Arrow Exchange Tax Solutions

  Undoing an irrevocable life insurance trust is possible Life insurance can be a powerful estate planning tool. Indeed, it creates an instant source of wealth and liquidity to meet your family’s financial needs after you’re gone. And to shield the proceeds from potential estate taxes, thus ensuring more money for your loved ones, many people transfer their policies to irrevocable life insurance trusts (ILITs). But what if you have an ILIT that you no longer need? Does its irrevocable nature mean you’re stuck with it forever? Not necessarily. You may have options for pulling a life insurance policy out of an ILIT or even unwinding the ILIT entirely. Benefits of an ILIT An ILIT shields life insurance proceeds from estate tax because the trust, rather than the insured, owns the policy. Note, however, that under the “three-year rule,” if you transfer an existing policy to an ILIT and then die within three years, the proceeds remain taxable. That’s why it’s preferable to have the ILIT ...

Cash or accrual accounting: What’s best for tax purposes? Your businesses may have a choice between using the cash or accrual method of accounting for tax purposes. The cash method often provides significant tax benefits for those that qualify. However, some businesses may be better off using the accrual method. Therefore, you need to evaluate the tax accounting method for your business to ensure that it’s the most beneficial approach. The current situation “Small businesses,” as defined by the tax code, are generally eligible to use either cash or accrual accounting for tax purposes. (Some businesses may also be eligible to use various hybrid approaches.) Before the Tax Cuts and Jobs Act (TCJA) took effect, the gross receipts threshold for classification as a small business varied from $1 million to $10 million depending on how a business was structured, its industry and whether inventory was a material income-producing factor. The TCJA simplified the definition of a small bu...

  A tax law change in 2019 essentially ended “stretch IRAs” by requiring most beneficiaries of inherited IRAs (other than a spouse) to withdraw all of the funds within 10 years. Since then, there’s been confusion surrounding inherited IRAs and the so called “10-year rule” for required minimum distributions (RMDs). That is, until now. The IRS has issued final regulations relevant to taxpayers who are subject to the “10-year rule” for RMDs from inherited IRAs or defined contribution plans, such as 401(k) plans. In a nutshell, the final regs largely adopt proposed regs issued in 2022. 2022 proposed regs sowed confusion Under the Setting Every Community Up for Retirement Enhancement (SECURE) Act, signed into law in 2019, most heirs other than surviving spouses must withdraw the entire balance of an inherited IRA or defined contribution plan within 10 years of the original account owner’s death. In February 2022, the IRS issued proposed regs that came with an unwelcome surprise for many...