First, the IRS cannot put a tax levy on a disregarded single member LLC for personal taxes due by the sole owner. This is per a recent statement by the IRS. A tax levy allows the IRS to seize property to satisfy a tax liability without going through the court system. The IRS can levy upon wages, bank accounts, social security payments, accounts receivable, insurance proceeds, real property, and even personal residences (in extreme cases). But, according to the IRS, a disregarded single member LLC is exempt from this list.

However, it's possible the IRS could put a tax levy on LLC payouts, particularly if net income from the single member LLC is being used as the owner’s sole source of income. Additionally, assets like a merchant’s credit card account including the contents of a “reserve account” or “charge-back account” can be seized.

The laws regarding tax problems plaguing owners of single member LLC entities can be confusing. But finding out your options when a tax levy has been put into effect is best done sooner rather than later. You only have nine months to claim a wrongful tax levy. After that, the IRS cannot return your money, mistake or not.

Also, it's important to know that inherited IRAs do not incur the same penalties from early withdrawal (before 59 ½) as other IRAs do. Does that mean you should withdraw the entire amount at once? Not necessarily. That’s something you’ll need to decide with the help of your financial advisor.

Some recent news about inherited IRAs: A district court in Eastern Texas ruled that inherited IRAs cannot be seized by bankruptcy creditors. The ruling (Chilton v. Moser, 2011 WL 938310, issued 3-16-11) involved a debtor who inherited her mom's IRA and then filed for bankruptcy. This is important news for those forced into bankruptcy because the ruling indicates that any retirement fund exempt from taxation (including inherited IRAs) are safe from the clutches of the bankruptcy court.

If you've recently inherited an IRA, contact a financial advisor to discuss the next steps you need to take to safeguard the investment. If you don’t have a financial advisor already, we'd be happy to help.

News in Converting/Funding

The option to spread tax payments on a Roth conversion over two years has expired. All tax fees on conversions made in 2011 are due with your 2011 tax returns.

Withdrawing Roth IRA Income

If you have a traditional IRA and not a Roth IRA: If you’re over 70 ½ years of age and are not taking IRS-mandated payouts yet, you may not be sliding by much longer. The IRS plans on stepping up its review process after 2012 to catch those who aren’t following the rules.

Those with Roth IRAs do not have to follow a mandatory payout rule. However, withdrawing earnings from a Roth IRA within 5 years of your first contribution may incur taxes or penalties, unless the purpose of the withdrawal fits certain criteria (being above 59 ½ years in age qualifies, so the average retiree withdrawing Roth IRA income is most likely safe from scrutiny).

Usually, the trickiest part of converting the Roth IRA, and then withdrawing Roth IRA income is knowing when and how to pay the taxes and/or penalties in order to create the retirement income you desire. A qualified tax advisor can help you navigate that terrain.

Taxes are unavoidable. But with knowledge, collaboration, and a bit of humor, they can sting a little less.

So how does the IRS choose its lucky few? Kiplinger points out these ways that could increase your chance of an IRS tax audit.

1. You didn't report all your taxable income.

2. You claimed the home-buyer credit.

3. You claimed a large charitable deduction.

4. You claimed a home office deduction.

5. You liberally claimed tax deductions like business meals, travel and entertainment.

6. You claimed 100% business use of your vehicle.

7. You claimed a loss for a hobby activity.

8. You're in a cash-intensive business (like driving a taxi or running a bar).

9. You neglected to report a foreign/offshore bank account.

10. You engaged in a cash transaction of more than $10,000 with a bank, casino or other business.

11. You made a math error in your favor.

12. Your deductions are higher than average.

Of course, don't be afraid to take tax deductions or claim tax credit if you have nothing to hide. The key is to be organized and to leave a paper trail that can help you expedite any IRS tax audit that comes your way. For more on the subject, take a look at our page on tax planning or, if you've already found yourself facing tax problems, read about our legal and tax services for complicated tax assistance.

For taxpayers with unpaid assessments of $25,000 or less, the IRS will now allow lien withdrawals under several scenarios:

• Lien withdrawals for taxpayers entering into a Direct Debit Installment Agreement.
• The IRS will withdraw a lien if a taxpayer on a regular Installment Agreement converts to a Direct Debit Installment Agreement.
• The IRS will also withdraw liens on existing Direct Debit Installment agreements upon taxpayer request.

The IRS is hoping to lessen the negative impact on taxpayers who owe back taxes. Other changes towards this goal include creating easier access to Installment Agreements for more struggling small businesses and expanding a streamlined Offer in Compromise program to cover more taxpayers.

Will these changes be around for the long run? It’s difficult to say for sure. The IRS plans to review the results and impact of the lien threshold change in about a year. Make sure you address these opportunities as soon as possible with your tax advisor, before they slip away.

By March 15 (although specific restrictions may apply):

• Corporations can take a deduction for payments of accrued salary and bonuses made to rank-and-file workers.
• Participants in flex-spending plans that adopted the IRS' 2 ½ month grace period must clean out their accounts. Plans that did not make this adoption do not have this opportunity.
• Firms can make 2010 contributions to existing pension and profit sharing plans.
• Firms can pay out 2010 dividends in order to avoid accumulated earnings tax.
• A six-month extension can be requested for filing 2010 tax returns.

Speaking of tax dates, the one that we've all come to know and loathe has changed, at least for this year. The ominous and seemingly immoveable April 15 tax date has actually been extended this year: to Monday, April 18. We can thank President Lincoln and Emancipation Day for being celebrated on April 15 this year, since the normal holiday falls on Saturday, April 16. In observance of the holiday, the tax filing date has been moved forward one business day to Monday, April 18.

And don't forget that 2011 tax dates are quickly approaching as well. For instance, March 15 is a key date for electing S corporation status in 2011 as well.

If you have any questions or concerns regarding tax dates which may affect your own business entity or personal finances, feel free to contact us for a custom tax analysis.

In recent years, married couples have been commonly encouraged to create one A/B family trust in order to maximize their estate tax strategies. After the death of one spouse, the widow is required to revisit his or her attorney's office to divide the estate into two A/B trusts. Neglecting this step was risky and could have potentially led to a loss in tax benefits, even litigation.

But now, thanks to current tax break opportunities, our law office of Dean R. Hedeker, Ltd. offers a Disclaimer Trust, which simplifies this process immensely. By creating special trust language in your existing living trust, we can create more flexibility for your family.

With a Disclaimer Trust, a person you designate has the flexibility to decide whether they will be required to split the estate into two trusts at the time of the first death or, if they feel more comfortable, to leave the assets in one trust. Completely new tax strategies like this one can save your family valuable time and money.

If you are a current Dean R. Hedeker, Ltd. client, contact us for more specific details. If you're not a client yet, please contact us for a free consultation to decide whether or not changing your estate tax strategies will benefit your family.

• Illinois income tax rate has spiked 67 percent: with an increase from 3 percent to 5 percent.
• A previously passed federal tax package change lowered employees' Social Security tax from 6.2 percent to 4.2 percent for one year. So, for these folks, the Illinois income tax increase is essentially a “wash” (at least for this year).
• Other federal tax breaks like the Making Work Pay credit expire this year so, especially for those who are self-employed, an overall increase in taxes will be probable.
• The corporate tax rate was also significantly increased—from 4.8 percent to 7 percent, which is especially hard-hitting for small- to mid-size businesses and other corporations who have already been affected by the economic crunch.

With the Social Security tax break currently in place, many Illinois residents may not immediately feel the effects of the higher income tax. That is, as long as their employers can hold their own against the heightened corporate tax without lay-offs or—more drastically—can avoid moving headquarters to a new state. That scenario may seem far-fetched, unless you’re a business owner yourself. Illinois' Southern Business Journal published an interesting commentary about the Illinois income tax this week raising the question: “Does this now mean that Illinois businesses are ripe for the picking?”

“Some states are hiring sales reps with the goal of luring away Illinois companies,” the article continues. “Other states, like Wisconsin, are rolling out new ad campaigns aimed at attracting Illinois businesses. Wisconsin’s new campaign reads, ‘Escape to Wisconsin. You are welcome here.’ Ouch!”

If you are self-employed or are a business owner, you should specifically address these new tax changes with your tax advisor. They should be able to help you calculate how heavy a burden the changes could place on you in 2011 and beyond.

1. Only those who are married or recently widowed with more than $10 million in assets, or are single with more than $5 million in assets are affected by the current federal estate tax. But remember that most states have their own estate tax or inheritance tax laws as well, which can kick in at a much lower level. Illinois currently has an estate tax that kicks in at $2 million. This means that if you have a $2.2 million estate, you will be paying roughly $62,000 in estate taxes (which is a 31% tax rate on the money that exceeds the exclusion amount). Not an insignificant amount!

2. The current federal estate tax is only temporary. The federal exemption limit and rate recently put in place will need to be evaluated once more before they sunset in 2012. So just because you might be off the hook now, you may have a taxable estate again in the near future. And, chances are, you'll be alive and well for years to come, long after the current tax rates have changed once more. That's why we recommend a yearly maintenance consultation with your estate planning attorney.

3. Other taxes may affect your estate as well. Income tax rates can affect how you spend your retirement savings; capital gains tax rates can affect whether you hold or sell investments and property. Tax advice regarding these situations and how they can create a taxable estate cannot be applied generally: every individual's situation is unique in regards to the nature of their assets, their tax bracket, and the financial goals they have for themselves and their heirs.

If any of these factors seem to resonate with your own situation, consult with a tax advisor or estate planning attorney to plan for whatever the future holds for you, your estate and your family.