Berdon Blogs

TAX TALK: Help Prevent Tax Identity Theft by Filing Early

Posted by Hal Zemel, CPA, J.D., LL.M. on Jan 17, 2017 12:50:00 PM

If you’re like many Americans, you might not start thinking about filing your tax return until close to this year’s April 18 deadline. You might even want to file for an extension so you don’t have to send your return to the IRS until October 16.

But there’s another date you should keep in mind: January 23. That’s the date the IRS will begin accepting 2016 returns, and filing as close to that date as possible could protect you from tax identity theft.

Why Early Filing Helps

In an increasingly common scam, thieves use victims’ personal information to file fraudulent tax returns electronically and claim bogus refunds. This is usually done early in the tax filing season. When the real taxpayers file, they’re notified that they’re attempting to file duplicate returns.

A victim typically discovers the fraud after he or she files a tax return and is informed by the IRS that the return has been rejected because one with the same Social Security number has already been filed for the same tax year. The IRS then must determine who the legitimate taxpayer is.

Tax identity theft can cause major headaches to straighten out and significantly delay legitimate refunds. But, if you file first, it will be the tax return filed by a potential thief that will be rejected — not yours.

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Topics: TAX TALK

SALT TALK: Who Let the Dog Out? – Legislation by Administration Leads to Confusion

Posted by Wayne Berkowitz CPA, J.D., LL.M. on Jan 17, 2017 11:00:00 AM

I’ve never been without a pet and have always considered them to be family members, not tangible personal property.  Apparently, the New York State Department of Taxation and Finance agreed with me when they held “[d]og walking is not among these enumerated services subject to sales tax[1].”  Yet, less than two years later, the Department growled out another Advisory finding that “pet sitting, which includes dog walking, refreshing cat litter boxes, or providing food to the pets is subject to State and local sales and use tax[2].”

The Department reasoned that “. . . maintaining, servicing or repairing tangible personal property . . .” is an enumerated service and the Regulations clearly define animals to be tangible personal property.  Why the sudden shift in opinion?  I would like to think it was the Department’s desire to administratively broaden the tax base and not due to any bias against cats[3].

I’ve blogged several times about the Department’s fiasco regarding protective and detective services [June 27, 2016, March 7, 2016].  It took the Tax Appeals Tribunal to reign in the Department and remind them that receptionists are not trained security guards and their services are not subject to sales tax.  Yet, the Department can’t keep its paws off this issue, despite the lack of any law change. 

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Topics: SALT TALK

T&E TALK: Declaring an Elderly Parent Incapacitated

Posted by Scott T. Ditman, CPA/PFS on Jan 17, 2017 7:00:00 AM

With an aging population, more children are facing elderly parents with deteriorating mental states who can no longer manage day-to-day activities. At some point, you may need to make the difficult decision to have a parent declared incapacitated.  Knowing the answers to two key questions can help you determine whether the time has come.

  1. What’s the difference between capacity and incapacity? The legal definition of “capacity” varies from state to state, but generally it’s the mental ability to adequately function. A person is presumed competent unless an adjudication process determines otherwise. That is, a judge must declare a person incompetent.

One barometer of whether someone is able to adequately function is the person’s ability to understand basic financial matters.  Another is whether a person is able to attend to his or her own health needs.

  1. What’s the role of a guardian/conservator? If the judge agrees that your parent is no longer competent, the court will appoint a guardian/conservator who will be responsible for managing your parent’s affairs. More often than not, an incapacitated person’s child is appointed, but the guardian/conservator doesn’t have to be a family member. In some states, a person can designate their guardian/conservator.
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Topics: T&E TALK

SALT TALK:  Nonresident of Connecticut Subject To Tax on Exercise of Stock Options

Posted by Wayne Berkowitz CPA, J.D., LL.M. on Jan 9, 2017 1:00:00 PM

I had a hard time with this decision[1]. Not with the result, but with the fact that it found its way to the Connecticut Supreme Court. Apparently, the Court felt the same way as the opinion uses the word “absurd” five times and “bizarre” two times.

Meet the Allens.

Mr. Allen received significant amounts of stock options during periods when he was both a resident of and employed in Connecticut. The options were exercised and income recognized several years later when the Allens were no longer residents of Connecticut. The Allens argued that since they were no longer residents of Connecticut, they didn’t owe any tax to the State. The State argued (and the Supreme Court agreed) that since the options were given to Mr. Allen as compensation for work performed in Connecticut, tax was clearly owed.

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Topics: SALT TALK

TAX TALK: 2017 Q1 Tax Calendar: Key Deadlines for Businesses and Other Employers

Posted by Hal Zemel, CPA, J.D., LL.M. on Jan 9, 2017 11:00:00 AM

Here are some of the key tax-related deadlines affecting businesses and other employers during the first quarter of 2017.

January 31

  • File 2016 Forms W-2, “Wage and Tax Statement,” with the Social Security Administration and provide copies to your employees.

  • File 2016 Forms 1099-MISC, “Miscellaneous Income,” reporting nonemployee compensation payments in Box 7 with the IRS, and provide copies to recipients.

  • File Form 941, “Employer’s Quarterly Federal Tax Return,” to report Medicare, Social Security and income taxes withheld in the fourth quarter of 2016. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the quarter in full and on time, you have until February 10 to file the return. Employers that have an estimated annual employment tax liability of $1,000 or less may be eligible to file Form 944, “Employer’s Annual Federal Tax Return.”
  • File Form 940, “Employer’s Annual Federal Unemployment (FUTA) Tax Return,” for 2016. If your undeposited tax is $500 or less, you can either pay it with your return or deposit it. If it’s more than $500, you must deposit it. However, if you deposited the tax for the year in full and on time, you have until February 10 to file the return.

  • File Form 945, “Annual Return of Withheld Federal Income Tax,” for 2016 to report income tax withheld on all nonpayroll items, including backup withholding and withholding on accounts such as pensions, annuities and IRAs. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the year in full and on time, you have until February 10 to file the return.
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Topics: TAX TALK

T&E TALK: Factoring Intellectual Property in your Estate Plan

Posted by Scott T. Ditman, CPA/PFS on Jan 9, 2017 7:00:00 AM

Taxpayers who own intellectual property (IP), such as a patent or copyright, need to know how to account for it in their estate plan.  IP generally falls into one of these categories: patents, copyrights, trademarks, or trade secrets. For estate planning purposes, IP raises two important questions:

  1. What’s it worth?
  2. How should it be transferred?

Valuing IP is complex, so it is best to obtain an appraisal from a professional with specific experience in IP valuations.

Once the value is established, you need to decide whether to transfer the IP to family members, colleagues, charities, or others through lifetime gifts or through bequests after your death. The gift and estate tax consequences will impact your decision, but you must also consider your income needs, as well as who is in the best position to monitor your IP rights and take advantage of their benefits.

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Topics: T&E TALK

SALT TALK: May the Source Be with You – NY Nonresident Subject to Tax on Litigation Settlement

Posted by Wayne Berkowitz CPA, J.D., LL.M. on Jan 3, 2017 1:00:00 PM

Having already surpassed $600 million at the box office, it’s no surprise that the New York State Tax Appeals Tribunal is looking to Rogue One and the Star Wars franchise for guidance. Case-in-point, the Tribunal’s recent decision[1] confirming a New York nonresident individual’s source income will always be with them. The unpleasant experience of one couple plainly points to the absolute necessity of planning for the state tax consequences when settling a lawsuit. 

Meet the Murphys.

As nonresidents of New York, these husband and wife taxpayers were subject to tax on only their New York source income. Mr. Murphy was a member in an LLC that conducted a portion of its business in New York and, accordingly, had New York source income during its years of operation. Mr. Murphy assigned his LLC interest to Mrs. Murphy during 1999. Various issues arose with the LLC and Mrs. Murphy started legal action against the LLC.

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Topics: SALT TALK

TAX TALK: Retirement Plan Contributions Remain Largely Unchanged

Posted by Hal Zemel, CPA, J.D., LL.M. on Jan 3, 2017 11:00:00 AM

Since the 2017 inflation rate remained low, most of the retirement plan contribution limits are unchanged. Only the limit for contributions to defined contribution plans has increased by $1,000.

Type of limit

2017 limit

Elective deferrals to 401(k), 403(b), 457(b)(2) and 457(c)(1) plans

$18,000

Contributions to defined contribution plans

$54,000

Contributions to SIMPLEs

$12,500

Contributions to IRAs

$5,500

Catch-up contributions to 401(k), 403(b), 457(b)(2) and 457(c)(1) plans

$6,000

Catch-up contributions to SIMPLEs

$3,000

Catch-up contributions to IRAs

$1,000

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Topics: TAX TALK

T&E TALK: What if the Death Tax Dies?

Posted by Scott T. Ditman, CPA/PFS on Jan 3, 2017 8:58:14 AM

President-elect Trump and House Republicans have issued proposals to end the estate tax, indicating that a repeal is very possible. But what are the potential ramifications should this occur?

For 2017, the combined federal estate- and gift-tax exemption is $5.49 million per individual ($10.98 million per married couple). If the current estate tax is repealed, it will provide a tax cut to high net worth individuals. The fate of the gift tax, which applies to transfers during life, is also uncertain.  In addition, under current law, there is an income-tax provision known as the step-up in basis which allows assets held at death to bypass capital-gains tax.  At the moment, the Trump proposals would eliminate the step-up in basis above an exemption of up to about $10 million.  If this scenario holds, either the deceased person’s income tax cost in the assets would transfer to the heirs, or a capital gains tax would be imposed on the difference between the fair market value at the date of death and the decedent’s tax basis.  

Even in this uncertain environment, there are still some planning steps to consider.

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Topics: T&E TALK

TAX TALK: IRS Reduces the Optional Standard Mileage Rate for 2017

Posted by Hal Zemel, CPA, J.D., LL.M. on Dec 19, 2016 12:50:00 PM

Due to lower gas prices, the IRS has lowered the optional standard mileage rates for 2017. The IRS has issued the 2017 optional standard mileage rates to calculate the deductible costs of operating an automobile for business, charitable, medical, or moving purposes.

Beginning January 1, 2017 standard mileage rates for the use of a car, van, pickup or panel truck will be:

  • 53.5 cents per mile for business miles driven, down from 54 cents for 2016;
  • 17 cents per mile driven for medical or moving purposes, down from 19 cents for 2016;
  • 14 cents per mile driven in service of charitable organizations.

The business mileage rate decreased half a cent per mile and the medical and moving expense rates each dropped 2 cents per mile from 2016. The charitable rate is set by statute and remains unchanged.

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Topics: TAX TALK

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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