Once upon a time, life insurance played a much larger part in an estate plan than it does now. Why? Families would use life insurance payouts to pay estate taxes. But with the federal gift and estate tax exemption at $12.92 million for 2023, far fewer families currently are affected by estate tax.

However, life insurance remains a powerful tool for providing for your loved ones in the event of your untimely death. The amount of life insurance that’s right for you depends on your personal circumstances, so it’s critical to review your life insurance needs regularly in light of changing circumstances.

Reasons to reevaluate

Consider reevaluating your insurance coverage if you’re:

• Getting married,
• Getting divorced,
• Having children,
• Approaching retirement, or
• Facing health issues.

The right amount of insurance depends on your family’s current and expected future income and expenses, as well as the amount of income your family would lose should you pass away.

The events listed above can change the equation, so it’s a good idea to revisit your life insurance needs as you reach these milestones. For example, if you get married and have kids, your current and future obligations are likely to increase significantly for expenses related to childcare, mortgage, car payments and college tuition.

As you get older, your expenses may go up or down, depending on your circumstances. For example, as your children become financially independent, they’ll no longer rely on you for financial support.

On the other hand, health care expenses for you and your spouse may increase. When you retire, you’ll no longer have a salary, but you may have new sources of income, such as retirement plans and Social Security. You may or may not have paid off your mortgage, student loans or other debts. And you may or may not have accumulated sufficient wealth to provide for your family.

Periodic reassessment a must

There are many factors that affect your need for life insurance, and these factors change over time. To make sure you’re not over- or underinsured, reassess your insurance needs periodically and especially when your life circumstances change. We can help you determine whether you have an adequate amount of life insurance coverage.

© 2023

If you were told someone earns more than $200,000 annually, you might assume the person is a salaried employee who’s ineligible for overtime pay. However, as demonstrated in the recent U.S. Supreme Court case of Helix Energy Solutions Group, Inc. v. Hewitt, this isn’t always a safe assumption.

The FLSA rules

Under the Fair Labor Standards Act (FLSA), hourly “nonexempt” wage earners generally must receive overtime pay for hours worked beyond 40 hours per workweek. A workweek doesn’t need to be a calendar week — for example, a Wednesday to Tuesday workweek would qualify.

To be exempt from overtime (and minimum wage) regulations, most employees need to be paid at least $684 per week or $35,568 annually. This is known as the salary level test. An exempt employee must also pass the job duties test, the conditions for which vary by position. For instance, to qualify for the executive exemption, the job duties test stipulates that:

• The employee’s primary duty must be managing the enterprise or a department or subdivision of the enterprise,
• The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalents, and
• The employee must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion or any other employment status change must be given particular weight.

Case details

In the aforementioned Supreme Court case, the employee involved was a “tool-pusher” whose duties included supervising other offshore oil rig workers. He was paid a daily rate ranging from $963 to $1,341 per day, resulting in earnings of more than $200,000 annually. Under the compensation scheme, the daily rate increased each consecutive day worked.

The employee filed suit claiming his employer violated the FLSA’s overtime provisions. In response, the company argued that he was exempt from overtime pay as a “bona fide executive.”

To qualify for such an exemption, an employee must meet the salary level and job duties tests as mentioned above. But the employee also needs to satisfy the salary basis test. Under FLSA regulations, a bona fide executive may satisfy the salary basis test if the person is a highly compensated employee (HCE) — that is, one who earns at least $107,432 or more per year (or $100,000 per year before January 1, 2020).

The Court’s decision

The Supreme Court held in a 6-3 ruling that an HCE who’s paid at a daily rate is not considered to be paid a salary. Therefore, the employee in question wasn’t exempt from receiving overtime pay.

In its majority opinion, the Court reasoned that the HCE rule isn’t only a “simple income level” test for the purposes of exemption. It noted that the employer could have satisfied the exemption if the daily rate was a weekly guarantee that satisfied applicable regulations, or if compensation had been a straight weekly salary.

The Court wasn’t swayed by the company’s objection that paying a weekly guaranteed daily rate or straight weekly salary would have resulted in the employee receiving compensation for days he didn’t work. According to the Court, this only further showed that the employee wasn’t paid a salary and, thus, didn’t meet the requirements for the exemption from overtime pay.

Current and compliant

The business in this case joined many others that have been tripped up by the FLSA’s rules. If your company pays employees overtime, our firm can help you stay current and compliant with the latest applicable regulations.

Helix Energy Solutions Group, Inc. v. Hewitt, No. 21-984, February 22, 2023 (U.S. Supreme Court)

© 2023

If you made gifts last year you may be wondering if you need to file a gift tax return. The short answer: There are many situations when it’s necessary (or desirable) to file Form 709 — “United States Gift (and Generation-Skipping Transfer) Tax Return” — even if you’re not liable for any gift tax. Let’s take a closer look at the reasons why.

What gifts are considered nontaxable?

The federal gift tax regime begins with the assumption that all transfers of property by gifts (including below-market sales or loans) are taxable. It then sets forth several exceptions. Nontaxable transfers that need not be reported on Form 709 include:

• Gifts of present interests within the annual exclusion amount ($17,000 per donee in 2023, up from $16,000 in 2022),
• Direct payments of qualifying medical or educational expenses on behalf of an individual,
• Gifts to political organizations and certain tax-exempt organizations,
• Deductible charitable gifts,
• Gifts to one’s U.S.-citizen spouse, either outright or to a trust that meets certain requirements, and
• Gifts to one’s noncitizen spouse within a special annual exclusion amount ($175,000 in 2023, up from $164,000 in 2022).

If all your gifts for the year fall into these categories, no gift tax return is required. But gifts that don’t meet these requirements are generally considered taxable — and must be reported on Form 709 — even if they’re shielded from tax by the federal gift and estate tax exemption ($12.92 million in 2023, up from $12.06 million in 2022).

Are there tax traps to be aware of?

If you make gifts during the year, consider whether you’re required to file Form 709. And watch out for these common traps:

Future interests. The $17,000 annual exclusion applies only to present interests, such as outright gifts. Gifts of future interests, such as transfers to a trust for a donee’s benefit, aren’t covered, so you’re required to report them on Form 709 even if they’re less than $17,000 in 2023 ($16,000 in 2022).

Spousal gifts. As previously noted, gifts to a U.S.-citizen spouse need not be reported on Form 709. However, if you make a gift to a trust for your spouse’s benefit, the trust must 1) provide that your spouse is entitled to all the trust’s income for life, payable at least annually, 2) give your spouse a general power of appointment over its assets and 3) not be subject to any other person’s power of appointment. Otherwise, the gift must be reported.

Gift splitting. Spouses may elect to split a gift to a child or other donee, so that each spouse is deemed to have made one-half of the gift, even if one spouse wrote the check. This allows married couples to combine their annual exclusions and give up to $34,000 for 2023 (up from $32,000 for 2022) to each donee. To make the election, the donor spouse must file Form 709, and the other spouse must sign a consent or, in some cases, file a separate gift tax return. Keep in mind that, once you make this election, you and your spouse must split all gifts to third parties during the year.

The deadline to file Form 709 for 2022 is April 18. Please contact us if you’re unsure of whether you need to file a gift tax return this year.

© 2023

If you’re buying or replacing a vehicle that you’ll use in your business, be aware that a heavy SUV may provide a more generous tax break this year than you’d get from a smaller vehicle. The reason has to do with how smaller business cars are depreciated for tax purposes.

Depreciation rules

Business cars are subject to more restrictive tax depreciation rules than those that apply to other depreciable assets. Under the so-called “luxury auto” rules, depreciation deductions are artificially “capped.” Those caps also extend to the alternative deduction that a taxpayer can claim if it elects to use Section 179 expensing for all or part of the cost of a business car. (It allows you to write-off an asset in the year it’s placed in service.)

These rules include smaller trucks or vans built on truck chassis that are treated as cars. For most cars that are subject to the caps and that are first placed in service in calendar year 2023, the maximum depreciation and/or expensing deductions are:

• $20,200 for the first tax year in its recovery period (2023 for calendar-year taxpayers);
• $19,500 for the second tax year;
• $11,700 for the third tax year; and
• $6,960 for each succeeding tax year.

Generally, the effect is to extend the number of years it takes to fully depreciate the vehicle.

Because of the restrictions for cars, you may be better off from a tax timing perspective if you replace your business car with a heavy SUV instead of another car. That’s because the caps on annual depreciation and expensing deductions for passenger automobiles don’t apply to trucks or vans that are rated at more than 6,000 pounds gross (loaded) vehicle weight. This includes large SUVs, many of which are priced over $50,000.

The result is that in most cases, you’ll be able to write-off a majority of the cost of a new SUV used entirely for business purposes by utilizing bonus and regular depreciation in the year you place it into service. For 2023, bonus depreciation is available at 80%, but is being phased down to zero over the next few years.

If you consider electing Section 179 expensing for all or part of the cost of an SUV, you need to know that an inflation-adjusted limit, separate from the general caps described above, applies ($28,900 for an SUV placed in service in tax years beginning in 2023, up from $27,000 for an SUV placed in service in tax years beginning in 2022). There’s also an aggregate dollar limit for all assets elected to be expensed in the year that would apply. Following the expensing election, you would then depreciate the remainder of the cost under the usual rules without regard to general annual caps.

Please note that the tax benefits described above are all subject to adjustment for non-business use. Also, if business use of an SUV doesn’t exceed 50% of total use, the SUV won’t be eligible for the expensing election, and would have to be depreciated on a straight-line method over a six-tax-year period.

Contact us for more details about this opportunity to get hefty tax write-offs if you buy a heavy SUV for business.

© 2023