Returning Value Blog

Although you may have spent years building up a successful enterprise, your family may be forced to sell it soon after your death to pay the federal estate-tax bill. The full amount of estate tax is due nine months after an individual’s death. Fortunately, there is some tax relief for a family that inherits a small business.

The Opportunity

As you consider ways to reduce your federal, state and local tax liability, be sure you don’t overlook prepaid expensing. Prepaid expenses cover any payments your business is making for goods and services to be received in the near future, such as prepaid insurance and prepaid maintenance agreements. Unlike accrued expenses, your business will receive the benefits of your payment in a later period. For accrual basis taxpayers, this means that the tax deduction for prepaid expenses won’t be available until after the cash has been expended.

In the past, it was difficult to qualify for medical expense deductions. Now, some pundits would say that it is “nearly impossible.” Based on tax law changes that took effect in 2013, most taxpayers can deduct only unreimbursed expenses in excess of 10% of their adjusted gross income (AGI), up from 7.5% of AGI under prior law. For taxpayers who are aged 65 or older, the threshold remains at 7.5% of AGI, but only through 2016.

If you are expecting an income tax refund from the Alabama Department of Revenue, be aware that you may receive a letter in the mail asking you to go online to confirm your identity. This letter is legitimate and must be responded to in 30 days or, according to the letter, your refund will be denied.