Money Matters: April 2011
Money Matters by Susan Hirshman
It's beginning to look a lot like tax day and our finance expert Susan Hirshman tackles a topic many couples can relate to...File Denial
If you are married, should you always file your tax returns jointly with your spouse? Most people will answer yes because they think that's the best way minimize your tax bill. Often, times the that is the right answer - because married filing jointly gets you the most favorable tax rates.
But, should lower tax rates be your only criteria? NO! with a capital N and a capital O.
I say this because of the following three words "joint & several liability." Joint liability means you and your spouse are both liable; several liability means you're each liable for the entire amount not just your own share. In other words, if you file a joint return and the information is false or wrong, the IRS can go after either of you because you both signed the return. This typically happens when one spouse knows more about the couple's finances and files the tax return. Often, the other spouse simply signs the return without really understanding what's in it.
To make this come alive, let me tell you the story of Jack and Jill. Jack and Jill are married and file their tax returns jointly. Jack owns his business and doesn't report all his income on their tax returns. A few years later they are audited by the IRS and it is determined that they owe an additional $100,000 of taxes plus interest and penalties.
Who do you think the IRS will go after to collect on Jack's tax bill? (a) Jack? (b) Jill? (c) Anyone they can? If you picked answer ©, you are correct, even if they are now divorced.
Jill can't believe that she is liable for the taxes on the income her husband under-reported. But she is - unless she qualifies as an innocent spouse or under the equitable relief rules as defined by the IRS. Not everyone qualifies, so never assume you would be. Instead, before you sign on the dotted line make sure the numbers on the return make sense; if not- ask questions. Bottom line - don't be a victim. Protect Yourself.
Susan Hirshman is president of SHE LTD, a consulting firm focused on enhancing the financial literacy of women globally. She is the author of- Does this Make My Assets Look Fat? - a women's guide to finding financial empowerment and success. Formerly, she was a Managing Director, Wealth Manager with one of the world's top financial services organization.
Posted in: Money Matters on 04/11/2011
Money Matters by Susan Hirshman
Ladies, have you reviewed your estate plan lately?
No? Well, get moving now especially if you are women of wealth. Why this sense of urgency? The tax laws changed and may have an adverse effect on your situation if your spouse were to pass away this year or next.
Adverse affect? How about having all the money going to your children vs you? Yes, it could happen. Here's why - due to the blah blah bah, the estate tax exemption has increased to $5 million (for 2011 and 2012 from $3.5 million in 2009). What this means is that when one passes they generally will not be subject to estate tax unless the amount of your investments, property, cash, real estate etc (your net assets) is greater than $5 million. Sounds great - yes?
Not always - here is the catch. Many wills are drawn up to say that the amount of your spouse's assets that will go to your kids is an amount equal to the federal exemption amount and the remainder of the assets to you. This may have worked fine when the exemption amount was $3.5 million, but it may not work so well at $ 5 million.
Quick example: All the assets you and your husband have are in his name and are worth approximately $5 million. He passes and his will dictates that federal estate exemption amount goes to your children, the remainder to you. Let's do the math.
Total Assets : $5 Million
Amount to kids: $5 Million
Amount to you: 0
Result you want?? For many the answer is a solid NO! So run, don't walk to your estate attorney now and see how this tax change has affected your situation.
You may be thinking that you don't have to worry about estate planning because you don't have any where near $5 million. But you would be thinking wrong. Estate planning is not only about estate taxes, it is really about making sure what you want to happen with your "stuff" (including your children) after your demise happens.
Too often, people hesitate to do their wills because they don't know whom to choose as guardians for their young children or can't decide how to split their money between their kids. The upshot here is that doing nothing is a decision unto itself. Basically you have decided that the government will do it for you. Is that really what you want to happen?
Bottom line: now is a great time to review your estate plan., no matter who you are and/or how much money you have.
Susan Hirshman is president of SHE LTD, a consulting firm focused on enhancing the financial literacy of women globally. She is the author of- Does this Make My Assets Look Fat? - a women's guide to finding financial empowerment and success. Formerly, she was a Managing Director, Wealth Manager with one of the world's top financial services organization.
Posted in: Money Matters on 04/05/2011
