Pub. 13 2014-2015 Issue 4

N E W J E R S E Y C O A L I T I O N O F A U T O M O T I V E R E T A I L E R S 29 new jersey auto retailer W W W . N J C A R . O R G PLANNING  continued from page 27 maintaining, repairing and replacing tangible property. Every business with at least some fixed assets must comply with these new rules for its first tax year beginning on or after January 1, 2014. On February 13, 2015, the IRS issued a revenue procedure (Rev. Proc. 2015- 20) that offers significant relief to small business taxpayers from the requirements of filing a Form 3115, Application for Change i n Account i ng Me t hod, to comply with the final repair regulations. This relief is available to a taxpayer with one or more separate and distinct trades or businesses and has either: 1. total assets of less than $10million as of the first day of the tax year for which a change in method of accounting under the final tangible property regulations is effective; or 2. average annual gross receipts of $10 million or less for the prior three tax years. The criteria for relief are applied separately to each of the taxpayer’s trades or businesses. A taxpayer’s separate and distinct trade or business that does notmeet oneor bothcriteria does not qualify for relief. Thus, these tests are applied to each entity separately and not on a control basis. Third, and most importantly, there is the family.Adealer’s family is not just their blood relations but also their loyal employees. I am now seeing sons and daughters of not just dealers but of employees coming into the business which is great tribute to the owners. The business that you worked to build for the benefit of your family must now be protected from outside forces — the factory, government, creditors and from forces from within - the “outlaws.” The best way to do this is to have an estate plan tied into a succession plan. The major reason why people put this off is that they fear losing control of their assets. Intentionally Defective Grantor Trust Estate tax planners have long employed intentionally defective grantor trusts to freeze the value of an asset for estate tax purposes while transferring assets out of the estate free of gift tax. An intentionally defec tive g rantor t r ust ( IDGT) is a complete transfer to a trust for transfer tax pur poses but an i ncomplete, or “defective,” t ransfer for income tax purposes. Because the trust is irrevocable for estate and gif t purposes and the grantor has not retained any powers that would cause estate tax inclusion, the future value of the assets transferred is removed from the grantor’s gross estate on the date of the trust’s funding. However, because the grantor retains certain other powers, the trust, although irrevocable, is treated as a grantor trust for income tax purposes. As a result, the grantor, though not a beneficiary, is taxed on all the trust’s income, even though he or she is not entitled to any trust distributions. The American Taxpayer Relief Act of 2012 permanently set the federal estate tax exemption amount to $5,000,000, adjusted annually for inf lation. For tax year 2015, the exemption is $5,430,000 per person. A husband and wi fe each have an exemption. Therefore, a couple can pass on up to $10,860,000 without paying estate tax. This assumes they have not made prior lifetime gifts. The top federal estate tax rate is 40% and is applied to amounts exceeding the exemption amount. Planning for succession and protecting your estate will enable you to control your future and pass your dealership to your bloodline. Robert J. Brown, CPA is a senior partner with The Mironov Group, Edison, New Jersey. He has been working with automotive dealers for over 25 years in all areas of tax and accounting. Bob can be reached at 732.572.3900 or RBrown@mironovgroup.com. Planning for succession and protecting your estate will enable you to control your future and pass your dealership to your bloodline.