January

Employers must provide employees with a W-2 by Jan. 31.

Businesses that hire independent contractors will have to give them their 1099-MISC by that date.

Retirees should also pay attention to their mailboxes in January. That’s when the Social Security Administration sends beneficiaries an SSA-1099, which will detail what they received during the previous year.

If you blink, you may miss your 1099-R, a document filers get when they’ve taken a distribution from a retirement plan or from an IRA. Expect your brokerage firm to send this out to you by the end of January.

February and March

You may have heard about the triple tax benefits of a health savings account: You can make tax-deductible or pretax contributions to it. Also, your money will grow free of taxes and you can use the cash tax-free for qualified medical expenses.

Further, if you had health insurance coverage last year, whether you bought it through a state or federal marketplace or you had it at work, you’ll get a Form 1095-A, -B or -C by early March.

Mid-February – Owners of taxable investment accounts should be on the lookout around for a slew of 1099s from their brokerage firms.

These forms report dividends and interest of more than $10, as well as capital gains and stock sales.

If you own a home, watch out for Form 1098, which you’ll need to deduct mortgage interest.

You can also deduct tuition and education costs and student loan interest.

Chase these forms down

Investors in partnerships, and recipients of a trust or estate, may have to sit tight all spring while waiting for their Schedule K-1, which reports income, losses and dividends.

These individuals may have to estimate their income and taxes, and then request an extension with the IRS.

Shareholders in S-Corps who need a K-1 to file their taxes can’t get this document until the corporation has completed its return.

You may need to do a little legwork to get other forms. For instance, you’ll need to ask your child care provider for additional documents if you’d like to claim the child and dependent care credit.

Always talk to your tax professional if you are confused or have questions.  Call our office to make an appointment or speak to someone today 818.887.9401.

In November California voted on Proposition 19.  It may have been a bit confusing but we wanted to address how it impacts Estate Planning.

Proposition 19 ends or significantly limits the exclusion from property tax reassessment for transfers between a parent and a child in three material ways.

1.  The exemption from reassessment for up to $1 million of assessed value of property other than a principal residence is gone.
2. The transfer of a personal residence from a parent to a child will result in reassessment of the property unless the child occupies the property as the child’s own principal residence within 12 months of the transfer date.
3. The child must file a Homeowners Exemption in order prove they are residing in the home.
4. Even if the child occupies the property, the property tax reassessment exclusion is limited. If the property’s fair market value at the time of transfer is less than $1 million greater than its assessed value, the property will retain its original assessed value. If the property is worth more than $1 million over the assessed value, only $1 million is excluded from property tax reassessment.

For example, under Proposition 19, if a property passes from a parent to a child with an assessed value of $500,000 and a fair market value of $2,000,000, then the new reassessed value for the child will be $1,000,000 which would raise the property tax from roughly $3,500 to $10,000 based on county averages.

The new limited parent-child exclusion rules from property tax reassessment under Proposition 19 becomes effective on February 16, 2021. If you are contemplating a transfer of your real estate to the next generation, the time to plan is now. Do not wait. If you transfer real estate prior to February 16, 2021, you can lock-in the current parent-child exclusions from property tax reassessment. That said, there are a number of things to consider before making such transfers.  Most importantly, the loss of a stepped-up cost basis at death for income tax purposes will occur if you transfer the real estate without retaining certain “strings” to cause the property to be included in your estate for estate tax purposes.

Current law provides generous exclusions from property tax reassessment for transfer of a personal residence and other real estate between a parent and a child under current California law, certain transfers of real estate between a parent and a child are not subject to property tax reassessment; namely, during lifetime or at death, a parent may (i) transfer a personal residence of unlimited value to a child without property tax reassessment, and (ii) transfer an additional $1 million of assessed value of other real estate to a child without property tax reassessment. Since the assessed value of real estate – the value shown on the property tax bill – is often significantly less than the fair market value, this exemption from reassessment is a powerful tool for parents to pass personal residences and other real estate with low assessed values to their children with no property tax reassessment.

We understand this is extremely confusing and there are many rules and restrictions.  Our current law is changing drastically.  New information comes to light almost daily.  Please give our office a call 818.887.9401