Berdon Blogs

T&E TALK: Private Foundations Aren’t Only for the Rich and Famous

Posted by Scott T. Ditman, CPA/PFS on Oct 24, 2016 12:50:00 PM

Establishing a private foundation may be the right estate planning vehicle if you want to create a family legacy of charitable giving. You may be able to effectively establish a foundation with an initial contribution as low as $500,000.

Tax impact
A private foundation is a tax-exempt entity that’s typically structured as a not-for-profit trust or corporation and established to accept charitable contributions. It’s private because it doesn’t solicit public contributions. One of its primary benefits is that it allows you to control your giving. As a member of the foundation’s board of directors, you manage the foundation’s assets and direct grants to charities.

Contributions to a private foundation are deductible for federal income tax purposes. You can deduct cash contributions to a non-operating foundation (the most common type) up to 30% of your adjusted gross income (AGI). For noncash contributions, the limit typically is 20% of AGI. The deduction for any contribution in excess of AGI limits may be carried forward and used for up to five years.

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Topics: T&E TALK

SALT TALK:  Fantasy Football for the Supreme Court?

Posted by Wayne Berkowitz CPA, J.D., LL.M. on Oct 24, 2016 11:00:00 AM

One could argue that the United States Supreme Court (“SCOTUS”) never showed enthusiasm towards addressing state tax issues, and with the current roster being one Justice short, the situation has not changed. Accordingly, to move things along and remain completely bipartisan in the process, I propose that every federal Circuit Court justice will be required to participate in a fantasy football pool. Each week’s winner will get to be SALT Justice of the Week (“SJW”), a high honor indeed!  

The SJW will be required to review at least one state tax related petition for certiorari during his or her one week tenure and persuade the remaining Justices to grant the petition. Hopefully, the SJW will choose Direct Marketing Association v. Brohl

As discussed in my February 29, 2016 blog, “No One Likes a Tattletale”, Colorado enacted and the U.S. Court of Appeals for the Tenth Circuit upheld that requiring merchants to tattle on their customers is constitutional.  Specifically, the law requires retailers not collecting Colorado sales tax to do three things if sales to Colorado customers exceed $100,000:  they must tell Colorado purchasers that they owe use tax; they must provide an annual summary to the customer; and they must annually report the purchaser information to the Colorado Department of Revenue.

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TAX TALK: Timing Your Business Income and Expenses

Posted by Hal Zemel, CPA, J.D., LL.M. on Oct 24, 2016 7:00:00 AM

By deferring net taxable income to a later year, you may be able to reduce your current tax liability. You can reduce your taxable income in one of two ways: You can either defer income to next year or you can accelerate deductions into the current year. Here are two timing strategies that can help your business defer net taxable income:

  1. Defer income to next year. If your business uses the cash method of accounting, you can defer billing for your products or services. Or, if you use the accrual method, you can delay shipping products or delivering services.
  2. Accelerate deductible expenses into the current year. If you’re a cash-basis taxpayer, you may pay vendor invoices before Dec. 31, so you can deduct it this year rather than next. Both cash- and accrual-basis taxpayers can charge expenses on a credit card and deduct them in the year charged, regardless of when the credit card bill is paid.

These strategies work best for transactions occurring near year-end, since the deferral of income will also result in your delaying the receipt of cash receipts until the next calendar year and the prepayment of expenses accelerating cash payments into the current calendar year.

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Topics: TAX TALK

T&E TALK: Grantor and Crummey Trusts Good Options to Fund a Grandchild’s Education

Posted by Scott T. Ditman, CPA/PFS on Oct 17, 2016 12:50:00 PM

Grandparents who wish to play an active role in funding their grandchildren’s college educations should consider two types of trusts, grantor and Crummey trusts. As you examine the financing options, don’t forget about the impact the establishment of these trusts can have on your estate plan.

Grantor trusts

A trust can be established for your grandchild, and assets contributed to the trust, together with future appreciation, are removed from your taxable estate. These funds can be used for college expenses.

If the trust is structured as a “grantor trust” for income tax purposes, its income will be taxable to you, allowing the assets to grow tax-free for the benefit of the beneficiaries. Plus the income tax you pay further reduces your taxable estate.

On the downside, for financial aid purposes, a trust is considered the child’s asset, potentially reducing or eliminating the amount of aid available. Keep this in mind if your grandchild is hoping to qualify for financial aid.

Another potential downside is that grantor trust contributions are considered taxable gifts. But you can reduce or eliminate gift taxes by using your annual exclusion or your lifetime exemption to fund the trust.

To qualify for the annual exclusion, however, the beneficiary must receive a present interest. Gifts in trust are generally considered future interests, but you can convert these gifts to present interests by structuring the trust as a Crummey trust.

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Topics: T&E TALK

SALT TALK:  Knicks – Pacers Rivalry No Help for New York State Residency Audits

Posted by Wayne Berkowitz CPA, J.D., LL.M. on Oct 17, 2016 11:00:00 AM

Friends, family, colleagues, and readers of SALT TALK all know me as a state tax expert as well as a serious music fan. Sports—not so much. Spending my entire childhood and most of my adult life watching the New York Giants and Islanders with my Dad, I will never object to watching a game. But plan my day around it, maybe for the Giants. So please forgive me for totally stepping outside my realm by analogizing what I’m told is the long-standing Knicks – Pacers rivalry[1] with the similar, yet dangerously different rules governing Indiana and New York individual income tax residency rules.

While I pay attention to state tax happenings in all jurisdictions, Indiana is generally not as prominent on my radar screen as New York, New Jersey, Connecticut, California and several others.  However, reading the daily tax propaganda the past few weeks, I couldn’t help but notice the barrage of decisions, both for and against taxpayers, deciding whether or not a taxpayer was in fact a resident of Indiana.

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TAX TALK: Changing Jobs? Consider Your Options for Your Old Retirement Plan

Posted by Hal Zemel, CPA, J.D., LL.M. on Oct 17, 2016 7:00:00 AM

Changing jobs can be both exciting and stressful. The last thing on your mind is what to do with your 401(k) or other employer-sponsored retirement plan. You will likely have a few options to continue building tax-deferred savings.  First and foremost, don’t take a lump-sum distribution from your old employer’s retirement plan. It generally will be taxable and, if you’re under age 59½, subject to a 10% early-withdrawal penalty.

Here are three tax-smart alternatives:

  1. Stay put. Many employer plans allow you to keep your plan, even after your separation from service. If you are satisfied with your investment choices and the fees are not too high, you may want to leave your money in your old plan. However, if you’ll be participating in your new employer’s plan or you already have an IRA, keeping track of multiple plans can make managing your retirement assets more difficult.
  2. Roll over to your new employer’s plan. If your new employer’s plan offers better investment options and/or lower fees, you may want to roll over your plan assets to your new employer’s plan. This may be beneficial if it leaves you with only one retirement plan to keep track of.
  3. Roll over to an IRA. If you are not satisfied with either of the plans offered by your old or new employer, you may want to roll over your plan assets to an individual retirement account (IRA). If you participate in your new employer’s plan, this will require keeping track of two plans. But it may be the best alternative because IRAs offer nearly unlimited investment choices and often lower fees.
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Topics: TAX TALK

TAX TALK: Get More Bang for the Buck by Donating Appreciated Stock Instead of Cash

Posted by Hal Zemel, CPA, J.D., LL.M. on Oct 10, 2016 12:50:00 PM

When planning your charitable giving, you should consider donating long-term appreciated stock instead of cash. Donating stock provides two advantages over cash donations.

Additional Tax Savings

Appreciated publicly traded stock you’ve held for more than one year is long-term capital gains property. If you donate it to a qualified charity, you can enjoy two benefits:

  1. You can claim a charitable deduction equal to the stock’s fair market value (not the amount that you paid for it), and
  2. You can avoid the capital gains tax you’d pay if you sold the stock.

This will be especially beneficial to taxpayers facing the 3.8% net investment income tax (NIIT) and the top 20% long-term capital gains rate this year.

For example, if you donate $10,000 of stock that you paid $3,000 for, your ordinary-income tax rate is 39.6% and your long-term capital gains rate is 20%. If you sold the stock, you’d pay $1,400 in tax on the $7,000 gain. If you were also subject to the 3.8% NIIT, you’d pay another $266 in NIIT.

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Topics: TAX TALK

SALT TALK: Hurricane Forecasts and State Tax Planning Shouldn’t Hinge on News Provider of Choice

Posted by Wayne Berkowitz CPA, J.D., LL.M. on Oct 10, 2016 11:00:00 AM

In its October 7, 2016 8:00 AM EDT update, the presumably nonpartisan National Hurricane Center forecasted that Florida, Georgia, and South Carolina had all dodged the major threat posed by Hurricane Matthew. Glued to the TV screen that night, flipping between major news providers, my wife and I were surprised to see the different perspectives of hurricane preparedness and recovery presented. While one such provider suggested that had we just built a wall along the coast we wouldn’t be worrying about the storm, another suggested the solution was to give all Americans earning under $200,000 a year a $500,000 tax credit whenever a state of emergency is declared. 

While this obviously didn’t happen, I created this timely fiction to illustrate my surprise with an October 7, 2016 Income Tax – Information Release[1] from the Ohio Department of Taxation.  The Release purports to provide guidance to Ohio nonresident individual taxpayers in light of the Department’s recent loss in the Ohio Supreme Court[2]. In my opinion, the guidance is more of a warning, that despite the taxpayer’s victory in the Corrigan decision, the Department intends to fight you every step of the way if you are seeking a refund and to those planning transactions on a going forward basis.

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T&E TALK: Pre-nups and Estate Plans Go Hand-in-hand

Posted by Scott T. Ditman, CPA/PFS on Oct 10, 2016 7:00:00 AM

If you and your fiancée plan to sign a prenuptial agreement (commonly referred to as simply a “pre-nup”), it’s a good idea to design the agreement with your estate plan in mind.

Estate planning benefits

Pre-nups are usually associated with planning for the potential of divorce. But a pre-nup also provides benefits for successful marriages, including protection from liability for your spouse’s separate debts and implementation of estate planning strategies.

Most states give a surviving spouse certain rights to a deceased spouse’s property. In community property states, for example, a surviving spouse enjoys a 50% interest in all community property. In most other states, surviving spouses can choose to receive an “elective share” amount — usually between one-third and one-half of the deceased spouse’s estate.

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Topics: T&E TALK

SALT TALK:  Eating Warm Cookies in NYS Unhealthy (for your Bottom Line)

Posted by Wayne Berkowitz CPA, J.D., LL.M. on Oct 4, 2016 12:50:00 PM

Let’s face it: the human body and its interaction with food is a complex thing that we are far from completely understanding. One day coffee is bad for you; the next day (today) it prevents dementia. Trying to keep up with what to eat is getting harder every day. My advice to you is to keep up with the latest independent studies (those whose primary researcher wasn’t Juan Valdez, the fictional character created in 1958 by the National Federation of Coffee Growers of Colombia) and apply a modicum of your own common sense. Keep your fingers crossed and hope for the best.

Should we be taking nutritional advice from the New York State Department of Taxation and Finance? I think not. 

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About Berdon Blogs

Our experts examine the latest trends, economics, business conditions and industry issues to provide timely information you need to maximize your tax advantages and meet your financial goals.

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