PROTECTING YOUR ASSETS

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PROTECTING YOUR ASSETS


Q: I’m an owner operator and I’m concerned about losing my assets if I’m in a terrible accident. My buddies tell me to incorporate or operate under a Limited Liability Company (LLC) to protect my assets. Is this the proper thing to do?

A: Yes and no. The proper thing is to ask a professional about what to do. Some people just go ahead and act based on what their buddies say. We are not attorneys and therefore, we cannot recommend any type of entity to operate as to liability protection. What we can recommend and do recommend is talk to an attorney as they are the only ones who can judge whether a particular operating entity will provide you with the liability protection you seek.

What we can alert you to is insurance coverage. Your liability limits on your homeowners and truck policies are possibly too low in light of the many personal injury awards. In addition to talking to an attorney, talk to your insurance person about adding “umbrella coverage” to your homeowner’s policy. For example, a $5,000,000 umbrella liability policy may cost about $1500 per year or lesser premiums for lesser coverage depending on what state and area you live in. This may satisfy your needs and could be cheaper than changing your operating entity.

Q: I’m 71 and heard I must take a Required Minimum Distribution (RMD) from my IRA account. What about my 401K?

A: Yes. You are required to take a Required Minimum Distribution (RMD), from your 401K as well as your IRA. There are actuary tables that the IRS has to help figure out the annual RMD amount or your bank or brokerage house can help you.

Q: Can I draw from my IRA the Required Minimum Distribution (RMD) for both plans combined and leave my 401K alone?

A: No. You must take the Required Minimum Distribution (RMD) required from each account.

Note: If you forget or do not take the RMD, there is a 50% IRS penalty on the amount that should have been taken.

Q: We are considering paying the mortgage and taxes on our daughter’s home. Can she get the mortgage interest and real estate tax deduction on her income tax return?

A: It depends on if your daughter pays the mortgage and taxes. She can deduct the interest and taxes on her return if she pays them. If you pay the mortgage interest and taxes directly, she cannot get the deduction.  And neither can you unless you are co-owners of the house. Therefore, we recommend, you make a cash gift to your daughter and she makes the mortgage and tax payments directly.  The annual gift exclusion amount has increased in 2018 to $15,000.  If you’re married and your spouse consents to a joint gift – also called a “split gift” – the annual exclusion amount is effectively doubled to $30,000 per recipient for 2018.

Q: Pam, the spouse of one of our owner operator clients, called to report that she noticed water on the walls in the three rooms of their home. Her husband decided to check around and discovered holes in the roof. The holes were caused by squirrels that had eaten through the roof wood, permitting rain water to soak through down the walls of our home. Can we claim a casualty loss for the cost of repairing the holes in our roof caused by squirrels and to fix the walls?

A: No. The IRS issued a private letter ruling in response to this very question. It said a casualty is the complete or partial destruction of property resulting from an identifiable event of a sudden, unexpected, and unusual nature. In this case, the damage was not “unexpected” and “unusual” because it is common knowledge that squirrels are destructive. Therefore the loss is not considered a casualty loss.

For tax years 2018 through 2025, the Act has suspended the itemized deduction for personal casualty and theft losses. Prior to this change in law, personal casualty or left losses were only deductible to the extent they exceeded $100 per casualty or theft event. In addition, the aggregate net casualty and theft losses for the year were deductible by those who itemized their deductions but only to the extent that the loss exceeded 10% of an individual’s adjusted gross income (AGI).