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Tax Reform Now: Five Actions to Consider Before December 31, 2017

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Tax and Business

Congress officially passed the Tax Cuts and Jobs Act on December 20th. Despite conflicting reports on when President Trump will sign the Act, he will sign it. Here are five last-minute actions you should consider for tax planning before the New Year to minimize your 2017 and 2018 tax liability.

One: Make Your Oregon Fourth Quarter Estimated Tax Payment by December 31st

Individuals who pay quarterly state income taxes should consider making their fourth quarter payment by December 31st. The Act limits the deduction for state and local taxes to $10,000 unless the taxes are paid and accrued in carrying on a trade or business.  In Oregon, the fourth quarter estimated payment is due on January 16, 2018. Paying by December 31st assures that these individuals can maximize their 2017 state and local tax deduction one last time. Strongly consider this action if you receive substantial investment income or are self-employed. The final version of the Act only allows a deduction for payments made for tax years on or before 2017, so do not make an estimated payment for 2018 taxes.

Two: Give More to Your Favorite Charities

Give and you shall receive . . . more in 2017 than 2018. For itemizing taxpayers, charitable contributions are one of the most well-known and utilized deductions. The Act’s decease to the marginal tax rates and the doubling of the standard deduction means a charitable deduction claimed on a 2017 tax return will yield more tax savings than the identical deduction on future tax returns. If you expect your marginal tax rate to decrease, or if you itemize now but might not under the new law, consider talking to your tax advisor about how some last minute giving could be the best gift you receive this holiday season. If you do not have a charity in mind, consider donating to Oregon’s Campaign for Equal Justice, whose mission is to make equal access to justice a reality for all Oregonians.

Three: Pay Your Local Property Taxes in Full for 2017-2018

Starting in 2018, individuals will not be able deduct more than $10,000 of their state and local income taxes and their local property taxes. While Oregon allows property taxes to be paid in installments, to be assured an individual can deduct the maximum amount of property taxes paid for the 2017-2018 year, consider writing a check for the installments due in 2018 to your county before the year end. Check with your tax advisor if you are subject to the AMT. The AMT limits the amount of the property tax deduction.

Four:  Pay and Claim Those Unreimbursed Employee Expenses and Other Miscellaneous Deductions Now – Including Your Tax Preparation Fees and Certain Legal Fees

As of 2018, miscellaneous itemized deductions will become a deduction of the past. This includes the deduction for tax preparation expenses, certain legal fees, and unreimbursed employment expenses. Unreimbursed employment expenses can include everything from tools & supplies, union dues, expenses for work related travel, subscriptions to business journals, attending seminars and more. If you expect to pay these expenses next year you should consider paying for them before December 31st. Of course, if you are self-employed or own a business, you will still be able to deduct some of these expenses against business income under the new law. In short: Consider paying your CPA for 2017 tax advice and your 2017 tax filing by December 31st.

Five: Delay That Taxable Gift

Taxpayers considering gifts that would result in the payment of gift taxes or GST may want to wait until 2018. The exemptions for both double in 2018 and a delay in the timing of the gift could reduce or eliminate any tax liability incurred. However, do not hesitate to make that 2017 annual exclusion gift!

Stay Tuned

This article is the first in a series planned to address the numerous changes to tax law imposed by the Tax Cuts and Jobs Act. We strongly recommend you consult with your tax attorneys and tax advisors on the impact of the act on your 2017 taxes and to plan for future years.

Caitlin M. Wong brings her passion for tax law and her commitment to empowering others to her practice at Samuels Yoelin Kantor LLP. Caitlin has experience with all aspects of both federal and state taxation, including tax planning for companies as well as individuals, audits, appeals, tax court litigation, estate planning and trust and estate litigation.

Australian Court Accepts Unsent Text Message as Dead Man’s Will

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A court in Queensland, Australia accepted an unsent text message on a dead man’s phone as his valid will. In the text message the married man left everything he had to his brother and nephew before taking his own life. The court allowed the draft text message to act as a valid will because the wording in the text indicated that the man intended it to act as his will.

Formal will requirements in Queensland require that a valid will be in writing and signed by two witnesses, however the law was changed in 2006 to allow informal types of documents to be considered wills. Under the 2006 changes, the Supreme Court of Queensland may recognize a document as being a will if the court is satisfied that the decedent intended the document to be his will even if the document lacked will formalities.

In Oregon, formal will execution requirements are that a will be in writing, signed or acknowledged by the testator in the presence of two witnesses. The two witnesses must also attest the will by signing their own names to the will within a reasonable time before the testator’s death. The will being in “writing” does not include an electronic record, document or image.  (See ORS 112.235.)

Oregon law does provide an exception to the formal will execution requirements. A writing may be treated like a properly executed will if a court is convinced the evidence shows that the decedent intended the writing to be the decedent’s will. (See ORS 112.238.) However, since a “writing” does not currently include electronic writings, an Oregon court may hesitate to rule that a text message or another electronic document intended to be a will is a valid will. (See ORS 112.235(4).)

Will electronic wills be in our future? Nevada has already enacted a law that authorizes electronic wills, (See NV Rev Stat § 133.085 (2013).), but while in 2017, several other states sought to enact legislation to allow electronic wills, that legislation failed.

In October 2017, the Uniform Law Commission Drafting Committee on Electronic Wills (“ULC”) met in Philadelphia. Victoria Blachly, a Trust and Estates partner with Samuels Yoelin Kantor LLP, attended the meeting. The views of the various stakeholders around the table were varied, but with the constant pressure of technology pushing for convenience, change is in the wind. The ULC has a deliberate and thorough process that takes at least two years before suggesting new potential legislative language, so it remains to be seen what the organization will support. Will convenience prevail over concerns of abuse?  Will technology serve to make estate planning easier or cause more problems? Stay tuned.

Special thanks to guest SYK author Daniela Holgate. Daniela is a 3L and 2018 J.D. candidate at Lewis & Clark Law School.

Happy Birthday! Who sang it? Better Question – Who owns it?

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In breaking news – A California Federal Judge has ruled that over the past 80 years, none of the companies who have claimed to have a valid copyright claim to the popular “Happy Birthday to You” song actually do.  The current purported holder of the copyright, Warner/Chapell (an affiliate of Warner Music) has been collecting between $1,500 and $5,000 per use (or about $2 million per year).  Predictably, plaintiff’s lawyers are now looking into bringing a class action litigation to recover royalties paid for the use of “Happy Birthday to You”  since 1988.

For more information, please see today’s Los Angeles Times article.

Individual Kicker Credit Amounts Announced for Oregon

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On August 26th, state economists announced that taxpayers will be getting a kicker rebate for the first time in eight years.  This is Oregon’s unique system of refunding taxes paid when general fund revenue exceeds 2% of projections.  For this period, revenue exceeded estimates by $111 million so folks who paid taxes in 2014 will be seeing a credit on their 2015 tax returns.

The credit looks to be about 5.8% of individuals’ “Total Tax Before Credits” (line 31 on the Oregon form 40).  To figure out what your kicker credit will look like, the Oregonian has set up a webpage to help calculate 5.8% or estimate if you don’t have access to your tax return.

Although the state used to send out checks, the cost of mailing was deemed prohibitively high, so the 2011 legislature changed the program to a refundable tax credit.

Is Picasso Coming to Portland?

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On Monday, May 11, 2015 Pablo Picasso’s oil painting, “Women of Algiers (Version O)” sold for an astonishing, and record breaking, $179.4 million, inclusive of buyer’s premium, at Christy’s in New York.  This surpasses the paltry $142 million paid for the previous record holder “Three Studies of Lucien Freud,”  by Francis Bacon, which was loaned to the Portland Art Museum for public display over 15 weeks last year.  As with so many things in life, there is an interesting tax wrinkle here.

We wait with baited breath to see if the Portland Art Museum or some other Oregon museum announces a public viewing of this masterpiece.  Elaine Wynn’s decision to display Francis Bacon’s triptych for 105 days in Oregon is hardly surprising given the slightly over 8% sales tax rate at her home in Las Vegas, Nevada.  If the first use of the property occurred in Las Vegas, the tab would have been north of $11 million.  However, Nevada (like many states that have a sales tax) considers that tangible personal property like a painting) is not taxable in Nevada if the property is first used outside of Nevada.  Many states will say that there is a presumption that the first use occurs in their jurisdiction if the property comes into the state within 90 days after the sale takes place.  So, if the first use occurs in Oregon, no sales tax may be incurred. In many respects, this is a win-win for the public and for the collector.  The viewing public gets to see some of the most expensive works of art sold at auction and the buyers get to take advantage of a sales tax break. 

Sales tax at the relatively standard rate of 8% on $179 million would be closer to $14.3 million in sales tax revenue.  Hopefully that’s enough to motivate the anonymous buyer to let it hang in Portland for a few months.

 

The Consumer Federation of America is Seeking Investor’s Stories

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On Thursday the Wall Street Journal reported that The Consumer Federation of America (CFA) had launched a campaign to support proposed rules from the Labor Department and the Securities and Exchange Commission that would require more advisers to be held to a “fiduciary” standard. Your feedback to the CFA could ultimately help hold financial advisers more accountable for the investment advice they give to individual and institutional investors who trust them. If you can answer yes to any of the following questions, please share your story with the Consumer Federation in this online survey. Your story could help to set the law straight. Some advisers, including those registered with the SEC as investment advisers, are fiduciaries, which means that they are required to put investors’ interests ahead of their own. By contrast, many advisers who work for brokerage firms claim that they are held to a lower standard and can put their interests in earning commissions ahead of their clients’ interests in making the best investment choices. That is not right.

Banks Law attorney Robert Banks gave a presentation on the fiduciary standard to a group of attorneys and advisers and you can read about that here. The CFA survey questions are similar to questions we might ask clients when they call our office:

• Has your financial advisor recommended retirement investments that you did not FULLY understand?

• Do you FULLY understand all of the costs that you are paying for the products that your financial adviser recommends?

• Has anyone explained how to read your statements? Do you really understand them?

• Has your financial advisor boasted that the retirement investments he or she recommends can “beat the market”?

• Has your financial advisor encouraged you to buy a variable annuity or equity-indexed annuity within an IRA?

If you want answers to questions like these, or if you have other concerns about advice you received, we encourage you to share your story with the Consumer Federation, and contact Banks Law Office if you have questions about a particular investment loss in your account. Robert Banks has been representing investors for more than 32 years.

What Shark Would You Be?

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As the child of a marine biologist, I find the Discovery Channel’s shark week especially entertaining. As this year’s shark week winds to a close, I wanted to leave you with this funny post from another funny legal blog.

We were debating in the office which sort of shark we would be – I was leaning towards Hammerhead (“If ever there were a shark that could fill out Schedule K, it would be the hammerhead.”), but then the transactional attorney vs. litigator debate came up and Victoria suggested that the angel shark might be more appropriate (“Although this shark is a bottom-dweller and appears harmless, it can inflict painful lacerations if provoked, due to its powerful jaws and sharp teeth. It may bite if a diver approaches the head or grabs the tail.”). Really, on behalf of tax attorneys everywhere, I’ll take that as a compliment.

What kind of shark would you be? Discovery channel has provided a handy-dandy quiz for your entertainment.

Have a great weekend all!

 

How do I Choose the Right Lawyer? Part 1: Finding a Lawyer

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At last count, Oregon had around 12,000 active resident lawyers. This is a little over 30 lawyers for every 100,000 residents in the entire state. So, you wouldn’t think that it should be difficult to select a lawyer to help you with your legal questions. However, this is a question that people ask us all the time, because it’s hard to pick the lawyer that’s right for you, your business, and your family.

Let’s say that you already have decided that you need to retain the services of a lawyer. (Perhaps after reading this helpful gem from our blog archives). You still have to find the best lawyer for you. In this occasional series on WealthLawBlog.com, we’re going to first look at common ways that clients find lawyers to represent them. Then, we’ll look at things that you should think about when you are interviewing lawyers to work on your project. Finally, we’ll look at some of the things to keep in mind when you need a specialized type of attorney.

1. The Internet and other paid ads

We’ve all done it – let’s say that you need a plumber. So you Google “Plumber” or maybe you go to Angie’s List or Yelp to look for reviews on plumbers in your area. This is an increasingly common, but unpredictable way to select a lawyer. Unlike a leaky pipe, online reviewers will almost never disclose all of the facts of their case. Therefore, you can’t really tell if the lawyer would do a good job for you or not. Additionally, many of the most experienced lawyers started practicing law at a time when the rules of professional conduct didn’t allow lawyers to advertise in any way other than a small posting in the phone book. Law firms of all sizes are investing more into their internet presence (like WealthLawBlog.com) as a way to communicate with clients, and advertising in general. However, we have heard that it is hard for firms to distinguish themselves online so all of the law firms start to look the same.

2. State Bar Referral Line

Most state bar associations have a phone number that you can call and they will refer you to an attorney. These are services that attorneys subscribe to in order to generate business. They say generally what area of law they practice in and where they are willing to meet clients. The advantage to these lists is that the lawyers agree to only charge a nominal amount for the initial discussion. Also, if you don’t know any lawyers, this may be a way to find someone. The disadvantage is that you never know what quality of attorney you are going to get. The folks that work at the referral lines rotate through the lists of attorneys in the practice and geographic areas as potential clients call in to the phone number. You might get a great attorney, or you might get someone who is not so great. Many attorneys also don’t like this list, because it is not the way to get the very best clients – i.e., those who are easy to work with and pay their bills on time.

3. Family and Friends

Most of us have friends and family who have had to hire a lawyer in the past. You can ask them how their experience was and what advice they would have. If their case was similar to yours, you can ask them if they think that you should hire the lawyer they worked with. You have to keep in mind though, that they may not be comfortable sharing all the details of what they worked with the lawyer on and their lawyer won’t be able to discuss it because of client confidentiality, which we’ll talk about next time. Similarly, you may not want to go into specifics with your family or friend. We deal with very sensitive matters in this office, and clients often want to keep things confidential. This may mean that you, your friend, or family member may be acting without the complete picture when they refer you to an attorney. In that case, I’d recommend that you get referrals from a number of different folks.

If you are fortunate enough to be related to, or friends with, an attorney (Hi Mom!), that person may be able to help you with your concern or can help you figure out what kind of attorney should be able to help you best and then refer you to a couple of attorneys. Lawyers who are active in an area will generally hear things about the best and worst lawyers out there and can help you find someone. We get referrals all the time from other lawyers who have a client that needs some specialized help or that needs a lawyer with a presence in Portland or Hood River.

4. Referrals from other professionals

Finally, lawyers get many of our best referrals from other professionals in the area. Your accountant, doctor, or financial advisor probably knows you very well. They also almost certainly know a variety of lawyers who practice in the area and may be able to refer you to a lawyer that can help you solve the problem in front of you but that may also be a good fit for you and your situation. A financial advisor, for example, will generally only refer a client to someone that they really believe will be a good fit for the client, as they often believe that it would reflect poorly on them if it didn’t work out.

That said, an accountant may refer a client to lawyers who have different approaches to problem solving. For example, we often see referral lists in litigation cases where one of the lawyers is settlement-oriented, another of the lawyers is a take-no-prisoners-fight-to-the-death-oriented, and the third lawyer is somewhere in between the two.

Lawyers like referrals from other professionals that they trust. The most effective business owners, litigants, and consumers of legal services are also those who have good teams of professionals around them. So, if your accountant and tax lawyer communicate well, then it will save you time and money.

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Once you have found an attorney, you have to figure out if they are the right person to represent you. Our next article in this series will discuss how to interview a lawyer (once you’ve found them) to see if they’d be a good fit for your team.

Linden Dollars, Bitcoins, and the brave new (taxable) assets

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It is a truism in the world of tax planning that dollars are fungible. That is, if I have two dollars in my wallet, there isn’t much between the dollar that I took out of the bank yesterday and a dollar that I took out of the bank today. If I use them to buy a cup of coffee, I don’t have to worry about whether one dollar was more valuable than the other dollar. Similarly, if I convert my US Dollars to Japanese Yen, I don’t necessarily have to worry about a recognizing gain because forms of money are freely exchangeable for other forms of money.

Assets, in comparison with money, have characteristics that are unique to that asset and that increase or decrease the value of that particular item relative to other items. The tax code, however, works in terms of dollars and the IRS has a dim view of unreported barter transactions. We know that a taxpayer’s gross income can come in many forms including money, property, or services. This was the basis for the IRS’s war during the 1970s on barter transactions. So, if I have a chicken and exchange that chicken for dental services, the IRS will say that the value of the chicken on the day that I exchanged it for dental services was $X and I exchanged it for $X of dental services. Depending on how I acquired the chicken and how long I had it, I might have to recognize gain on the disposition of the chicken. My dentist would have to recognize the receipt of income on that day in the amount of $X.

Several years ago, the tax community began to mull over the idea of virtual assets. The debates started with the online gaming community where players had items that they could transfer to other players. Eventually, players began to sell online items in real life (usually via online auction sites) for US Dollars. This implicated a lot of real-world tax questions – specifically, what is your basis in your virtual asset and when do you have a recognition transaction.

In May, 2013, the GAO released a report called “Virtual Economies and Currencies: Additional IRS Guidance Could Reduce Tax Compliance Risks.” This report distinguished between “Closed-flow” systems (where virtual assets, services, and currencies could not be exchanged for “real” assets, services, and currency) and “Open-flow” systems (where they can be exchanged). The report also noted “Hybrid” systems which would have elements of the other two systems. An example of a hybrid system would be a popular online game where you exchange real dollars for virtual goods – like buying a cow in a virtual farm. You can’t sell the cow for US Dollars, so the flow of dollars is entirely into the online platform.

The GAO and the IRS are particularly concerned about the recent rise of virtual, alternative currencies such as Bitcoin. Bitcoin is designed to exist as a substitute for government-backed currencies, such as the US Dollar or Japanese Yen. Bitcoins are initially generated by computer algorithms that “mine” for them. Merchants can accept Bitcoins in exchange for goods or services. However, similar to the tulip mania that captivated 17th Century Holland, investors have been purchasing bitcoins on the secondary market in the hopes that the currency will increase in value. Reputable financial publications were commenting on the investment potential of bitcoins.

On March 25, 2014, the IRS finally issued guidance on how it will tax virtual currency transactions. Notice 2014-21 states that virtual currency that has an equivalent value in “real” currency will be treated as property and not as currency. The general tax principles that apply to property transactions (like barter transactions) will apply to virtual currency transactions. So, if I have ten virtual coins and use them to purchase dental services in the real world, the IRS will look at what the dentist usually charges for those services in US Dollars ($X) and say that the fair market value of my ten virtual coins on that day is $X. My dentist would take a basis in the virtual coins of $X. Of course, if I traded my chicken (worth $Y) for the virtual coins for a month ago, the difference between the two is my gain on the transaction.

The IRS guidance also clarifies that the character of the gain or loss depends on the character of the currency in my hands. If I’m in the business of trading virtual currency, such currencies may be inventory in my hands.

The 1099 reporting rules apply, so if I pay someone with virtual currency worth, on the date of payment, more than $600, I have to issue them a IRS Form 1099-MISC. Similarly, the rules regarding self-created income and self-employment tax will apply to the first tier of virtual currency holders. So, if I mine bitcoins, I have to recognize the fair market value of the coins on the date that I receive them. That income will be subject to self-employment tax.

The March 25 IRS guidance is silent about the treatment of virtual currency for estate and gift tax purposes, but the lawyers of Samuels Yoelin Kantor, LLP have been advocating for clients to address disposition of virtual assets in their estate plan. The recent guidance suggests that, while some of these assets (e.g., passwords, online social networking profiles) may not be includable in your gross estate when you die because they have no economic value, other “Open-flow” assets might be includable. Similarly, if things that we don’t think of as having intrinsic value develop a market they may become a part of your taxable estate.

 

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