THE 5 TAX POTHOLES By: John P. Napolitano, CFP®, CPA, PFS, MST

While you’re gathering your tax information to prepare this year’s tax forms, let me share the top 5 problems in your financial world that should stick out like a sore thumb to anyone reading your return.

The first is holding title to your assets in a form that may invite death taxes and the administrative burden of taking an estate through probate. A 1099 is issued for any financial accounts that you own.  They may come from a bank, investment company or custodian who provides custody for your investments. Assets held in joint name with rights of survivorship automatically become owned by your joint owner upon your passing. This may in fact be your desired outcome. But after your passing, these assets are now in the sole name of your survivor. This means that these assets will need to pass through probate in order to get to whomever you’ve appointed in your will. You can avoid this by making a transfer on death election on the account with your custodian or using a trust to hold the title.

The second may be holding too many accounts. If you get a stack of 1099’s, ask why. You may have had a good reason to set things up this way, but is that reason still valid or just causing a record keeping problem? Is there a way to consolidate these accounts to reduce your pile and make it easier to oversee and monitor your accounts?

The third may be capital loss carry forwards. As investors, we can only use capital losses to offset other gains or then use only $3,000 against all other income. If you’ve got losses in excess of that, they are carried forward to future tax years. If you’ve been carrying around losses for years, it signals that the coordination between your investments and your tax plan is lacking. If you have carried forward losses, consider creating gains to utilize these losses.

The fourth pertains to your schedule E. If you are the beneficiary of any trusts, you will receive a K-1 form to report your share of income and losses. As the beneficiary of a trust, you may or may not have control over the underlying assets. Find out who controls these assets and what authorities you have to make any changes. This may sound pushy, but many times we’ve seen clueless beneficiaries of trusts that simply didn’t know that they could ask questions or learn more about what is in store for them.

The fifth and a very significant issue, is any business that provides pass through income? The possible problems can come from the lack of a succession plan, a poor or outdated buy-sell agreement with partners, and not having the proper funding in place to survive the death or disability of an owner.  Every year we meet an unsuspecting spouse who is disappointed at the unwinding of their share of a business after passing. Don’t let that happen to your family.

John P. Napolitano CFP®, CPA is CEO of US Wealth Management in Braintree, MA. Visit JohnPNapolitano on LinkedIn or uswealthnapolitano.com. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor. US Wealth Management, US Financial Advisors and LPL Financial do not offer tax advice. John Napolitano is a registered principal with and securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through US Financial Advisors, a Registered Investment Advisor. US Financial Advisors and US Wealth Management are separate entities from LPL Financial. He can be reached at 781-849-9200.

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