What Makes a Good Executor?

We’ve been telling people for a while now that you need a will.

Read more here—> https://www.jacochranlaw.com/reminder-you-need-will

Don’t just take our word for it. Here’s even more: https://www.thebalance.com/why-you-need-a-will-1289264

Likewise, you can find many more reasons why you should have a will anywhere on the web.

For those trying to do the right thing, after beneficiaries, the next question becomes who will serve as executor? This is an important decision. But before you decide, we’ve created this post to help you think about what makes a good executor.

Image of a hand stamping a last will and testament.
Family

Most people automatically select a reasonably responsible family member to serve as executor of their will. Usual suspects include spouses, siblings, parents, children or close cousins. One word of caution: you should select at least one person younger than you. After all, not to be rude, but your executor might not outlive you if they are older.

Close Friends

Not everyone has family they can trust. This makes “families of choice” a more viable option to execute a will. Sewing up a clear will and executor clause becomes even more important if there are next of kin. The good news a will can cover that base for you.

Attorney or Other Trusted Professional

Sometimes for a variety of reasons, a person does not have trusted family or friend to name as their executor. Sometimes they just want to minimize any squabbles by putting an independent third party in charge of executing the will. The downside of this arrangement is that your estate will pay a fee for their services.

Limitations

If the person you name as the executor lives in another state, you may need to check state laws. Some states have special requirements about family members, bonds to protect heirs from mismanagement, or the appointment of in-state agents. Each state will also set executor fees for third party management, depending on the size of estate.

Replace Only if Necessary

The bottom line is you want to choose an executor who is mentally and financially stable to do the job. You have to be able to trust they will carry out your wishes as outlined in your will upon your death. If a situation changes that no longer makes your named executor the best option anymore, you can create a codicil. A codicil serves as an amendment to the original will which could name the new executor. You must have it validated just like the original will with two legal witnesses. Placing your trust in an executor to carry out your wishes after your death is no small matter. If you need help putting together a will or want advice on selecting an executor, relax!

What makes a good executor? An image of two hands signing a will document.

Finally, we know that every client has unique situations. However, we take the time to understand your needs and wishes. Then we’ll offer advice on your best options. Call John A. Cochran, Esquire, in Greensburg at 724-216-0704 or use our online form to schedule a free consultation.

Reminders on Tax Preparations for the Year of COVID

The effects of the global pandemic and economic crisis will be felt for years to come. But this year, finalizing year-end accounting for businesses has special challenges in 2020. Special considerations, losses, business closing, and accounting for government relief programs will likely amplify the usual stressors of tax season. Before getting started on the particular aspects for businesses this year, it helps for taxpayers to cover the basics. So, below we offer a list of basic reminders on tax preparations for the year of COVID.

a photo of someone doing taxes
Confirm Records of All Business Expenses

Maybe you legitimately paid for a new business computer but cannot find the paper trail. You can usually replace missing receipts with a bit of research. Reviewing credit card statements or order histories from the store can provide proof of purchase. Also avoid claiming untraceable income to family members, lavish gifts, and other expenses outsized for the level of income generated.

Only Claim Actual Business Expenses

A personal laptop you bought your kid for remote learning does not count as an actual business expense. Tempting as it sounds, you cannot justify your business improved by no longer having them borrow your computer for schoolwork. The IRS will figure out that’s not an actual business expense. Make several little ‘they’ll never notice’ claims and you could expose yourself to costly penalties. Other areas that raise red flags include claiming unusually high utility costs for a home office, or unrelated professional development. 

Procrastination Pain

Forget whatever you told yourself in school about working better under pressure by waiting until ‘later’ to do your work. When you wait until the 11th hour, you risk not having enough time to pull all your documentation together accurately. Mad scrambles fueled by adrenaline can also leave money on the table. You increase your chances of maximizing your deductions when you take time to consider all possible deductions thoughtfully.

Clueless Accounting

Going through the entire period unaware of tax liabilities spells disaster for business owners. Being blissfully unaware does not exempt you from repercussions and avoiding proper accounting will only make things worse. Aside from the shock of owed taxes when filing, you can also accrue serious penalties for filing late or underpaid quarterly estimates.

Stay on Top of IRS Correspondence

As we’ve mentioned in other blogs, if you receive a letter from the IRS, do not ignore it! We cannot stress this enough: avoiding whatever is in the correspondence, won’t make it go away. If they request additional information, provide it in a timely fashion. If they question your filing and you do nothing, they assume they’re correct  and move forward with billing. Expect them to start charging interest and late fees.

By starting at a better baseline, you can better prepare for the specifics of the 2020 tax preparations. The good news: you have enough time to find lost receipts, respond to IRS letters, and get yourself organized. You also have time to ask questions about allowable expenses and the best way to attack your unique tax situations. That’s where we can help. Contact our office at 724-216-5180 or use our online form. 

Tax Implications of Closing a Business in 2020

An unfortunate side effect of the global pandemic and economic impact has been the closing of small businesses. But just closing the doors doesn’t end the story. Depending on business structure and number of employees, closing your doors forever can hold additional costs if not done correctly. Today, we’ll discuss the tax implications of closing a business in 2020. 

Structure Complexity Impacts Your Tax Implications

How you structured your business will determine the steps you’ll need to take for a full closing. In addition to filing annual returns and related forms, you will need to pay final wages or compensation to employees. You will also need to cancel your employer identification number (EIN) and close your IRS business account. 

Sole Proprietorships with zero employees, especially when operated from your dining room table, come with little issues when closing. Businesses operations with contractors, employees, or storefronts will need to follow a run-out strategy for payroll, contracts, and leases as well as additional book-closing steps. 

Partnerships operate like sole proprietorships when closing for good. Owners will need to account for dissolution and personal tax impacts. 

C-Corporations, because of their complexities, require far more processing. It includes selling off assets or liquidating stocks. Owners will also need to petition the State for dissolution and various clearance certificates.

Business Requirements

If your business had employees or used contractors, it should go without saying that you need to pay them. You also need to issue their final income statements for their tax filing purposes. 

If you provide a pension or benefit plan for your employees, see how to Terminate a Retirement Plan. If you provide Health Savings Accounts or similar programs for your employees, see About Publication 969.

When you close your business, you will still need to pay final taxes. (You don’t think they’d forget, do you?) This includes n any gains you may have had on selling the business or selling off its remaining assets. 

Keep Records of Everything when Closing a Business
Closed sign for business.

Careful bookkeeping helps business owners and their tax pros through the entire life cycle of a business. An audit by state or federal authorities is never fun, especially if the business activity that spawned the audit is now shut down. Then you incur additional cost and relive the closing experience without the benefit of any new money. If you destroy all supporting documentation on a closed business, you have just compounded that bad experience.

So please, hold onto your tax returns, unemployment records, and other business documents. Digitizing files can make it easier to store them without shoeboxes taking up precious real estate in your hallway closet.

This year has been difficult enough, get peace of mind now by addressing the tax implications of closing a business in 2020. Then you can begin the next chapter of your life with a clean slate. Need help pulling together your material or filling out necessary paperwork? Relax! We have years of experience providing efficient tax return preparation services and business minimizing tax liabilities, even after closure. Call John A. Cochran, Esquire, in Greensburg at 724-216-0704 or use our online form to schedule a free consultation.

Do I Need a Trust Fund?

A photo of money and phrases associated with trust funds

Trust funds get a bad rap. Many connect them with entitled “trust fund babies” who inherit enormous sums of money from ultra-wealthy family. But not only one-percenters benefit from creating accounts designated for specific purposes for beneficiaries. Certain trust funds pass outside of probate, they can potentially save beneficiaries time and money. Also, unlike wills, they are not made public. So, you may ask yourself: do I need a trust fund, too?

We suggest asking that question with a trusty (heh) attorney at your side. While you consider that question, below we explain a handful of commons trust funds and their purposes. 

Living Trust

A living trust designates a trustee to manage assets for the beneficiary/grantor while the grantor is still alive. Trustees manage trusts according to the best interests and wishes of the grantor. Living trusts are typically revocable (amendable during a settlor’s lifetime). When the settlor dies, the trust automatically becomes irrevocable (cannot amend or revoke).

Testamentary Trusts

Also known as will trusts, testamentary trusts act more like a standard Last Will and Testament for the deceased. Unlike living trusts, these trusts do not go into effect until the death of the settlor. Will trusts can protect assets from a grantor’s creditors. They also restrain monies available to the grantors from the inheritance.

Irrevocable Life Insurance Trust 

An irrevocable life insurance trust (ILIT) is a type of living trust set up to own a life insurance policy. An existing policy can transfer to the ILIT after formation. ILITs are irrevocable by definition. This is because the trust must be funded through placing a policy into its ownership. Several tax advantages, both income and inheritance, come with these trust programs. 

Do you have questions about an existing trust? Do you need an experienced attorney to create a new trust for you? Every client has unique situations. We take time to understand your needs and wishes. Then we offer advice on your best options. Call John A. Cochran, Esquire, in Greensburg at 724-216-0704 or use our online form to schedule a free consultation.

Basic Steps to a Tax Audit

No one likes to see that letter from the IRS “congratulating” you on being audited. Before you throw the notice aside and bury your head in your couch, read these basic steps to a tax audit. You should always consult a tax professional, and with our assistance you can get through an audit. We promise. 

1.  Read Letter and Response Time

The first basic step to a tax audit is to read the letter you receive from the IRS. The letter will outline the next steps you need to take. You generally have 30 days to respond to the notice. Responding in a timely fashion will get the ball rolling. This also means you may have a lot of work to do to get ready. It helps to have a tax professional at your side to keep you focused.

Should you decide to engage in the bury-your-head-in-the-couch tactic, the IRS foregoes giving you a chance validate your figures. They just automatically adjust your amount owed and send you a bill. That bill will undoubtedly include penalties and interest on the outstanding amount they think you owe.

2. Win Brownie Points for Being Organized

Think of this like a court case for your taxes. Get all your records together for the portions in question. Any documentation that corroborates with your tax return will help you case and make their life easier. You may save your receipts in a shoe box but sharing them that way will not help your case.

Having the requested material organized will expedite things. Plus, the easier you make going through your files for the IRS examiner, the more they will trust your documentation.


3. Leave Sideshow Material at Home

Also, only provide what they request. Trying to distract them with material from another part of your return will only accomplish two things. You will annoy the auditor with extraneous stuff or potentially make them interested in something they weren’t before. Neither of which is a good thing if you’re looking to get out of your meeting in minimal time.

4. Keep Your Original Documentation

Always make copies of supporting documentation you provide to the auditor. If for some reason production of an original document is necessary, request the auditor make copies for themselves. Do not leave your meeting without the original documents. Any material you give to the IRS, they will likely lose. Also, you should know they will not be responsible for records lost while in their possession. You, however, will need those originals for any future questions. It sucks, we know. Think of it like giving a toddler ringbearer the REAL wedding bands. 

5. Be Nice

No matter what we talk about in our office with clients, above all we tell them to be nice. IRS auditors are people, too (believe it or not). In a world steeped with negativity and quick fuses, it’s easy to forget that crappy behavior will yield crappy results. Also, you can face serious consequences if you engage in threatening or physically aggressive behavior. That’s a federal offense… and likely a highlight on the evening news. So just be nice, even if you perceive they’re acting rude, which the Service rarely does. Seriously per a famous Pennsylvanian, Ben Franklin: “You catch more flies with honey than vinegar” 

These basic steps to a tax audit can help you know what to expect. However, throughout the entire process, you should know your rights as a taxpayer. The IRS mission is to provide America’s taxpayers top-quality service by helping them understand and meet their tax responsibilities. They also pledge to enforce the law with integrity and fairness to all. An experienced tax attorney will help to ensure they uphold their mission.

Don’t go it alone. We can walk you through the basic steps of a tax audit and minimize your tax liabilities. Call John A. Cochran, Esquire, in Greensburg at 724-216-0704 or use our online form.

Considerations when Setting up a Business

A photo of all aspects that go into structuring a business

A strange thing happened as part of the global pandemic and economic crises. Many people, especially if laid off or furloughed, are having “COVID epiphanies.” No longer interested in working for someone else, they’ve decided to go into business for themselves. Congratulations if you’re one of them! You may only plan to run a part-time business as a side hustle for now. However, there are many considerations when setting up a business. 

No two businesses are the same. I encourage you reach out to an experienced business attorney before making any decisions. Different structures offer different sets of pros and cons. Below is a very brief description of a few areas to consider. 

Ease of Establishing

The size and structure you select determines how easily a business becomes a legal entity. Usually businesses start small, helping guide which structures to consider. 

Sole proprietorship’s simple business structure offers easy entry into owning a business, making it the most common small business structure. The sole prop basically acts as an extension of the person.

Partnerships operate much the same way as sole props with owners sharing responsibility.

Limited liability corporations (LLCs) require a bit more work to set up. But they minimize risk while offering flexible management. Most small businesses fall into these categories. 

However, structures also exist for larger entities, including Chapter C and Subchapter S corporations. Here, shareholders exchange money, property, or both for the corporation’s capital stock.

Tax Implications

Tax implications may hold more overall weight than how hard it is to form an organization. 

Owned and operated by one person, the sole prop takes total responsibility for the business’s debt and taxes. LLCs may offer lower risks with less complex taxes than corporations. A C corporation is separate, paying taxes and passing on profits to shareholders.

For more than 35 years, we have guided business owners through decisions involving nearly every type of business. Our past clients include sole props, partners, LLCs, and Chapter C and Subchapter S corporations. Each decision comes from many smaller choices. These choices include business control, asset protection, tax rates, and other matters.

Interested in learning how to turn your COVID epiphany into a proper business? We can walk through considerations when setting up a business with you. Call John A. Cochran, Esquire, in Greensburg at 724-216-0704 or use our online form.

Do Not Approach Filing Taxes like Speed Dating

Read that again. Do not approach filing your taxes like speed dating, especially for small businesses. You cannot expect to whirl through filing your business taxes like a gigolo at a speed dating event. What kind of success can you expect running to meet a new person every three minutes? Check the statistics: speed dating only results in a 4-percent success rate in the long run. Anticipate the same dastardly (I love that word) results if you approach filing business taxes with a similar attitude.

The Future is Now

Yes, the IRS extended filing federal taxes until July 15, 2020 this year. In March or April, that probably felt like a million years away. You know, a Future You problem. Back then you needed to focus on following stay-at-home orders, COVID-19 concerns, and basically watching the world fall apart. The extension intended to give business owners time to get back to normal.

Newsflash for the Feds: we’re still not back to ‘normal’ business. But that doesn’t give you as a small business owner any more leeway. The extended deadline the federal government so graciously bestowed upon us is fast approaching. The future is now. Time to face reality and get moving.

Business taxes require more paperwork, documentation, and time to process. Meaning, business owners face a tighter crunch time that typical W-2 filers. As a double whammy, business owners also must file your first and second quarter estimated income tax payments the same day. 

Get It Together… Now

Don’t try to excuse your procrastinating ways by saying you work better under pressure. I don’t subscribe to the tactic of creating self-induced stressful situations. You want pressure? Try having only three minutes to pitch yourself to a potential mate. Nope, pressure doesn’t seem to help the speed daters, regardless of their schticks. The IRS doesn’t want your smooth operator lines either. 

That means you have to dig in, burn the midnight oil, and grind this out. My recommendation? Pull together all your spreadsheets, paperwork, and crumpled receipts before you get started. I promise you, if you have to get up to retrieve a stray document, something will distract you… especially food. Or finding Mr./Ms. Right.  

Our offices can’t help with your dating problems, but we’re here to help you end your procrastinating ways. We can get you through this tax season and set you up for success moving forward. Future you will thank you.

Do you have business tax issues, need filing an extension, or have specific tax-related questions? RELAX. Call our office at 724-216-5180 or complete the online form to schedule a free consultation.  

Five Steps for Creating an Estate Plan

photo law book for creating your estate plan

What do you think about when someone talks about creating an estate plans? If you’re like most people, you assume that means they have a will. Full stop. But did you know that’s only part of the equation? Below we’ve listed five steps for creating an estate plan. 

1. Wills

Yes, wills serve as the backbone of an estate plan. Probating a will usually lacks the Hollywood drama of fainting, crying, and shouting in an attorney’s office during the reading. But without one, relatives automatically become heirs, even if you’d rather they not. Don’t want your mom to gain possession of your prized comic book collection? Ensure you have a valid will that gives them to your comic-con buddy. 

2. Beneficiaries

More than just who gets what in your will, you also need to name beneficiaries on all life insurance, retirement plans, and other assets. Spouses with joint ownership of assets – like a house – will automatically inherit the asset, so long as the deed reflects this. Also, revisit these beneficiaries periodically, especially after a large life change. I hate explaining to a deceased’s wife that the ex-wife inherits the insurance money because he never updated his policy beneficiaries.  

3. Memorandums or Letters

Not everything will be captured in a will. Some sentiments require additional explanation. For example, some people want to dictate every aspect of their funeral, including what songs to play during the service. We recommend these individuals write everything down in a document colloquially called a Memorandum of Death. Maybe that sounds creepy, but if you feel strongly about NOT playing Amazing Grace at your funeral, better record it. This also works for making sure the right people receive sentimental items with an explanation of why.

4. Power of Attorney 

No one wants to think about losing their facilities and not being able to make their own decisions. But if you plan to live a long life, the odds favor those with a durable power of attorney (POA). With a POA, a trusted individual can advocate for your financial affairs. They will act on your behalf to pay bills and disperse your funds according to your wishes. PS: it’s not always a relative who serves in this role.

5. Declutter your files

Grieving loved ones don’t need additional obstacles to closing a deceased’s affairs. Nobody wants to sift through losing lottery tickets, old magazines, and canceled checks to desperate need to find your estate plan and other important paperwork necessary to file for probate in the courts. Don’t be “that guy” that keeps everything in a grocery bag in the back of the hall closet. Organize your stuff. 

Ready to make sure your estate plan needs your needs? Relax! Call our office at 724-216-5180 or complete the online form to schedule a free consultation.  

Reminder: You Need a Will

you need a will, especially during uncertain times

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Expecting an Economic Impact Payment? Five Reasons to Check Again

a graphic of money depicting why if you're expecting and economic impact payment, there are five reasons to check again.

The much-anticipated economic impact payments have started rolling out across the nation. If you’re expecting an economic impact payment, you may be waiting expectantly. Americans eligible for the payment check their online banking statements like kids on Christmas looking to see if Santa came. Those receiving paper checks will have to wait weeks more.

Tens of millions of Americans will receive their payments without issue. Well, this is the federal government, we know there will be glitches and delays. Aside from the usual red tape, the CARES Act has a few loopholes that could eat into that Christmas morning miracle.

1. Child Support Arrears

Anyone who owes child support can have their checks fully or partially garnished like their wages. Note: married couples where one spouse is behind on child support from a previous relationship can see their payments garnished, too. That’s right, the current spouse could see some or all of their portion taken as well.

2. Private Collection Agencies

Currently, anyone in collections may also see those funds diminished. Debt collectors can freeze bank accounts, too. If this feels sneaky and underhanded, there are a number of senators who agree. They’re working with both the Treasury Department and states to close this loophole. But for now, it’s still perfectly legal.

3. Parents of Teens Over 16

As is true of regular tax filing, the child tax credit cuts off by at a kid’s 17th birthday. This may come as a big surprise when you’re counting heads around your dinner table. The IRS doesn’t count older teens as dependents eligible for the $500 dependent payment, regardless of how much they cost you in groceries.

4. College Students Still Claimed by Someone Else

College students under the age of 23 that are still claimed by someone else are not eligible to receive payments. Those claiming them as dependents will likewise not receive funds for claiming them as a dependent child. This is true even if the student lives on their own and has a part-time job while going to school. 

5. Disabled, Elderly or Otherwise Dependent Adults

Adults claimed by someone else for tax purposes are not eligible to receive a payment. Neither are their caretakers – including adult children – able to claim them as dependents for the $500 payment. 

The government’s economic impact payment program has additional holes, creating even more questions. The IRS is notoriously difficult to get answers from. This is especially true now with a skeleton crew pumping out unprecedented checks to tens of millions of people on antiquated computing systems. Figuring out the CARES Act and how loopholes affect your payments could require a more trained eye. If you’re expecting an economic impact check and need help, call our office at 724-216-5180 or complete our online form.