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WC-TBS is a full-service business litigation and business consulting firm. Assisting clients in tax planning and business planning is our sweet spot. WC-TBS assists clients to achieve their goals and objectives. WC-TBS needs to know in a written narrative the client’s goals and objectives. Conversely, what is the question in your mind. Write out the question and provide to WC-TBS. I like to refer to myself as an “Executive Solutions Consultant.” What is your rate for services? WC-TBS in most cases charges by the hour. Generally, and upfront retainer deposit is required based on an estimate of the proposed fees at the start of the assignment. How does the delivery of your services work? WC-TBS generally provides a client report or some type of delivery item so that the client has something to reference back to the engagement. Emails and digital source documents are the normal operating procedures. Face to face meetings over lunch are typical. Do I have to sign some type of retainer agreement? Yes. WC-TBS is under strict scrutiny from the government regulating departments, thus it is prudent to have some type of engagement letter. A retainer agreement avoids misunderstandings between clients and WC-TBS. A retainer agreement protects you and WC-TBS. How does WC-TBS assist in achieving your goals and objectives? Get to Know Your Client: It all starts with understanding your client. Rather than speaking first, instead spend your time asking the right questions, listening actively and gain a deeper understanding of what they want to achieve. How does WC-TBS avoid misunderstandings? Speak The Clients Language: Avoid technical jargon and use plain language your client can understand. Your communication should be relevant and valuable to the industry they are in so they believe in your understanding of their pain points. How does WC-TBS know if success is achieved? Adding Value to the Clients Business is Key: Provide your clients with useful information, recommend helpful resources, and offer personalized advice as well as referral contacts that can help enhance what they do. Give them something of value that they can't get anywhere else. Design Holistically: Designing a successful client experience goes beyond just one aspect of your relationship with them. It's about considering all the touchpoints where your client interacts with your business, including website, emails, business cards, and onboarding. Step back from your operations and imagine how you wish it was rather than how it is. then take a step back and make the necessary changes to improve it. Be Responsive: Be available to answer questions, address concerns, and respond to inquiries promptly (while still establishing boundaries, of course.) Set clear expectations and be responsive to your clients' needs and concerns. If you can't get back to them right away, communication with them when they should expect to get an answer. Wisdom is in asking the right questions and giving answers to the right questions. “At WC-TBS we autograph our work with excellence.”
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How the IRC § 1014 Basis Adjustment at Death Operates An Overview of the “Step-Up in Basis” Rule10/25/2025 IntroductionInternal Revenue Code (IRC) § 1014 establishes the rules for basis adjustment of property acquired from a decedent. Commonly referred to as the “step-up in basis” at death, this provision is a cornerstone of estate and income tax planning in the United States. Understanding how it operates is crucial for heirs, executors, and tax advisors alike.
What Is Basis?In tax terminology, “basis” generally refers to the amount invested in a property for tax purposes. The basis is typically the cost to acquire an asset, including purchase price and certain transaction costs. Basis is important because it determines the amount of capital gain or loss when the property is sold. The General Rule of IRC § 1014IRC § 1014 provides that the basis of property acquired from a decedent is generally adjusted to its fair market value (FMV) as of the date of the decedent’s death. This adjustment is often called a “step-up” (or, less commonly, a “step-down” if the value has decreased).
Exceptions to the Step-Up RuleThere are certain exceptions and limitations:
Planning ImplicationsThe basis step-up at death can significantly reduce capital gains tax for heirs, making it favorable to hold appreciated assets until death rather than gifting them during life. This principle often informs estate planning strategies. ConclusionIRC § 1014’s basis adjustment at death is a pivotal concept in U.S. tax law. It allows heirs to receive property with a new basis at the asset's date-of-death value. This often eliminates capital gains tax on appreciation that occurred during the decedent’s lifetime, providing a valuable tax benefit and shaping strategies for wealth transfer. Tax basisTax basis is generally the amount of your capital investment in property for tax purposes. Use your tax basis to figure depreciation, amortization, depletion, casualty losses, and any gain or loss on the sale, exchange, or other disposition of the property.
Tax Basis as CostIn most situations, the tax basis of an asset is its cost to you. The cost is the amount you pay for it in cash, debt obligations, and other property or services. Cost includes sales tax and other expenses connected with the purchase. Your tax basis in some assets isn't determined by the cost to you. If you acquire property other than through a purchase (such as a gift or an inheritance), refer to Publication 551, Tax basis of Assets for more information. If you acquired your property from an individual who died in 2010, special rules may apply to your calculation of tax basis. Review Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010 PDF for more information. Tax Basis Stocks or BondsIf you buy stocks or bonds, your tax basis is the purchase price plus any additional costs such as commissions and recording or transfer fees. If you have stocks or bonds that you didn't purchase, you may have to determine your tax basis by the fair market value of the stocks and bonds on the date of transfer or the tax basis of the previous owner. Refer to Publication 550, Investment Income and Expenses for more information. Adjusted Tax BasisBefore figuring gain or loss on a sale, exchange, or other disposition of property, or before figuring allowable depreciation, you must determine your adjusted tax basis in that property. Certain events that occur during the period of your ownership may increase or decrease your tax basis, resulting in an "adjusted tax basis." Increase your tax basis by items such as the cost of improvements that add to the value of the property, and decrease it by items such as allowable depreciation and insurance reimbursements for casualty and theft losses. For more information For more on tax basis and adjusted tax basis, refer to Publication 551 and the Instructions for Schedule D (Form 1040), Capital Gains and Losses. Included in this bill are some areas of interest to taxpayers.
The One Big Beautiful Bill Act (OBBBA) was signed into law on July 4, 2025, bringing with it several notable changes to the US tax code, impacting both individuals and businesses. This act makes permanent many of the expiring provisions from the Tax Cuts and Jobs Act (TCJA) of 2017 while introducing new provisions, some of which are temporary. $15 Million-Estate and Gift Exemption There will be a $15 million estate/gift exemption per person and a $15 million GST exemption per person. Both of these exemptions will be inflation-adjusted on an annual basis. The bill does not change the current IRC § 1014 basis adjustment at death. Estate and Gift Tax Exemption: Starting in 2026, the lifetime estate and gift tax exemption is permanently increased to $15 million per individual (with inflation adjustments), according to Thrivent.com. 529 Plan Enhancements: Starting in 2026, 529 plans can be used for a broader range of K-12 expenses (up to $20,000 annually) and for career training and credentialing programs. Charitable Deduction A deduction of up to $1,000 ($2,000 for joint filers) for cash contributions is available for non-itemizers starting in 2026. For itemizers, a new floor of 0.5% of AGI is introduced for charitable deductions. Income Tax Rates Same Income tax rates will remain the same. Roth conversions will remain white hot. Tax Rates and Brackets: The seven individual income tax brackets (10%, 12%, 22%, 24%, 32%, 35%, and 37%) established under TCJA are now permanent. Standard Deduction The larger standard deduction introduced by TCJA is made permanent and slightly increased for 2025: $15,750 for single filers, $23,625 for heads of household, and $31,500 for married couples filing jointly. These amounts will be adjusted for inflation annually. Child Tax Credit (CTC) The maximum Child Tax Credit is increased to $2,200 per qualifying child starting in 2025, and the refundable portion is set at $1,700; both adjusted for inflation annually. Alternative Minimum Tax (AMT)The AMT exemption amount has increased to $88,100 for individuals and $137,300 for married couples filing jointly. The exemption begins to phase out at $500,000 of AMT income for single filers and $1,000,000 for joint filers. Senior Tax Deduction: A new, temporary deduction of up to $6,000 ($12,000 jointly) is available for individuals aged 65 and older from 2025 through 2028, subject to income limitations. Tips and Overtime DeductionsFrom 2025 through 2028, workers earning under $150,000 can deduct up to $25,000 in combined qualified tip and overtime pay. Auto Loan Interest DeductionA temporary deduction of up to $10,000 per year for interest paid on loans used to purchase US-assembled vehicles is available from 2025 through 2028, subject to income thresholds. "Trump Accounts" for Newborns A new tax-deferred savings account, nicknamed "Trump accounts," is established for children born between 2025 and 2028, with initial government funding and annual contribution limits. Sec. 199A Deduction Qualified Business Income (QBI) Deduction The §199A will remain the same with a 20% deduction. The phaseout will change slightly but is still very unfair to taxpayers whose income only reaches the top of the phaseout. The 20% deduction for QBI is made permanent, with increased phase-out limits. State and Local Tax (SALT) Deduction-$40,000 The cap on the SALT deduction is temporarily raised to $40,000 from 2025 through 2029 for individuals earning under $500,000 (with phaseouts), reverting to $10,000 starting in 2030. There will be a SALT deduction available to both individuals at a $40,000 level with a phaseout when income exceeds $500,000. The problem with this phaseout is from $500,000 and $600,000 of income, the deduction falls from $40,000 back to $10,000. The same SALT deduction will be available for non-grantor trusts. Basically, the Senate bill will allow a trust to deduct up to $40,000 of state and local taxes. This will impact on how trusts are drafted when there are multiple beneficiaries. For example, if you were drafting a trust for four grandchildren, you might be inclined not to draft one trust, but to draft four trusts. By drafting four separate trusts you now have $160,000 of the SALT deduction and perhaps avoid the phaseout if income otherwise would have been over $500,000. Business tax impactsBonus Depreciation The Act restores 100% bonus depreciation, which allows businesses to immediately deduct the cost of eligible property. Research & Development (R&D)Expensing Businesses can fully deduct domestic R&D expenses, effective in 2025, with retroactive options for smaller businesses. Business Interest Deduction The EBITDA-based limitation on business net interest deductions is permanently reinstated. Section 179 ExpensingThe limits for Section 179 expensing are increased, allowing businesses to deduct more of the cost of qualifying property. 1099-K Reporting ThresholdThe threshold for reporting transactions via Form 1099-K has increased to $20,000 and over 200 transactions, though taxpayers are still required to report all income regardless of whether a form is received. Other notable provisionsClean Energy Provisions: The Act makes changes to clean energy incentives, including repealing some Inflation Reduction Act credits and introducing restrictions related to foreign entities. Medicaid and Student Loan ReformsThe bill includes reforms to Medicaid and Pell Grants, as well as changes to student loan rules. Debt Ceiling IncreaseThe legislation also includes provisions related to increasing the debt ceiling. TariffsThe de minimis commercial import exception to US tariffs is repealed, effective July 1, 2027. Sec. 1202 Gain Additionally, §1202 has been liberalized by this bill. This will require a fresh look at the use of qualified small business corporations. This is important because now we can exempt a portion of the gain after three years and after four years, not just after five years. The amount of the QSBS gain you can protect is going to increase from $10 million to $15 million. In time virtually every CPA, when posed with the question, “should I be an s-corporation, LLC or C-corporation,” is going to have to incorporate this expanded §1202 language into their analysis. C-corps may be in vogue if the intention is to create and sell a business. Create and Sell Business=Opportunity Zones Opportunity zones will return in 2027 and provide a significant tax advantage investment strategy with deferral and eventually tax-free capital gains. The issue here is that in 2026 opportunity zones will have only marginal utility because the deferral will end December 31, 2026. The interesting issue here is how to defer or bridge gains from 2026 to 2027. The areas being discussed are the use of installment sales, hedging with options until January of 2027, and the use of a charitable remainder trust to bridge income from 2026 into 2027. Non-Grantor Trusts More Of The bill is a watershed moment for estate tax planning that will result in a renaissance of income tax planning with nongrantor trusts. While estate tax planning will be reduced because of a $15,000,000 exemption, there will be a renewed focus on income tax planning and the nongrantor trust will be the cornerstone of much of that planning. The changes to the tax law under the bill create the following opportunities: 1. Trusts for income shifting 2. Trusts to expand the salt deduction 3. Trusts to allow “stacking” for QSBS shares 4. Trusts to allow for additional §199A deductions 5. Trusts to save state income taxes Caution-Disclaimer It is important to note that some of these provisions are temporary and could be subject to further debate and modification in the future. Taxpayers are encouraged to consult with a tax advisor to understand the full implications of these changes for their specific situations and to develop appropriate tax planning strategies. To ensure compliance with IRS Circular 230, any U.S. federal tax advice provided in this communication is not intended or written to be used, and it cannot be used by the recipient or any other taxpayer (i) for the purpose of avoiding tax penalties that may be imposed on the recipient or any other taxpayer, or (ii) in promoting, marketing or recommending to another party a partnership or other entity, investment plan, arrangement or other transaction addressed herein. |
Wayne C MarkeyAttorney, CPA, Certified Business Appraiser (CBA), Small Business Consulting & Tax Issues for the state of Maryland and surrounding Baltimore metropolitan area Archives
October 2025
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