Oct 27

IRS Grants Further Deferral of Livestock Sales due to Drought

Per an email received today from the IRS that I thought I should share:

If you are a farmer or rancher forced to sell your livestock because of the drought that affects much of the nation, special IRS tax relief may help you. The IRS has extended the time to replace livestock that their owners were forced to sell due to drought. If you’re eligible, this may help you defer tax on any gains you got from the forced sales. The relief applies to all or part of 48 states and Puerto Rico affected by the drought. Here are several points you should know about this relief:

  • Defer Tax on Drought Sales.  If the drought caused you to sell more livestock than usual, you may be able to defer tax on the extra gains from those sales.
  • Replacement Period.  You generally must replace the livestock within a four-year period to postpone the tax. The IRS can extend that period if the drought continues.
  • IRS Grants More Time.  The IRS has added one more year to the replacement period for eligible farmers and ranchers. The one-year extension of time generally applies to certain sales due to drought.
  • Livestock Sales that Apply.  If you are eligible, your gains on sales of livestock that you held for draft, dairy or breeding purposes apply.
  • Livestock Sales that Do Not Apply.  Sales of other livestock, such as those you raised for slaughter or held for sporting purposes and poultry, are not eligible.
  • Areas Eligible for Relief.  The IRS relief applies to any farm in areas suffering exceptional, extreme or severe drought conditions during any weekly period between Sept. 1, 2014, and Aug. 31, 2015. The National Drought Mitigation Center has listed all or parts of 48 states and Puerto Rico that qualify for relief. Any county that borders a county on the NDMC’s list also qualifies.
  • 2011 Drought Sales. This extension immediately impacts drought sales that occurred during 2011.
  • Prior Drought Sales.  However, the IRS has granted previous extensions that affect some of these localities. This means that some drought sales before 2011 are also affected. The IRS will grant additional extensions if severe drought conditions persist.”

This is a tax-deferral, meaning that if you do not buy the replacement animals, you will still have to pay the tax. The concern I have for some of my estate and tax planning clients is that the price has skyrocketed since their initial sales in 2011-2012. This means that they sold an older cow/bull for about $800-$1,100 then and are now tasked with buying back a replacement at easily double that price. While the regulations and rules state that only the money value is what is taxed (and not the animal count), there is still little incentive to buy back half of what you sold.

The other problem that I see from this deferral is the fact that if you do not buy back the replacement animals when the “drought” ends, then you are supposed to report all deferred income back to the year of the initial deferral. This would mean amended returns for the first year and, most likely, amended returns for all years in between because of adjustments of losses, deductions, or self-employment taxes.

Keep in mind that the IRS doesn’t give away any “free lunches” and that this program is a deferment. Also, you should consult with your tax advisor or attorney on the long-term effects of any sale or deferral.

Oct 24

Community Involvement

There are many things going on in our local community of Altus, Oklahoma, that I hope you are a part of. Just a short list are the fall carnivals, preparing for some of the Christmas celebrations, the Altus Bulldogs setting all kinds of school records in football, and may others.

If you are new to town, or if you have been here for a while, but have not found much to do, then I encourage you to start with a local church. (And I might recommend my own, the First United Methodist Church here in Altus.) A church will have regular services, so you can get these on your own schedule. Also, a church should have a welcoming family or congregation to get you involved. This may be the first step in finding some fulfillment in your life.

If you don’t want to seek religious institutions, then I would suggest some of our local fitness centers. While we don’t have YMCA or public rec center, Stand Strong Fitness and Evolved Fitness offer classes for people wanting activity. I have found both classes to be very friendly, encouraging, and exhausting, but always felt great at the support the group gives.

Being involved has helped me to find my path in this community. Without my family, my faith and my fiancée, I would have trouble defining who I am other than being a lawyer. I hope that this post will encourage a few others to take the steps to get involved and we can all make our community more welcoming to others.

Oct 23

No COLA increase for Social Security

From an email I received from an advisor to the Oklahoma Department of Human Services:

For only the third time in 40 years, the nation’s elderly and disabled Social Security recipients will not receive an increase in benefit payments next year.  However, as a direct result of this about 30 percent of Medicare are facing a staggering 52 percent increase in their Part B premiums and all beneficiaries will see a similar hike in their deductible unless Congress or the administration acts to change things.

With consumer prices down over the past year, in large part thanks to low gas prices, there is no cost-of-living adjustment (COLA), meaning that monthly Social Security and Supplemental Security Income (SSI) benefits for nearly 65 million Americans will stay at 2015 levels for 2016.  The average monthly Social Security retirement payment will remain $1,328 a month for individuals and $2,176 for couples. The maximum Social Security benefit for a worker retiring at full retirement age, which is age 66 for those born between 1943 and 1954, will also stay at $2,663 a month.

Other figures remain at 2015 levels as well, including the maximum amount of earnings subject to Social Security taxation and the income thresholds determining benefit reductions for those who retire early but still earn some income.  The monthly federal SSI payment standard will remain $733 for an individual and $1,100 for a couple.

Given the lack of a COLA adjustment for the nation’s elderly and disabled, some are calling for a re-thinking of how the cost of living for Social Security recipients is calculated.  It is currently based on the cost of a market basket of goods and services purchased by working people, who are younger and spend less on health care, which rises faster than inflation. Reuters columnist Mark Miller suggests changing the inflation gauge used for the COLA to the Consumer Price Index for the Elderly (CPI-E), which reflects the greater role of health care costs in spending by seniors.

Medicare’s Unlucky 30 Percent

The fact that Social Security benefits are not rising means that most Social Security recipients who are also Medicare beneficiaries will not see an increase in their Part B premium, which has held steady at $104.90 since 2013.  By law, if Social Security benefits don’t rise, Medicare’s premiums can’t, either.  But this “hold harmless” provision does not apply to about 30 percent of Medicare beneficiaries: those enrolled in Medicare but who are not yet receiving Social Security, new Medicare beneficiaries, seniors earning more than $85,000 a year, and “dual eligibles” who get both Medicare and Medicaid benefits.

These unprotected Medicare beneficiaries are currently looking at their monthly Part B premium jumping to $159.30, while some high-income retirees could pay as much as $509.80 a month.  In addition, the Part B deductible for all beneficiaries would rise to $223 next year, from $147 in 2015.

Why are premiums going up so precipitously for these 30 percent of beneficiaries?  Because another law says that premiums must cover increases in Medicare costs.  With 70 percent of Medicare recipients shielded from any premium increase because Social Security benefits are not rising, the entire obligation of paying for the increased Medicare costs is falling on the other 30 percent who are not protected from premium increases.

If you are on a fixed income, or if you are looking for your parents, then these issues will be front and center as you make decisions for the next year. Now may be the time to plan for your estate as well as those long-term care costs. If you mention this post, I will give you a complimentary consultation to discuss your estate planning needs.

Oct 01

Gay Couples and Common Law Marriage

This is something I had thought about a while ago, but two recent things just brought it to the front of my mind. The most recent was this article at Legal Insurrection (one of my favorite sites) which talks about the unintended consequences of the recent Supreme Court ruling mandating recognition of gay marriages across the U.S. The other thought I had was research on common law marriage in Oklahoma.

Putting the two together, it is highly likely that some same-spouse partners in Oklahoma could already be living as married couples without a marriage license.

For common law marriage to be recognized in Oklahoma, there are five “elements” considered by the Oklahoma Courts when determining the validity of a common law marriage. These are:

  1. An actual and mutual agreement between the spouses to be spouses.
  2.  A permanent relationship.
  3. An exclusive relationship.
  4. Cohabitation as a married couple.
  5. The couple must hold themselves out publicly as spouses.

As the article linked above says, “Call your lawyer” if you have been in a same sex relationship as there are likely benefits or obligations that now flow through your relationship due to the Obergefell v. Hodges decision.