2017. May and June are great times to discuss with your tax attorney and your accountant what steps you can take advantage of to lessen your future tax burden. Not only will these professionals now have the time to meet with you to have such a conversation, they will be thrilled to be on the planning end of things and not just the filing end. Thinking through the course of the year, are there capital investments including equipment purchases that you should make by December 2016? Are there bonuses or payments that should occur in 2016 or should they occur in 2017? What hiring decisions do you anticipate making in the next year? Are they any timing consequences to these decisions?
• Review significant business documents. If you own your own business, you may be wallowing in documents of all types. But there are few key ones that need regular review and even tweaking. These include but are not limited to employee handbooks, operations manuals, finance and payroll documents, and even emergency procedures.
• Compare health care plans. You are likely to have a yearly re-enrollment date for your health care plan. Regardless of the date, take time to compare what’s out there and be sure the plan you are selecting is working well for your family financially and in terms of care. Now that the taxes are done, you may also have an aggregate amount of unreimbursed health care costs. Are you taking out enough from a health savings account or are you taking out too much and leaving that money on the table? If you or your spouse will be phasing into Medicare within the next year, do the research now on which supplemental insurance you want to purchase.

Conduct your own legal spring cleaning right now, locating relevant documents, consulting with expert advice and moving from putting out fires to moving forward in a planful, comprehensive manner.

While similar in concept, the differences are both critical and key to making an informed decision about the best device available for your estate planning. Here are some of the major differences between the two devices that can help you determine which type of trust is more suitable to your needs.

1. Ownership of Property

Once assets are placed in an irrevocable trust, the property no longer belongs to the Grantor; it now belongs to the trust. That doesn’t mean you can’t still reside in your home of 30 years, but technically you no longer own it; the trust is now the owner. This is different from a revocable trust, where the Grantor retains completed ownership of the property.

2. Modification

An irrevocable trust agreement generally cannot be changed, amended, modified or revoked even with a court order, thus offering the coveted asset protection, whereas a revocable trust allows the instrument to be modified or revoked at the Grantor’s discretion; this means that the assets in a revocable trust are still available for anyone to take.

3. Estate Taxes

With an irrevocable trust, since the Grantor no longer owns the property, it is not included in calculations of the total value of property at the time of death. With a revocable trust, since the Grantor still owns the property, the value of the property in the trust will be included in the calculation of the total value of property at the time of death.

4. Protection of Assets

With an irrevocable trust, since the assets in the trust no longer belong to the Grantor, they are generally protected from creditors or from other claimants. This serves to protect assets from the claims of creditors, Medicaid, and even divorcing spouses. Conversely, with a revocable trust, the assets are not protected; since the Grantor retains full control and power over the assets, he is still liable for legal claims against the assets.

5. Appointment of Trustee

With an irrevocable trust, the Trustee generally is, and should be, an independent person chosen by the Grantor in order to create a fiduciary duty to protect the assets — family members acting as a Trustee usually do not offer this benefit. With a revocable trust, the Grantor often also serves as the Trustee, maintaining control over the assets in the trust.

6. Income Tax Return

With an irrevocable trust, generally, the trust has its own tax identification number (EIN), files a 1041, and then either pays the tax itself (not typical) or issues a K-1 to the Grantor (or the Beneficiaries if Grantor is deceased) for income that flows through to the recipient’s 1040 return through Schedule E. With a revocable trust, there is no such discrepancy; the taxpayer files everything on their 1040 as if they personally owned the assets that generated income — because they do own the assets.

As with all estate planning, the laws can change, so a consultation with an expert is advised before determining which device is more appropriate for your situation.

Last January, the Detroit Free Press reported that home prices across Southeast Michigan have risen back to 2007 levels. However, for many homeowners, the prices they sold their homes for may still not be as great as what the purchase price was.

Because of that fact, in December 2015 Michigan Governor Rick Snyder signed into law legislation that people who sold their homes on or after June 24, 2011 may be entitled to a refund of the transfer tax that they paid to the State of Michigan — if the state equalized value (SEV) of the home at the time of sale was less than the SEV at the time of purchase. The legislation was in response to a Michigan Supreme Court ruling that expanded refund eligibility in these circumstances.

In other words, if you sold your home for less than what you purchased it for, and it was your principal residence, you likely are now eligible for a refund of the transfer tax you paid to the state.

Of course, there are some catches …

In order to claim the exemption, three conditions must be met at the time of sale:

1. The property must be claimed as the seller’s principal residence.
2. The tax-assessed value of the property (or, state equalized value “SEV”) must be lower in the year of the sale than the year in which the property was purchased.
3. The property must have been sold for a price in which a willing buyer and a willing seller would arrive through arm’s length transactions.

And according to the Michigan Department of Treasury Form 2796 (Application for State Real Estate Transfer Tax [SRETT] Refund), transfer tax refunds can be applied for up to four years and 15 days from the date of sale.

The SRETT can be a significant amount of money, so it shouldn’t be ignored. As an example, if the sales price of your house was $200,000, you could be eligible for a $1,500 refund.

In early July of 2015, the Michigan Supreme Court issued an expansive opinion providing many more Michigan homeowners the right to claim an exemption from the SRETT assessment of $7.50 for every $1,000 in value that was sold.

While the exemption has been available to Michigan homeowners for a number of years, the Supreme Court’s opinion and the subsequent legislation greatly expanded who is eligible for it.

For more information on whether you may entitled to a refund of your transfer tax or other real estate matters, call Resnick Law at 248.642.5400 or click here.

Photo courtesy of http://401kcalculator.org

With tax season quietly approaching, it’s time to think about how to maximize your returns. What if a few thousand dollars suddenly hit your bank account? What would you do with that money?

That will be a reality for many Americans this tax season as, according to a recent survey by Straight Talk Wireless, Americans on average expect to receive around $2,000 back on their tax refund this year. Use this time to reap your maximum refund rewards.

In the survey, 90 percent of respondents said tax season is a good time to think about how to save money in other areas — with 84 percent thinking a tax refund is a good way to jumpstart healthy financial habits. Follow these eight tips to help make your refund go further:

1. Don’t think of your tax refund as “fun” money. Sixty-eight percent of Americans said it’s easy to accidentally spend “fun” money on items they don’t really need, but by taking a step back and thinking long term you can make savings choices to help your refund stretch all year long.
2. Be a saver. When it comes to tax refunds, Americans are split: 52 percent think you should spend it and 48 percent think refunds should be tucked away in savings. Good financial habits start with saving. Which side will you be on this year?
3. Resist the urge to splurge. Just nine percent of Americans filing taxes this year said they’re likely to use their tax refund to splurge on a big-ticket item. Instead, consider using tax refunds to establish good financial habits, such as cutting unnecessary bills. Make a list of monthly expenses and take time to reevaluate your spending on things like food, utilities or your monthly cell phone bill. You’re almost guaranteed to find ways to cut back and reduce costs.
4. Start Immediately. Procrastination is just going to make things worse. Pressure will increase as tax-filing day draws nearer and it’s more likely that you will have problems finding vital paperwork or will make mistakes filling out your form. Get started on your taxes as early as you can and gather some positive momentum.
5. Organize Your Paperwork. Hopefully you have been storing and organizing important tax documents and necessary receipts throughout the year — but if so, you probably would not be reading an article about how to prepare for tax day. Start by gathering the basic tax documents. Last year’s tax return, W-2 forms, 1099-MISC forms for any independent contracting work, other 1099s forms for things like bank accounts and brokerage statements, and 1095 forms to prove health insurance status. After securing all the basic documents, move on to receipts for all itemized deductions. Speaking of deductions …
6. Explore Deductions. You may not even realize how many itemized tax deductions that you have and simply assume the standard deduction is the best choice. Review the instructions for Schedule A and IRS Publication 529, “Miscellaneous Deductions” to see all the options available to you. Do not forget about “above-the-line” deductions like educator expenses and health savings account (HSA) deductions. You can take those deductions whether you itemize or not.
7. Max Out Your Retirement Contributions. Even though it is now 2016, you can still make contributions to your IRA until the tax-filing deadline in April and credit those contributions to your 2015 taxes — as long as your contributions for the year stay within the $5,500 limit ($6,500 if you are over 50 years old). Schedule your retirement contributions in a way that brings you the greatest tax advantage.
8. Seek Professional Assistance. Complex tax situations are best left to the professionals. You may be able to do your own taxes adequately, but a competent tax professional may be able to find you enough refunds to pay for their services and then some — and even if they cannot, you can enjoy greater peace of mind by not having to struggle through the tax forms yourself.

For more information on taxes and investment advice, contact the business attorneys at Resnick Law by clicking here or calling 248.642.5400.