Fiduciaries: Don’t forget your tax filing obligations

Every year, about this time, everyone in the country starts to sweat a little trying to get everything together to file personal income tax returns.  It can be a stressful experience, from tracking down those annoying forms that started arriving mid-January to scheduling time with an increasingly harried-looking accountant.  If you are serving in a fiduciary capacity, you may be obligated to file an additional income tax return.  The filing threshold for estates and trusts is only $600, meaning that if an estate or trust you administer generates more than $600 of income during a tax year, you, as executor or trustee, are required to file an income tax return for the estate or trust.  This is true even if no taxes are due.

If this news comes as a surprise and meeting the April 15 deadline will be a struggle, you can file for an extension with both the Virginia Department of Taxation and the Internal Revenue Service (but note that some estates elect a fiscal year and may have a different filing deadline).  If you’ve missed deadlines for past tax years, contact a tax professional to help you get back into compliance.  Interest and penalties continue to accrue on unpaid taxes whether the return has been filed or not, so the sooner you tackle the project, the better.  Under some circumstances, tax authorities will even waive penalties.  And if you are audited or otherwise contacted by the Department of Taxation or IRS, your ability to show that a good faith effort to correct any problems is already underway will be viewed favorably.

If you have questions about estate or trust administration, including tax obligations, Schooley Law Firm, P.C. is here to assist.  We know it can be challenging to meet both personal and fiduciary obligations and we are always happy to help point executors, administrators, and trustees in the right direction.

Jennifer Schooley  |  Contact | Estate Planning

Prepay 2018 Property Taxes: UPDATE for Richmond and the Surrounding Areas

Update: Since our last article was posted, the IRS has issued an advisory on prepaying real estate taxes for 2018.  The Service has taken the position that only real estate taxes paid and assessed in 2017 will be deductible on taxpayers’ 2017 income tax returns.  

Unfortunately for the Greater RVA Area, this means many of us are out of luck on taking this deduction.  Chesterfield County, Hanover County, and Henrico County will issue their 2018 assessments in January 2018, meaning that prepaying real estate taxes in those counties will not qualify for deduction on 2017 income tax returns.  According to the City Assessor’s office, the City of Richmond DOES issue its assessment for 2018 in 2017.  Therefore, prepaid property taxes in the City of Richmond should be deductible in 2017.

Click here for the full text of the IRS notice: https://www.irs.gov/newsroom/irs-advisory-prepaid-real-property-taxes-may-be-deductible-in-2017-if-assessed-and-paid-in-2017

Jennifer Schooley  |  Contact

Prepay taxes? This week it could make sense for RVA and surrounding areas.

UPDATE: As of 12/27/17 - The below article is now outdated for much of RVA. Please check out our post with IRS update.

---

Here’s how the new tax bill plays out locally in Richmond, Henrico, Chesterfield, and Hanover.

As widely discussed, the final form of the tax bill passed in Congress caps total deductions for state and local taxes at $10,000 beginning in 2018.  For many of our clients who earn more than six figures, this change will be detrimental because their cumulative state income and local property taxes exceeds the cap.  The clock is ticking and there are just a few days left to decide whether or not to prepay, in 2017, those taxes owed for 2018.  While Congress specifically prohibited prepaying state income taxes for 2018 and taking the deduction on your 2017 federal income tax return, it did not prohibit prepaying local property taxes.  Are you interested?  Here's how you can take advantage of a full federal deduction for your local property taxes for one final year (until Congress changes the tax code yet again):

Locally, Henrico County, Chesterfield County, Hanover County, and the City of Richmond all allow prepayment of property taxes.  All four localities require that you clearly indicate that your check is for prepayment of the 2018 taxes.  Chesterfield and Hanover County request that residents notate "prepayment for 2018" and their account number in the memo line of the check.  The City of Richmond requires a "bill number," which is an invoice number.  If you do not have a bill number (and you would not, for the second half of 2018), you can call the Finance Department and provide your tax parcel ID number or address and they will generate a bill and provide the number to you.  You can find your tax parcel number online through your locality’s website.

Last, if your property is mortgaged, you may want to pay in person so you can get a receipt from your locality showing the 2018 taxes were paid.  You can use that receipt to prove to your lender that your monthly escrow for property taxes can be adjusted. Depending upon whether taxes are paid in advance or arrears, your lender may have already escrowed part of the payment for 2018 - so the next time they conduct an escrow assessment, you may stand to receive a refund.  For specifics, contact your lender to see how it will handle this issue and to determine when you might expect a refund.

Jennifer Schooley  |  Contact