The Social Security wage base is projected to increase from $110,000 to $113,700 in 2013. Social security taxes are collected on wages up to this maximum - once wages go over the maximum no further taxes are imposed. Normally, those wages are subject to OASDI (social security) taxes of 6.2% imposed on the employer and the same percent imposed on the employee. However, in 2012 the rate on employees was cut to 4.2%. Self-employed persons pay 12.4% (10.4% in 2012).

Therefore, higher earned income persons can expect a double hit in 2013 - an increase in the wage base (that is, more wages subject to tax) and a return to normal OASDI rates. Of course, this is in addition to the major tax hikes set for 2013 per the expiration of the Bush tax cuts.

The good news is that Sarasota and Manatee County Florida taxpayers are not also subject to a state income tax burden.

Federal tax complications: Since the federal Defense of Marriage Act (DOMA) defines the term "marriage" as a legal arrangement between a man and a woman, same-sex couples who are legally married under their state's laws cannot file a joint federal tax return. This requires same-sex couples to each file a separate federal income tax return (IRS Form 1040) as a single taxpayer or as head of household if the couple has children. However, filing the income tax return requires the taxpayer, to swear the information is correct: Individuals are of the opinion that by signing the tax return, the statement means same-sex legally married couples are violating the law because their filing status is not correct.

State filing issues: Same sex couples who live in one of the states that recognizes same sex marriage may file a joint state tax return. However, most state instructions require the taxpayer to plug in the data from their federal return. Many tax professionals advise same-sex couples to prepare a dummy married filing jointly federal income tax return and use those entries to complete your state tax forms.

Same sex couples living in Sarasota or Manatee County Florida are not faced with this dilemma as Florida does not require a state income tax return to be filed.  

Chapter 736 of the Florida Statutes provides for a trustee and beneficiary or the Florida courts to modify a trust agreement (i) if it is in the best interests of the beneficiary, (ii) to accomplish a grantor’s intent, or (iii) for other appropriate purposes. This typically involves a settlement agreement with changes made to the trust instrument.

In Bellamy v. Langfitt, McMerty, and Northern Trust N.A., 37 Fla.L.Weekly D360 (3rd DCA, February 8, 2012), the parties were faced with a trust instrument which barred a court from modifying the trust terms. On appeal, the 3^rd DCA reversed a trial court that had approved a settlement agreement modifying a trust instrument when the trust instrument included a clause that read to “the extent permitted by law, I prohibit a court from modifying the terms of this Trust Agreement.”

This ruling is food for thought for those anticipating an inheritance dispute upon their death.

The recent Pennsylvania District Court case of U.S. v. David A. Tyler and Louis J. Ruch is designed reminds estate executors (Florida Personal Representatives) that if they fail to do their job right, they can incur personal liability for the income taxes of the decedent whose estate they are administering. In the PA case, the decedent had a substantial unpaid income tax liability at the time of her death. Notwithstanding the liability, the estate executors, with knowledge of the income tax liability, conveyed real property of the estate to the son of the decedent (who was also one of the executors) for one dollar. The son eventually sold the real property, and later claimed that he lost the proceeds in the stock market.

The IRS imposed the income tax liability on the executors for disposing of the real estate without first satisfying the income tax liabilities of the decedent. The District Court found for the IRS and imposed liability for the taxes on the executors. The executors got caught under the federal priority statute (also known as the federal claims statute) under 31 USC 3713(b). This provision is not under the Internal Revenue Code, but is referenced in Code §6901(a)(1)(.  This provision is an exception to the normal rule that executors will not have personal liability for the debts and obligations of a decedent. Under the statute, a fiduciary that disposes of assets of an estate before paying a claim of the Government is liable to the extent of the payment for unpaid claims of the Government if three elements are met: (1) the fiduciary distributed assets of the estate; (2) the distribution rendered the estate insolvent; and (3) the distribution took place after the fiduciary had actual or constructive knowledge of the liability for unpaid taxes.  If there is more than one executor all executors will be jointly and severally liable for this liability.

The recent Florida 3rd DCA case of Estate of Favio Jose Grisolia Sanchez v. Pfeffer has found that "Florida Homestead Protection" from estate creditor claims is available to individuals who are in the United States on a temporary visa. The case focused on the issue of whether an individual in Florida on a temporary visa could form the requisite intent to make a residence a “permanent residence” so as to qualify for homestead protection against creditors.  The Florida Probate Court held that a deceased individual in Florida on a temporary visa could not form the requisite intent to make a residence a “permanent residence” so as to qualify for homestead protection against creditors. The Florida Probate Court found that since the decedent did not have the right to stay here on a permanent basis (he did not have a green card admitting him as a lawful permanent residence nor was he a U.S. citizen), the property was not homestead property.

On Appeal, the 3rd DCA reversed, and held the decedent's Florida real property was protected homestead. In doing so, they made a number of interesting observations and statements: (i) That the son was a U.S. citizen was an important fact as the Florida Constitution does not require the owner to reside on the property – it is enough that the owner’s family reside on the property; and (ii) The intent question is to be answered based on the intent of the homesteader and not that of the U.S. Citizenship and Immigration Services. In the end, the Florida court noted that based on (a) continued residence at the property since its purchase, (b) possession of a visa that permitted residence here (albeit not on a permanent basis), and (c) the application that had been made for permanent resident status, homestead protection against forced sale was appropriate.

Indiana Governor Mitch Daniels officially signed legislation to repeal the states inheritance tax. The relief is retroactive to January 1 and increases amounts exempt from the levy for 2012 deaths. Currently there are still 22 states plus the District of Columbia that impose estate and/or inheritance taxes for 2012. As more states start repealing these taxes, others might follow because they are competitive for people and the capital that comes with them.

The Ohio governor signed a law last year to get rid of Ohio’s estate tax starting on January 1, 2013. North Carolina is raising its exemption amount to keep up as well. In Oregon, a ballot initiative has been introduced to repeal Oregon’s estate tax. Tennessee may be moving in the same direction as well. Nebraska governor proposed a repeal of the inheritance tax, but billionaire Warren Buffet opposed the initiative.

The legislation benefits Sarasota and Manatee County Florida residents who own property, at death, in the state of Indiana.

The Defense Department issued a memo mandating that service members diagnosed with PTSD receive a 50% rating when they retire. A 50% rating guarantees lifetime TRICARE medical coverage and tax-free retirement payments. While the ruling has helped hundreds of veterans over the past four years, more than 4,000 veterans who left the service between 2003 and 2008 didn’t have their records amended by the military corrections board. That was until December 22, when the U.S. Court of Federal Claims settled a class action lawsuit that ordered the Defense Department to adjust the records of the more than 2,000 veterans named in the case to reflect a 50% disability rating to those diagnosed with PTSD.

Judge George Miller’s ruling ordered the military to pay lifetime disability benefits to 1,029 veterans. It also increased the disability rating of another 1,066 veterans who have received disability benefits upon separation, but received a rating below 50%. The ruling also promised benefits to another 66 veterans who were class members, but had not yet completed their retirement benefits application through Veteran’s Affairs.

In most cases, veterans will receive back pay for missed retirement payments as well as medical charges they accrued since their discharge. Each veteran with a disability rating above 50% will qualify to purchase life insurance coverage through the Survivor Benefit Plan; lifetime commissary and military post exchange privileges; eligibility for Combat-Related Special Compensation; tax free retirement payments; and lifetime medical care for themselves, their spouse and their children up to age 18.

A savvy Sarasota or Bradenton Florida retiree can maximize their Social Security benefits by choosing to begin payments at just the right time. Eligible Sarasota and Bradenton residents who turn 62 this year must wait until age 66 to begin receiving full payments. But they can receive smaller payments beginning as soon as age 62, or plus-size payments beginning as late as age 70. Adjusted for inflation, monthly payments are 76% greater for a retiree who waits until age 70 than for one who begins collecting at age 62. Essentially, the individual forfeits money today in exchange for receiving a larger stream of payments in the future.

Annuity issuers have paid careful attention to rising life expectancies, because they increase the cost of providing lifetime payments. Social Security has made only minor adjustments to retirement ages. Some annuities even take individual differences in life expectancies into account. Social Security treats all comers equally.

The study was based upon Americans who turn 62 this year. Women in this group are expected to live to age 85.5 and men, 83.0. At most, women can increase the present value of their benefits by 18.3% by choosing the right starting point and men by 13.3%.

The study found that gains from delaying Social Security payments are greater during periods of low interest rates, all else held equal. They're also greater "for married couples relative to singles, for single women relative to single men, and (at most interest rates) for two-earner couples relative to one-earner couples," according to the study. One overriding finding is that most retirees are best off waiting when "real" interest rates are below 3.5% -- in other words, when savers can safely earn no more than that amount after inflation. At the moment, real interest rates are zero, or less: Treasury bonds that adjust for inflation and have maturities of five to 10 years carry slightly negative yields. In other words, most retirees who don't need the money and aren't sure what to do should probably wait to begin receiving payments.

Singles:

Single women maximize the present value of their benefits by waiting until age 70, so long as real interest rates are below 0.8%. But even when real rates are zero (which they are), single men should wait until only age 69, because of their shorter life expectancies. Singles who need the money earlier should generally avoid starting payments at either age 63 or 66.

Couples:

For one-earner couples, the earner should wait until age 70 whenever real interest rates are below 2.5% (now), and not wait at all when they're above 5.3%. Assuming the earner waits until age 70, the non-earner should begin payments at age 66.

For two-earner couples, the difference in income matters. Suppose benefits for the low earner would be 75% of those for the higher earner at full retirement age (66 for the study group). At real interest rates of 0.6% and lower (now), both should generally wait until age 70 to collect worker benefits, and the low earner should collect spousal benefits at age 66.

That being said, projections on how to maximize Social Security benefits depend on the ability of the trust fund to continue making payments. With no changes to the current system, trustees say they will have enough cash to pay full scheduled benefits through 2036, followed by three-quarters of scheduled benefits through 2085. Sarasota and Bradenton Florida residents should consider these factors when planning for their retirement. The next best fact about social security payments is that they are exempt from creditor claims.