Welcome back to 'The Accountable Advisor: Top Three Insights'! Let's jump right into our top 3 curated business strategies and tax-saving insights. Enjoy our new, streamlined newsletter layout, all aimed at aiding your journey to success. Here's to growth and knowledge!

Knock Knock, Who’s There?

In a huge shift in policy at the IRS, they announced Monday, July 24th that they will no longer show up unannounced to taxpayer’s homes to collect unpaid taxes amid safety and scam concerns. Instead - delinquent taxpayers will receive a letter instructing them to set an appointment with a revenue officer at a specific time and place.

Previously, hundreds of IRS were assaulted yearly during these home visits, making them the most-attacked federal officer. Additionally, there were scammers who would take advantage of this policy and pose as IRS officials in order to shake money out of taxpayers. Occasionally agents will still show up unannounced, but only in cases where there is also suspected criminal activity or to issue subpoenas.

Overall - this is part of the IRS’s effort to modernize and is a step in the right direction.

The Gift + Estate Tax

There is a lot of confusion about how the gift tax works. Essentially, if you gift money to another individual, you can give up to $17k (for 2023) as an individual or $34k (for 2023) as a married couple without needing to file a Gift Tax Return. A Gift Tax Return is filed to inform the IRS of amounts of gifts that go toward your Estate Tax Exemption. The current federal Estate Tax Exemption is $12,060,00 (for 2023, and double that for a married couple). This means that upon your death, the first $12,060,000 of your wealth (income + assets) are not taxed. Anything above that is taxed at 40%.

Anytime you file a gift tax return, that REDUCES your exemption amount. So if you gift $100k in a single year to an individual, your new federal Estate Tax Exemption is $11,960,000. Another thing to keep in mind - unless current tax law changes, the Estate Tax Exemption will sunset at the end of 2025 and go down to around $7,000,000 per individual (roughly half).

I was speaking with a high-earning client this past week, who will be blowing past those exemption amounts by the time they retire. One easy strategy to implement now is through the gift-giving to their young children into a brokerage account under the gift tax threshold. For each child, they can contribute $34k per year (as a married couple)in this account for them, as long as they’d like, and start to help build wealth for the next generation and move income away from their estate tax.

Roth Roll-Over Downside

Timing can be everything when you’re deciding whether to roll-over your Roth. As a reminder - the reason why Roth’s are preferred-retirement vehicles for many taxpayers is because any growth that occurs in it is tax-free upon distribution. Additionally, any contributions you make outside of the growth, can be removed at any time without penalty or tax. Unfortunately, there are income limits to who can contribute, as well as contribution limits.

One way around this is my rolling-over a traditional retirement account into a Roth account. Taxes are paid on the roll-over, thus making future-growth tax-free. There is one big downside though - Roth IRS Conversions have a 5-year rule, which means that any funds rolled-over you cannot access for five years without incurring tax. This means a roll-over might not be your best option if you need to access funds within that initial 5-year time period.