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Member of Russell Bedford International, a global network of independent professional service firms.
CPA | CK Principal
The death of a spouse is a profoundly challenging time, both emotionally and financially. Amidst the grieving process, surviving spouses must also navigate a complex array of tax issues. Understanding these tax implications is crucial to ensuring compliance and optimizing financial outcomes. This article explores the key tax considerations for surviving spouses, including filing status, inherited basis adjustments, home sale exclusions, notifications to relevant agencies, estate tax considerations, and trust issues.
If you have a team of trusted advisors – accountants, attorneys, insurance, and/or financial professionals – these individuals are adept at advising clients during this trying time. They have experience in dealing with these difficult issues and can advise in a non-partial way. Let them help you as you grieve your loss.
Ideally, determining the key advisors should not be a difficult process. In some cases, prepared individuals may have created a crash card to assist their families upon their passing. The crash card may help you identify advisors and to know where important documents are stored.
It is imperative for the surviving spouse to notify the Social Security Administration (SSA) of the spouse’s death to adjust benefits accordingly. Usually, the funeral home will notify SSA, but to be safe, the surviving spouse should also contact SSA. Similarly, any payers of pensions or retirement plans must be informed to ensure the proper distribution of benefits and to avoid potential overpayments that would have to be repaid.
To prevent future complications, it is essential to change the title of jointly held assets to the survivor’s name alone. This includes real estate, vehicles, and financial accounts. It is also an opportunity to determine whether ownership should be held individually or in trust. Properly updating titles ensures clear ownership and facilitates future transactions.
Surviving spouses should also review and update their own beneficiary designations on life insurance policies, retirement accounts, and wills.
Many couples establish living trusts to manage their assets. Upon the death of one spouse, the trust may split into two separate trusts: one revocable and one irrevocable. The irrevocable trust typically requires a separate tax return. Understanding the terms of the trust and its tax implications is crucial for compliance and effective estate planning.
In the year of a spouse’s death, and provided the surviving spouse has not remarried, the surviving spouse has several filing status options. The option most often used is to file a joint tax return with the deceased spouse. This option is generally more favorable than filing as a single individual, as it allows for higher income thresholds and deductions. If the surviving spouse chooses not to file jointly, they may file as married filing separately or, if they qualify, as head of household.
If the surviving spouse has not remarried and has a dependent child, they may qualify as a “Qualifying Surviving Spouse” for up to two years after the year of the spouse’s death. This status offers benefits similar to those of filing jointly.
When a spouse passes away, the surviving spouse may receive an adjustment in basis for the inherited assets, which can significantly affect future capital gains taxes. The extent of this basis adjustment depends on how the title to the assets was held:
The rationale behind these basis adjustments is to align the tax basis of inherited assets with their current market value, thereby reducing the potential capital gains tax burden on the surviving spouse. This adjustment reflects the change in ownership and the economic reality that the surviving spouse is now the sole owner of the asset.
To establish the inherited basis, obtaining a qualified appraisal of the assets as of the date of death is often necessary. This appraisal serves as documentation for the basis and is crucial for accurately calculating capital gains or losses upon the future sale of the assets.
Surviving spouses may benefit from the home gain exclusion, which allows for the exclusion of up to $500,000 of gain from the sale of a primary residence, provided the sale occurs within two years of the spouse’s death, and the requirements for the exclusion were met prior to the death. This exclusion can be a valuable tool for minimizing taxes on the sale of a home, although in most cases, any gain within the two years is likely to be minimal because of the basis step-up provision. After the two-year period has elapsed, the exclusion drops to $250,000.
If the deceased spouse’s estate exceeds the federal estate tax exemption, an estate tax return may be required. Even if the estate is below the exemption threshold, filing an estate tax return can be beneficial to elect portability. Portability allows the surviving spouse to utilize the deceased spouse’s unused estate tax exemption, potentially reducing estate taxes upon the surviving spouse’s death. Not only federal estate tax laws should be considered, but state estate tax laws as well.
In addition to the primary tax considerations, surviving spouses must also be aware of how tax attributes are treated following the death of a spouse. Tax attributes include various tax-related characteristics such as net operating losses, capital loss carryovers, and passive activity losses. This can be complicated based on whether the attributes are related to a specific spouse or jointly.
The tax issues facing surviving spouses are multifaceted and require careful consideration. By understanding filing status options, inherited basis adjustments, home sale exclusions, and other critical tax matters, surviving spouses can navigate this challenging period with greater confidence and financial security.
Contact CK’s office at 630.953.4900 for professional tax assistance to ensure compliance and optimize financial outcomes during this difficult time. Our trusted team of advisors will be there to guide you every step of the way.
Senior Tax Accountant
If you’re running a small or medium-sized business, you know that cash flow is everything. Keeping up with payroll, replenishing inventory, and funding growth can feel like a never-ending balancing act. But what if there was a hidden way to free up cash?
Enter tax credits. These aren’t just numbers on a financial statement; they’re tools that can give your cash flow the boost it needs. Let’s explore how you can unlock these hidden advantages and give your cash flow a much-needed boost.
Unlike tax deductions, which only reduce taxable income, tax credits directly cut down your tax bill. That means more money stays in your business, strengthening your financial position and fueling growth. Here are some key credits to consider:
Why It’s a Win: Hiring new employees doesn’t just build your team, it can also boost your cash flow. The WOTC rewards businesses for hiring individuals from specific target groups, such as veterans, individuals from low-income areas, and long-term unemployment recipients.
How It Works: You may be able to claim a tax credit for a percentage of an employee’s wages during their first year on the job. This can help offset hiring costs while reducing your tax liability.
How to Qualify: Hire employees who meet WOTC eligibility, submit a certification request during the hiring process, and maintain precise hiring and detailed payroll records.
Why It’s a Win: Innovation pays off, literally. If your business is developing new products, improving processes, or advancing technology, you may qualify for the R&D tax credit.
How It Works: You can claim a percentage of qualifying R&D expenses, including any wages and supplies involved with the research. This directly reduces your tax bill, making it a valuable incentive for businesses pushing the envelope in their industry.
How to Qualify: Keep detailed records of your R&D activities, including project descriptions, expenses, and outcomes to support your claim.
Why It’s a Win: Startups and smaller businesses don’t have enough income to benefit from the R&D tax credit, but there’s a workaround. The payroll tax credit allows eligible businesses apply up to $250,000 of their R&D credit toward their payroll taxes instead.
How It Works: This option provides cash flow relief right away rather than waiting to offset future tax liability.
How to Qualify: Meet startup eligibility criteria (typically having less than $5 million in gross receipts) and ensure your R&D activities meet the requirements. Accurate documentation of expenses is key.
Why It’s a Win: Certain industries, such as renewable energy, manufacturing, and tech—benefit from specialized tax credits to encourage innovation and sustainability. These credits reward activities like energy efficiency improvements, eco-friendly initiatives, and technological advancements.
How They Work: Whether you are upgrading to energy-efficient equipment or investing in new technologies or adopting eco-friendly practices, these incentives help cut your tax bill and boost your cash flow.
How to Qualify: Research the credits available in your industry and ensure compliance with all relevant requirements to make the most of these opportunities.
Claiming tax credits is just the beginning. Once you secure them, they can be a powerful tool in your financial strategy. Use the extra cash inflow to invest in growth opportunities, pay down debt, or build a financial cushion for the future. By incorporating tax credits into your planning, you are setting your business up for stability and success.
Tax credits could be the key to unlocking new financial opportunities for your business. If you’re ready to explore which credits apply to you, Cray Kaiser is here to help. As experienced advisors, we specialize in helping businesses navigate the complexities of tax credits.
CPA | Tax Supervisor -SALT
Beginning January 1, 2025, Illinois legislation requires lessors of tangible personal property (TPP) to charge Illinois sales tax on rental charges. Previously, TPP acquired for leasing purposes in Illinois was taxed to the purchaser, and leases of TPP were not taxed to the rental customer. Under the new law, lessors must apply Illinois sales tax to rental charges based on the sourcing rules outlined in the Illinois Retailer’s Occupation Tax (ROT).
Determining the Appropriate Tax Rate
For leases requiring recurring periodic payments for TPP delivered by the lessor to the customer, each periodic payment is sourced to the primary property location as provided by the lessee. For all other leases, including leases that do not require regular periodic payments, and any lease in which the customer takes possession at the lessor’s place of business, the sales tax rate is determined as provided under the Retailers’ Occupation Tax Act for sales at retail (86 Ill. Adm. Code 270.115). For additional details, see Illinois Informational Bulletin FY 2025-15 (FY 2025-15, Illinois Sales and Use Tax Applies to Leased or Rented Tangible Personal Property).
Exceptions to the New Law
Several exceptions to this legislation remain unchanged :
City of Chicago Exception
The City of Chicago already imposes its own local tax on non-titled use of TPP – the Personal Property Lease Transaction Tax, which increased from 9% to 11% as of January 1, 2025. To prevent double taxation, the state has excluded the City of Chicago from the ROT on leases of TPP. Notably:
Sales Tax Impact on TPP Purchases
Effective January 1, 2025:
Need Assistance
Navigating the complexities of sales and use tax can be challenging. Cray Kaiser is here to help. If you have any questions or need guidance, please contact us or call us at 630-953-4900.
CPA | Tax Supervisor – SALT
Beginning January 1, 2025, all out-of-state shipments into Illinois will be subject to the Retailer’s Occupation Tax (ROT). This tax includes state and local sales taxes and is determined based on the destination of the sale.
Key Changes
Previously, Illinois retailers with a physical presence in the state who sold tangible personal property from locations outside Illinois were only required to charge Illinois Use Tax (state, not local tax) on such sales. Under the new regulations, such sales will be subject to ROT, including local taxes.
Who Is Affected
This change only applies to retailers with a physical presence in Illinois who make sales into Illinois from an out-of-state location. The change does not impact remote retailers with no physical presence in the state.
Further Guidance
The State of Illinois provides Bulletin FY 2025-10 to assist sellers in navigating these changes including what actions to take in response to this change.
ROT Rules by Seller Type
1. Illinois Retailers
Sellers with a physical presence in Illinois shipping from locations within the State must collect and remit ROT based on the origin of the shipment.
2. Out-of-State Sellers
Retailers with a physical presence in Illinois and shipping from both in-state and out-of-state locations follow these rules:
3. Remote Sellers
Retailers with no physical presence in Illinois who meet a threshold of $100,000 or more in gross receipts or 200 or more separate transactions must collect ROT based on the destination of the shipment.
Need Assistance
Cray Kaiser can answer your questions on the changing landscape of sales and use taxes. Please contact us here or call us at 630-953-4900 if you have any questions.
On December 12, 2024, President Biden signed the Federal Disaster Tax Relief Act of 2023 into law. This provision was long awaited by victims of hurricanes and wildfires in the past few years, and affects disasters declared between January 1, 2020 and February 9, 2025. This includes Hurricanes Idalia, Nicole, Fiona, Helene, Milton, Ian, and the California and Hawaii wildfires, and other specific disasters during this period.
Before this Act was passed, individuals could only deduct personal casualty losses as an itemized deduction to the extent the loss exceeded 10% of their adjusted gross income. The limitation on the deductible loss meant that many victims of disasters received no tax benefit from their casualty loss.
Under the new law, the loss is deductible whether the taxpayer itemizes or not. Additionally, the adjusted gross income limitation has been replaced. The deduction is now only reduced by $500 per casualty loss.
In addition to the relief for losses, the act also provides that individual taxpayers can exclude from gross income compensation resulting from certain wildfires. Qualified wildfire relief payments received during taxable years beginning after December 31, 2019, and before January 1, 2026, are eligible for this provision. The same exclusion will apply to individual taxpayers receiving disaster relief payments due to the East Palestine, Ohio train derailment.
If you were a victim of a disaster as noted above, please contact Cray Kaiser at 630-953-4900 or by filling out this form. We will review your tax situation to determine if an amended return should be filed to claim the benefits provided under this Act.
CPA | Tax Supervisor
The IRS released an official form for electing IRC § 83(b). This election has been around for quite some time. For many recipients, it is a tax advantageous election for unvested restricted stock received. No substantive change has been made to the law under IRC § 83(b). However, the IRS released Form 15620 which gives the transferor another way to elect 83(b).
What is an 83(b) election?
This election merely advances a taxable event to when unvested property is received. When filed timely by the transferor, it allows tax to be assessed at the grant date instead of the vesting date. Many times, this is used for startup companies with a low value; therefore, the taxation upon an 83(b) election is limited. The election also starts the clock for determining the holding period upon sale. When the stock vests, there is no tax paid as the compensation income was recognized upon the 83(b) election date. Once sold, you pay capital gains on the difference of sale price and the value of the stock when the compensation was recognized.
If no election is made, then you won’t pay taxes until the restricted stock vests. The risk with this is if the value at vesting is higher than grant, you will be paying ordinary rates on this compensation income at fair market value. This is a big cash flow issue for taxpayers, as tax is due even if the stock is not sold.
What the 83(b) election allows is the flexibility to pay ordinary tax at grant date, where value would be usually lower. Accelerating the income also provides for a higher chance of getting beneficial long-term capital gains rates. However, the downside to the election is if you have paid tax early and the value of the stock drops, then this will not result in a tax benefit.
Example
Let’s say you receive $1,000 worth of restricted stock with vesting in Year 3. If the 83(b) election is filed timely, then you would pay ordinary income tax on $1,000 of compensation in the year you received restricted stock. If ordinary rates are 37% at the highest bracket, you would pay $370. In Year 3, when stock vests at $20,000, there is no tax liability. If you decide to sell In Year 5 when the stock is $25,000, then you will pay capital gains tax on the difference between sale price and grant price which would be $24,000. Capital gains at 20% would translate to $4,800 tax due in Year 5.
Total taxes paid on this restricted block would be $5,170 ($370 + $4,800).
If we assume the same facts as above, but no 83(b) election was made, then you would have no tax due at grant date (Year 1). However, when stock vests in Year 3, you would be liable for $7,400 (ordinary rate of 37% times vesting amount of $20,000). And if you keep the stock until Year 5 and then sell it, the capital gain would be $5,000 (difference between vesting and sale price). Tax due at 20% would be $1,000.
Total taxes paid on this restricted block would be $8,400 ($7,400 + $1,000).
Takeaway
The IRC § 83(b)election has not changed. The IRS merely released a Form to make the election If you expect to receive nonvested property in connection with performance of services, and you believe the 83(b) election to be beneficial to you, it is imperative that the 83(b) election is made within 30 days as there is no late filing relief.
As this election can be murky, Cray Kaiser is here to help you navigate potential pitfalls and opportunities. Please call us today at 630-953-4900.
Accounting & Tax Specialist
The Internal Revenue Service recently announced the annual inflation adjustments for tax year 2025. Although the adjustments will generally apply to individual tax returns filed in 2026, it’s helpful to see how taxes will change in the future and understand how you may be affected. Here are some of the highlights of these changes.
Income Rate Brackets
The top tax rate for 2025 remains at 37%. The 37% rate will apply to individual single taxpayers with income greater than $626,350 and married couples filing jointly with income greater than $751,600.
The other rates are:
Standard Deduction updates
Due to an increase in inflation, the standard deductions will increase as well.
Adjustments to Retirement Accounts
The limits on annual contributions for qualified retirement plans have also been updated for 2025, along with the phaseout ranges.
Deductible IRA phaseout ranges
Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions including income limitations.
Roth IRA income phase out
Singles and head of households increased to between $150,000 and $165,000, up $4,000.
Married Couples Filing Jointly increased to between $236,000 and $246,000, up $6,000.
Annual Exclusion for gifts
Increases to $19,000, up $1,000.
Estate and gift lifetime exemption
Increases to $13.99 million, up from $13.61 million in 2024.
If you have any questions regarding the 2025 inflation adjustments, please don’t hesitate to contact Cray Kaiser today or call us at (630) 953-4900.
Important changes to Illinois sales tax rates are coming your way. Effective January 1, 2025, several taxing jurisdictions in Illinois will impose new local sales taxes or update their existing rates on general merchandise sales.
What’s Changing?
The following local sales taxes will be affected:
These updates will be collectively referred to as “locally imposed sales taxes.”
What’s Being Taxed?
This locally imposed sales tax will apply to the same items of general merchandise reported on Line 4a of Forms ST-1 and ST-2 that are subject to State sales tax.
Locally imposed sales taxes do not apply to:
What Steps Should I Take Before January 1, 2025?
Make sure any cash registers and computer programs are updated to reflect the new tax rates beginning January 1, 2025. If a software vendor manages these processes, contact them immediately to begin implementing the changes.
Use the MyTax Illinois Tax Rate Finder here to verify your new combined sales tax rate (State and local sales taxes).
If a prior sale was subject to a sales tax rate different from the current sales tax rate, this should be reported on Line 8a of Forms ST-1 and ST-2.
What About Business District Sales Taxes?
Your business address determines whether business district sales tax applies to your sales. Remote retailers and marketplace facilitators who meet the tax remittance threshold should pay extra attention. If property is shipped or delivered to an address within a business district, the tax likely applies.
For more information, refer to the MyTax Illinois Tax Rate Finder, which provides a detailed list of business district addresses and corresponding rates.
Don’t Get Caught Off Guard in the New Year
Avoid headaches in the new year and prepare now for this sales tax rate update. If you have questions or need assistance navigating these changes, Cray Kaiser is here to help. Contact your trusted advisors at (630) 953-4900 to ensure you’re ready for the January 1, 2025, rollout.
Starting January 1, 2024, a significant number of businesses were required to comply with the Corporate Transparency Act (“CTA”). The CTA was enacted into law as part of the National Defense Act for Fiscal Year 2021. It is anticipated that 32.6 million businesses will be required to comply with this reporting requirement. The BOI reporting requirement intends to help U.S. law enforcement combat money laundering, the financing of terrorism and other illicit activity. To learn more about the CTA, listen to this audio blog by Matt Richardson, a senior tax accountant at CK.
Transcript:
My name is Matt Richardson. I’m a senior tax accountant at Cray Kaiser.
So the Corporate Transparency Act is a piece of legislation that went into effect in 2024. And it requires certain companies to report their beneficial ownership information, also known as BOI. And this is a report that goes not to the IRS, but to the FinCEN, which is the Financial Crimes Enforcement network, which is the law enforcement arm of the US Treasury Department. Information that needs to be reported for the business includes the full legal name and any DBA names ortrade names, a business address and the state or jurisdiction of formation, and an IRS taxpayer ID number. Additionally, information has to be reported for each beneficial owner, including a name, address, and an ID number from a valid ID like a passport or a driver’s license. With a few exceptions, the filing is required for any domestic corporations, limited liability companies, or other entities that are formed by a filing with a secretary of state or a similar office to do business under a state or a tribal jurisdiction. Foreign-incorporated entities are also required to file if they’re registered with a state or tribal jurisdiction to do business, and domestic entities that are not created by filing with a secretary of state, like an unincorporated sole proprietorship, are not required to file this reporting.
So a beneficial owner under the CTA is any individual who has substantial control over the company, either directly or indirectly. It can also include anyone who controls at least 25% of ownership. And this is important to note because it’s not only ownership, but it’s also control. So a non-owner officer who has decision-making power can also be considered a beneficial owner under the legislation. The purpose of the BOI is to aid law enforcement and enforcement of financial crimes like fraud, money laundering, sanctions evasion, and the financing of other crimes like terrorism or drug trafficking. And this disclosure of corporate ownership is intended to make it harder for criminals to use shell companies to cover up the financial aspects of their criminal activities. So the BOI reporting requirement has exceptions for certain categories of companies, as well as what it calls large operating entities. The specific categories of companies are highly regulated areas like banking and publicly traded companies and non-profit entities. A large operating entity is defined as any company that has 20 or more employees, five million dollars in gross sales or more, and a physical presence in the United States.
Many are confused about why large companies are exempt from reporting rather than small companies. Since so many government reporting requirements do exempt small companies. But this is because in general these larger companies are going to be visible to law enforcement and regulators through other types of tax and payroll banking reports. Whereas the purpose of the legislation is to make these smaller companies more visible, I mean, easier to track ownership for law enforcement.
So there are different filing requirements for the BOI report depending on when the entity was formed. New entities created in 2024 have 90 days after their creation to file the report. New entities created starting January 1st, 2025 have 30 days to file the report and existing entities created before January 1st, 2024 have until January 1st, 2025 to file the report. And then any companies that have a change in their ownership information or have a correction of an error to report have 30 days from the discovery of the error or from the change in information to file an updated report.
Penalties for willful non-compliance are steep, so the risk involved in shirking the requirements are serious. Consequences can include civil penalties of over $500 per day that the report has filed late, and those can escalate to up to $10,000 in criminal fines or up to two years in jail time. These requirements are generally covered by the Treasury Department’s criminal enforcement arm, which is different than the tax law and IRS matters that CPAs are generally authorized to address. And there are some legal complexities in determining who is a beneficial owner and who is subject to the requirement that need the expertise of a lawyer.
Although you can’t avoid taxes, you can take steps to minimize them. This requires proactive tax planning – estimating your tax liability, looking for ways to reduce it and taking timely action. To help you identify strategies that might work for you, we’re pleased to present the 2024 – 2025 Tax Planning Guide.
