No matter how much effort you’ve invested in crafting an estate plan, your will, trusts and other official documents may not be enough. Consider also drafting a “road map.” Essentially, it’s an informal letter that guides your family in executing your plan according to your wishes.

What to address

Among other things, your road map may include:

• A list of important contacts, including your estate planning attorney, accountant, insurance agent and financial advisors,
• The location of your will, living and other trusts, tax returns and records, powers of attorney, insurance policies, deeds, and automobile titles,
• A personal financial statement that lists stocks, bonds, real estate, bank accounts, retirement plans, vehicles and other assets, as well as information about mortgages, credit cards, and other debts,
• An inventory of digital assets — such as email accounts, online bank and brokerage accounts, online photo galleries, digital music and book collections, and social media accounts — including login credentials or a description of arrangements made to provide your representative with access,
• Computer passwords and home security system codes,
• Safe combinations and the location of any safety deposit boxes and keys, and
• The location of family heirlooms or other valuable personal property.

If you’ve preplanned your funeral, include information about the arrangements. If you haven’t preplanned it, consider explaining your burial wishes in the road map.

Communicate your motives

Use the road map to explain your reasoning behind certain estate planning decisions. Doing so can go a long way toward easing disputes over your estate after you’re gone.

For example, perhaps you’re distributing your assets unequally, distributing specific assets to specific heirs or placing certain restrictions on an heir’s entitlement to trust distributions. There are many good reasons for these strategies, but it’s important for your family to understand your motives to avoid hurt feelings.

Finally, like other estate planning documents, your road map won’t be effective unless your family knows where to find it, so consider leaving it with a trusted advisor. Contact us if you’d like help drafting an estate planning road map.

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When preparing your tax return, we’ll check one of the following statuses: Single, married filing jointly, married filing separately, head of household or qualifying widow(er). Filing a return as a head of household is more favorable than filing as a single taxpayer.

For example, the 2023 standard deduction for a single taxpayer is $13,850 while it’s $20,800 for a head of household taxpayer. To be eligible, you must maintain a household, which for more than half the year, is the principal home of a “qualifying child” or other relative of yours whom you can claim as a dependent.

Basic rules

Who is a qualifying child? This is a child who:

• Lives in your home for more than half the year,
• Is your child, stepchild, adopted child, foster child, sibling, stepsibling (or a descendant of any of these),
• Is under age 19 (or a student under 24), and
• Doesn’t provide over half of his or her own support for the year.

If the parents are divorced, the child will qualify if he or she meets these tests for the custodial parent — even if that parent released his or her right to a dependency exemption for the child to the noncustodial parent.

A person isn’t a “qualifying child” if he or she is married and can’t be claimed by you as a dependent because he or she filed jointly or isn’t a U.S. citizen or resident. Special “tie-breaking” rules apply if the individual can be a qualifying child of more than one taxpayer.

You’re considered to “maintain a household” if you live in the home for the tax year and pay over half the cost of running it. In measuring the cost, include house-related expenses incurred for the mutual benefit of household members, including property taxes, mortgage interest, rent, utilities, insurance on the property, repairs and upkeep, and food consumed in the home. Don’t include items such as medical care, clothing, education, life insurance or transportation.

Maintaining a home for a parent

Under a special rule, you can qualify as head of household if you maintain a home for a parent of yours even if you don’t live with the parent. To qualify under this rule, you must be able to claim the parent as your dependent.

Marital status

You must be unmarried to claim head of household status. If you’re unmarried because you’re widowed, you can use the married filing jointly rates as a “surviving spouse” for two years after the year of your spouse’s death if your dependent child, stepchild, adopted child, or foster child lives with you and you “maintain” the household. The joint rates are more favorable than the head of household rates.

If you’re married, you must file either as married filing jointly or separately — not as head of household. However, if you’ve lived apart from your spouse for the last six months of the year and your dependent child, stepchild, adopted child, or foster child lives with you and you “maintain” the household, you’re treated as unmarried. If this is the case, you can qualify as head of household.

We can answer questions if you’d like to discuss a particular situation or would like additional information about whether someone qualifies as your dependent.

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Recently, the IRS announced 2024 indexing adjustments to the applicable dollar amount used to calculate employer shared responsibility penalties under the Affordable Care Act (ACA).

Although next year might seem a long way off, it’s best to get an early start on determining whether your business is an applicable large employer (ALE) under the ACA. If so, you should also check to see whether the health care coverage you intend to offer next year will meet the criteria that will exempt you from a penalty.

The magic number

For ACA purposes, an employer’s size is determined in any given year by its number of employees in the previous year. Generally, if your company has 50 or more full-time employees or full-time equivalents on average during the previous year, you’ll be considered an ALE for the current calendar year. A full-time employee is someone who provides, on average, at least 30 hours of service per week.

Under the ACA, an ALE may incur a penalty if it doesn’t offer minimum essential coverage that’s affordable and/or fails to provide minimum value to its full-time employees and their dependents. The penalty in question is typically triggered when at least one full-time employee receives a premium tax credit for buying individual coverage through a Health Insurance Marketplace (commonly referred to as an “exchange”).

Next year’s penalties

The adjusted penalty amounts per full-time employee for failures occurring in the 2024 calendar year will be:

• $2,970, a $90 increase from 2023, under Section 4980H(a), “Large employers not offering health coverage,” and
• $4,460, a $140 increase from 2023, under Sec. 4980H(b), “Large employers offering coverage with employees who qualify for premium tax credits or cost-sharing reductions.”

The IRS uses Letter 226-J to inform ALEs of their potential liability for an employer shared responsibility penalty. A response form — Form 14764 (“ESRP Response”) — is included with Letter 226-J so that an ALE can inform the IRS whether it agrees with the proposed penalty. A response is generally due within 30 days. Be on the lookout for this letter so that you’re prepared to promptly review and respond if the IRS contacts you.

Questions and ideas

Careful compliance with the ACA remains critical for companies that qualify as ALEs. Growing small businesses should be particularly wary as they become midsize ones. Our firm can answer any questions you may have about your obligations as well as suggest ways to better manage the costs of health care benefits.

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April 18 is the deadline for filing your 2022 tax return. But a couple of other tax deadlines are coming up in April and they’re important for certain taxpayers:

1. Saturday, April 1 is the last day to begin receiving required minimum distributions (RMDs) from IRAs, 401(k)s and similar workplace plans for taxpayers who turned 72 during 2022.
2. Tuesday, April 18 is the deadline for making the first quarterly estimated tax payment for 2023, if you’re required to make one.

Here are the basic details about these two deadlines.

Taking a first RMD

RMDs are normally made by the end of the year. But anyone who reached age 72 during 2022 is covered by a special rule that allows IRA account owners and participants in workplace retirement plans to wait until as late as April 1, 2023, to take their first RMD. For an IRA, you must take your first RMD by April 1 of the year following the year in which you turn 72, regardless of whether you’re still employed.

You may have heard the age for beginning RMDs went up. Under the Setting Every Community Up for Retirement Enhancement 2.0 Act (SECURE 2.0), the age distributions must begin increased from age 72 to age 73 starting on January 1, 2023. But if you turned 72 during 2022, you must take your first RMD by April 1.

If your RMDs in any year are less than the required amount for that year, you’ll generally be subject to a penalty.

Making estimated tax payments

You may have to make estimated tax payments for 2023 if you receive interest, dividends, alimony, self-employment income, capital gains or other income. If you don’t pay enough tax during the year through withholding and estimated payments, you may be liable for a tax penalty on top of the tax that’s ultimately due.

Individuals must pay 25% of their “required annual payment” by April 15, June 15, September 15, and January 15 of the following year, to avoid an underpayment penalty. If one of those dates falls on a weekend or holiday, the payment is due the next business day. For example, this year the filing deadline is April 18 for most taxpayers because April 15 falls on a Saturday and April 17 is a holiday in the District of Columbia.

The required annual payment for most individuals is the lower of 90% of the tax shown on the current year’s return or 100% of the tax shown on the return for the previous year. However, if the adjusted gross income on your previous year’s return was more than $150,000 ($75,000 if you’re married filing separately), you must pay the lower of 90% of the tax shown on the current year’s return or 110% of the tax shown on the return for the previous year.

Generally, people who receive most of their income in the form of wages satisfy these payment requirements through the tax withheld from their paychecks by their employers. Those who make estimated tax payments generally do so in four installments. After determining the required annual payment, they divide that number by four and make four equal payments by the due dates.

But you may be able to use the annualized income method to make smaller payments. This method is useful to people whose income isn’t uniform over the year, for example because they’re involved in a seasonal business.

Staying on track

Contact us if you have questions about RMDs and estimated tax payments. We can help you stay on track so you aren’t liable for penalties.

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Here are some of the key tax-related deadlines that apply to businesses and other employers during the second quarter of 2023. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. Contact us to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements.

April 18

• If you’re a calendar-year corporation, file a 2022 income tax return (Form 1120) or file for an automatic six-month extension (Form 7004) and pay any tax due.
• For corporations pay the first installment of 2023 estimated income taxes.
• For individuals, file a 2022 income tax return (Form 1040 or Form 1040-SR) or file for an automatic six-month extension (Form 4868) and pay any tax due.
• For individuals, pay the first installment of 2023 estimated taxes, if you don’t pay income tax through withholding (Form 1040-ES).

May 1

• Employers report income tax withholding and FICA taxes for the first quarter of 2023 (Form 941) and pay any tax due.

May 10

• Employers report income tax withholding and FICA taxes for the first quarter of 2023 (Form 941), if they deposited on time and fully paid all of the associated taxes due.

June 15

• Corporations pay the second installment of 2023 estimated income taxes.

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Here are some of the key tax-related deadlines that apply to businesses and other employers during the second quarter of 2023. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. Contact us to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements.

April 18

• If you’re a calendar-year corporation, file a 2022 income tax return (Form 1120) or file for an automatic six-month extension (Form 7004) and pay any tax due.
• For corporations pay the first installment of 2023 estimated income taxes.
• For individuals, file a 2022 income tax return (Form 1040 or Form 1040-SR) or file for an automatic six-month extension (Form 4868) and pay any tax due.
• For individuals, pay the first installment of 2023 estimated taxes, if you don’t pay income tax through withholding (Form 1040-ES).

May 1

• Employers report income tax withholding and FICA taxes for the first quarter of 2023 (Form 941) and pay any tax due.

May 10

• Employers report income tax withholding and FICA taxes for the first quarter of 2023 (Form 941), if they deposited on time and fully paid all of the associated taxes due.

June 15

• Corporations pay the second installment of 2023 estimated income taxes.

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Did you make large gifts to your children, grandchildren or other heirs last year? If so, it’s important to determine whether you’re required to file a 2022 gift tax return. And in some cases, even if it’s not required to file one, you may want to do so anyway.

Filing requirements

The annual gift tax exclusion has increased in 2023 to $17,000 but was $16,000 for 2022. Generally, you must file a gift tax return for 2022 if, during the tax year, you made gifts:

• That exceeded the $16,000-per-recipient gift tax annual exclusion for 2022 (other than to your U.S. citizen spouse),
• That you wish to split with your spouse to take advantage of your combined $32,000 annual exclusion for 2022,
• That exceeded the $164,000 annual exclusion in 2022 for gifts to a noncitizen spouse,
• To a Section 529 college savings plan and wish to accelerate up to five years’ worth of annual exclusions ($80,000) into 2022,
• Of future interests — such as remainder interests in a trust — regardless of the amount, or
• Of jointly held or community property.

Keep in mind that you’ll owe gift tax only to the extent that an exclusion doesn’t apply and you’ve used up your lifetime gift and estate tax exemption ($12.06 million in 2022). As you can see, some transfers require a return even if you don’t owe tax.

You might want to file anyway

No gift tax return is required if your gifts for 2022 consisted solely of gifts that are tax-free because they qualify as:

• Annual exclusion gifts,
• Present interest gifts to a U.S. citizen spouse,
• Educational or medical expenses paid directly to a school or health care provider, or
• Political or charitable contributions.

But if you transferred hard-to-value property, such as artwork or interests in a family-owned business, you should consider filing a gift tax return even if you’re not required to. Adequate disclosure of the transfer in a return triggers the statute of limitations, generally preventing the IRS from challenging your valuation more than three years after you file.

The deadline is April 18

The gift tax return deadline is the same as the income tax filing deadline. For 2022 returns, it’s April 18, 2023 — or October 16, 2023, if you file for an extension. But keep in mind that, if you owe gift tax, the payment deadline is April 18, regardless of whether you file for an extension. If you’re not sure whether you must (or should) file a 2022 gift tax return, contact us.

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