Sunday, November 13, 2022

Who decides?

 TMZ has a story this morning: "Aaron Carter died without a will... so now the State of California will decide who inherits his estate."

This is commonly found on lawyers' web sites and blog posts. "If you don't have a will, the state will decide where your property will go." That statement is untrue

Each state has intestacy statutes, which provide a priority of inheritance if a person dies without a valid will. Those intestacy provisions apply only to "probate assets," that is, assets owned by the decedent in his own name. They do not apply to assets held in trust, to jointly-owned property, to property with transfer on death directions, or to retirement accounts (unless the owner did not make a beneficiary designation.) 

What is true is that, if you do not want that order of priority followed, you need a will, a trust, or some other mechanism to make sure that does not happen. 

The intestacy statute is intended and designed to follow what most people would want to happen to their money. The priority is, in general, spouse, children, parents, siblings, their children (nephews and nieces),  grandparents, and their descendants (cousins). 

It is emphatically not the case that a probate judge in California will make a decision about who will receive Carter's assets. The court will simply follow the intestacy laws. 

Friday, June 10, 2022

More tax from online sales

From Bloomberg: The IRS is coming for your Venmo income.  The IRS is reported to have imposed a new requirement for Form 1099-K, on which an "online payment settlement entity" will be required to report any payment over $600 (down from the previous $20,000). The story begins with "Lexi," who frequently buys items at garage sales and flea markets and sells them on eBay, making as much as $15,000 per year. Up to now, that income has been tax-free for her - because she has not reported it. 

The IRS is not changing the tax laws. Any time that you buy something for $x and then sell it for $x+y, the $y is regarded as a capital gain, and tax has to be paid on capital gains. It is up to you to keep track of how much you paid for the item and how much profit you made on the sale. 

For a single person, long-term capital gains are taxable only if your income is over $40,000 or so. These rates require that the item be held for a year or more before it is sold. If it is sold earlier than that, the gain is taxable at ordinary income rates. 

More information from the IRS is available at its About Form 1099-K page. 

Update: In early January, the IRS announced a one-year delay in implementing this new policy. 

Monday, May 30, 2022

The tax implications of cryptocurrency

If you have created cryptocurrency through a "mining" process, did you pay income tax on the resulting cryptocurrency? The IRS regards it as an asset and it requires payment of income tax, at ordinary income rates, when it is acquired. It does not matter that it has resided in a "wallet" since then and has not been used or converted. If it could have been used as money or converted to dollars, it is a taxable asset and the creation of that asset is regarded as recognition of income. (See IRS notice 2014-21)

If you acquire a unit of a cryptocurrency by purchase, there is no income recognized and no income tax owed. You have traded dollars for other units at the then-effective price. The purchase price becomes your cost basis for purposes of determining later capital gains or losses. 

Cryptocurrency that has changed in value since it was originally acquired generates capital gains or losses whenever it is spent or converted. It is a long-term capital gain (or loss) if it is held for more than one year, and the act of spending it or converting it results in the recognition of that gain (or loss), with an accompanying tax obligation. Depending on your income level, the tax on a LTCG is 0%, 15%, or 20%. 

Sunday, March 27, 2022

IRAs from a different perspective

It is not always necessary to accept the oddball ways that Congress and the IRS do things. At our 906LawTech page, we provide an alternative IRA distribution schedule and projection that gets rid of the "divisors" and simply uses percentages for each year's required minimum distribution. 

Wednesday, March 2, 2022

Michigan - state tax changes

At Bridge Michigan, a description of the proposed changes to state tax laws in the bill now passed by the House. These are still subject to negotiation and compromise. 

Saturday, February 12, 2022

New figures

 A new year brings updates in dollar limits. The IRS figures first: 

"Annual exclusion" for gifts               $16,000 

Estate/gift tax exemption equivalent  $12,060,000 

Recall that the per-year gift exemption relates to reporting requirements only. If one single person gives another single person $20,000, this exceeds the per-year exclusion, but does not trigger a gift tax liability so long as the exemption equivalent is not exceeded. What it usually requires is the filing of a gift tax report using Form 709. See the IRS instructions for that form. 

For persons dying in 2022, the new figures as certified by the Michigan Department of Treasury are: 

The first two figures differ depending on whether there are children from a previous marriage. 

Saturday, January 29, 2022


 She Bought Her Dream Home. Then a ‘Sovereign Citizen’ Changed the Locks.

Early action

An early action when a loved one dies: go to his email account and set up an autoresponder. 

“John died on January 23. Please remove this address; contact with any questions.” 

Do this on his social media accounts, too. 

Over the line

 NPR describes the experiences of those who inadvertently ended up disqualifying themselves from SSI and other programs managed by the Soci...