Avoid These Tax Traps

 

August 2, 2017

 

The Situation


It’s nice to live in Texas, a place that is generally pro-business and tax-friendly. But that’s no reason to be complacent. Today many of us lead mobile lives, and that can bring us into contact with tax jurisdictions that wait like a death trap in an Indiana Jones film. Without knowledge and expert guidance, anyone could fall victim.


What You Should Know


Among its fiscal attractions, Texas has no state income tax. But most states do, and just living here doesn’t guarantee you will avoid owing income tax somewhere else.


For instance, do you travel on business? While rules vary by state (making compliance a real challenge), when you earn money based on work in another state, you may be expected to file and pay income tax in that state, even if you don’t live there. The Mobile Workforce State Income Tax Simplification Act, federal legislation to help standardize the patchwork of state rules on this issue, is being worked on in Congress, but has yet to pass.


Texas also lacks its own estate tax, sometimes called a death tax by its opponents. There is always the federal estate tax, of course, but a number of states also have their own, often with lower exemptions than the federal thresholds of $5.49 million per individual and $10.98 million per couple. If you own real estate in one of those places, and its value exceeds that state’s threshold (as low as $1 million in the case of Massachusetts and Oregon), your passing could trigger a tax liability there.


Another potential trap relates to the federal estate tax itself. As mentioned, it only applies to estates valued at over $10.98 million per couple. But if one spouse dies, the other must file an estate tax return claiming “portability” of the deceased spouse’s share of the threshold. Otherwise, when the surviving spouse passes, he or she will only qualify for the individual exemption of $5.49 million.


What You Should Do


That is just a quick sampling of the traps that exist in tax codes as large and complex as those we face in the U.S. And we haven’t even touched on the subject of local tax jurisdictions!


It may be enough to make you want to support tax simplification initiatives. But in the meantime, it’s critical that you have a tax advisor whose job is to understand taxes and how to minimize their effect on your family’s well being.


Our business model is to be your PERSONALCFO, a role in which we oversee the full spectrum of your wealth, while making sure that any other advisors you have—from tax accountants to estate attorneys to insurance brokers—are working collaboratively for your benefit.


Who’s doing that for you now?


To learn more about us, please contact Jim Waters, CFP®, at 713.964.4028 or jrw@partnersinwealth.com.