Archive for the ‘Wealth Preservation Strategies’ Category

Why Holding Real Estate in a C Corporation Is a (VERY) Bad Idea

March 13th, 2018 No comments

Classic Example of Double-Taxation with C Corps


Holding real estate in a C Corporation (or an LLC taxed as a C Corporation) is generally a very bad idea from a tax perspective.

Let’s assume the following facts:

  • C Corp purchases real estate for $100,000 or owner/shareholder contributes $100,000 of real estate to a C Corp
  • No capital improvements are made
  • Real estate appreciates to $1,250,000
  • The C Corp. has a taxable gain of $1,150,000 (sales proceeds of $1,250,000 less tax basis of $100,000)
  • The Corp has a tax liability of $241,500 (21% of taxable gain).
  • The Corp has slightly over a $1 million in its bank account that the shareholder wishes to invest in the stock market. The Corp distributes $1 million to the shareholder.
  • The shareholder has received a taxable dividend distribution from the C Corp. The owner reports the $1,000,000 of dividend income and let’s assume that s/he files as married filing jointly. This income, subject to tax at the capital gains rate (20%) as well as being subject to the net investment income tax of 3.8%, would result in an additional tax liability of $238,000.

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Planning for College Tuition

June 27th, 2017 No comments

If you are a parent with young children, it is never too early to begin to save for the high cost of a college education. Here are two popular tax-favored programs you can consider. Keep in mind that the earlier you begin to participate in these programs, the greater the amount that will be available for tuition.

Qualified Tuition Program (QTP). A qualified tuition program (also known as a 529 plan for the section of the Tax Code that governs them) may be a state plan or a private plan. A state plan is a program established and maintained by a state that allows taxpayers to contribute to an account for paying a student’s qualified higher education expenses. Similarly, private plans, provided by colleges and groups of colleges allow taxpayers to contribute a student’s qualified education expenses. These 529 plans have, in recent years, become a popular way for parents and other family members to save for a child’s college education.

529 plan distributions are tax-free as long as they are used to pay qualified higher education expenses for a designated beneficiary. Qualified expenses include tuition, required fees, books and supplies. For someone who is at least a half-time student, room and board also qualifies as higher education expense.

Though contributions to 529 plans are not deductible for federal income tax purposes, they are deductible for PA personal income tax. Be sure to read our May 2, 2017 blog regarding PA 529 plan contributions and its restrictions on tax deductions. In addition, PA is considering restricting the tax deductibility of 529 contributions to PA plans only. (The current rules allow tax deductions for contributions made to out-of-state plans).

Coverdell education savings accounts. Coverdell education savings are custodial accounts similar to IRAs. Funds in a Coverdell ESA can be used for K-12 and related expenses, as well as higher education expense. The maximum annual Coverdell ESA contribution is limited to $2,000 per beneficiary, regardless of the number of contributors. Excess contributions are subject to an excise tax.

Entities such as corporations, partnerships, and trusts, as well as individuals can contribute to one or several ESAs. However, contributions by individual taxpayers are subject to phase-out depending on their adjusted gross income. The annual contribution starts to phase out for married couples filing jointly with modified AGI at or above $190,000 and less than $220,000 and at or above $95,000 and less than $110,000 for single individuals.

Contributions are not deductible by the donor and distributions are not included in the beneficiary’s income as long as they are used to pay for qualified education expenses. Earnings accumulate tax-free. Contributions generally must stop when the beneficiary turns age 18, except for individuals with special needs. Parents can maximize benefits, however, by transferring the older siblings’ account balance to a younger brother, sister or first cousin, thereby extending the tax-free growth period.


In addition to the above two plans, other ways to save for a college education include: Read more…



October 13th, 2015 No comments

Effective in 2016, health insurance companies will be required to provide to every individual who received minimum essential health care coverage in the 2015 calendar year with Form 1095-B, Health Coverage. Since a copy of this form must also be sent to the IRS, The Affordable Care Act (ACA) requires the insured to provide the health care provider with his/her social security number (SSN), as well as the SSNs of the spouse and any dependents. If any person fails to provide the health care provider with the requested SSNs, it is very likely that the IRS Read more…



September 15th, 2015 No comments

Do you know if your financial advisor is working for you? Before you assume that is the case, do you understand the difference between “fiduciary” and “suitability standards”? The Obama Administration has proposed and the U.S. Department of Labor has held hearings about the “fiduciary rule”. President Obama wants financial advisors to be governed by the fiduciary standard. In other words, he feels that stockbrokers and others should be required to put their customers’ interests ahead of their own (i.e., earning higher commissions). Is the President saying that stock brokers are putting their financial interest before yours? The answer to that is “YES!”

Most financial advisors who work for the major stock brokerage firms are governed by the suitability standard. As the current law provides, broker dealers, insurance sales persons and advisors who operate under the “suitability standard” are merely required Read more…



December 17th, 2013 No comments

Working with an experienced tax professional for tax preparation and tax planning can often result in reducing one’s tax bills or avoiding unnecessary surcharges. How often does an individual decide to retire without first consulting with their CPA? Far too often. There are many decisions that need to be considered when retiring, such as Read more…


Best College Savings Plans for 2013

November 19th, 2013 No comments

A favorite tax planning strategy for many families is to contribute to a College Savings Plan. What some donors do is automatically make a contribution to the 529 plan in the state where the recipient resides. While this is convenient, is it the best investment strategy?

Morningstar, a well-known investment research firm located in Illinois, has announced its top 32 College Savings Plans for 2013. Using the Olympics medals standards to rate the 529 plans, Morningstar assigned its Gold-rated plans to the following 4 plans Read more…

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Asset Protection – Auto Insurance Coverage

November 12th, 2013 No comments

We recently were told the following story. Parents bought their son a car as a graduation gift (titled in parents’ names). When the parents called their auto insurance carrier and requested quotes, they learned it was much cheaper to obtain coverage in the parents’ name rather than in their son’s name. Son is driving the car with two female friends as passengers. Unfortunately, he failed to navigate a country road turn going 50-60 MPH and all three occupants were killed. The parents of the female passengers sued the parents of the driver for $6Million each. Needless to say the parents’ auto insurance did not provide this amount of coverage and the parents wound up selling their assets to cover the liability. The legal theory supposedly was that since the parents allowed their son to drive their car, they are legally responsible for his actions.

While we cannot comment on the accuracy of the legal issues of this story, we can attest that this story is not atypical. It is not uncommon that when faced with a financial decision, the decision is based on a single criteria – cost.  This reminds us of the Fram oil filter commercial, where the slogan was “You can either pay us now (by having your oil filter changed regularly) or pay us later (when your engine fails due to lack of regular maintenance).”

How many of us would ask the insurance agent (or better yet the family attorney) as to whether the parents’ assets would be better protected if the car and insurance policy were in the names of the parents or the son?

How does this story apply to taxes? Read more…

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March 19th, 2013 No comments

Employers create Employee Policy Manuals for numerous reasons. One reason could be to manage the risk of liability for the employer. Since many employers provide their employees with cell phones, and those companies that don’t provide cell phones very likely have employees who use their cell phones, employers are becoming increasingly concerned about multi-tasking employees that may be putting their company at risk. Read more…

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March 12th, 2013 No comments

The Social Security Administration (SSA) has added a new feature to its website. It is called “my Social Security” and can be found at by using the “my Social Security” menu option at the top of the page. Since this is a new feature, the SSA is requiring all previous users to set up a new account as the old password will no longer work.

This online account can be used 24/7 by current benefit recipients to Read more…

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March 5th, 2013 No comments

In our Feb. 5, 2013 blog, we discussed the importance of periodically reviewing the performance of your 401(k) retirement funds with your investment advisor and CPA. A good example of the importance of doing so can be found in the suit filed by a group of workers at Ameriprise Financial Inc. (“Ameriprise”) requesting class action certification against their employer. Named in the suit, in addition to Ameriprise, were the firm’s employee benefit administrator and the 401(k) investment committee. The worker’s allege that Ameriprise and its committees, as the plan’s overseers, violated their fiduciary duty to the retirement plan. The workers allege that the fees that the investment advisors charged Read more…

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