Berdon Blogs

SALT TALK: Beatles Norwegian Wood (This Bird(y) Has Flown) is Homage to Golf

Posted by Wayne K. Berkowitz CPA, J.D., LL.M. on May 21, 2018 12:06:57 PM

The byline for this week’s blog is simply not true.  As are many things you might hear on the golf course, especially as they relate to changing one’s residency for income tax purposes.

I’ve written about this topic many times before, but it can’t be repeated often enough.  Spending less than 184 days in certain jurisdictions (New York, New Jersey, Connecticut, Pennsylvania, and most others) is not going to be enough in and of itself to break a long-standing taxing relationship with the jurisdiction. 

The “I heard it on the golf course” approach to changing residency just doesn’t work. For those of you who don’t play golf, that approach usually consists of buying a home in a low or no tax jurisdiction, changing your voter registration and driver’s license, and going to the county clerk to declare your domicile in that new jurisdiction.  Some golf buddies even go as far to suggest that it doesn’t matter if you are in the jurisdiction for more than 183 days, as long as you don’t sleep at the house or apartment. 

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TAX TALK: Before Selling your Home, Weigh the Tax Consequences

Posted by Michael Eagan, J.D., LL.M. on May 21, 2018 9:20:00 AM

In many parts of the country, summer is peak season for selling a home. If you’re planning to put your home on the market, you’re probably thinking about things like how quickly it will sell and how much you’ll get for it. But don’t neglect to consider the tax consequences.

Home Sale Gain Exclusion

The U.S. House of Representatives’ original version of the Tax Cuts and Jobs Act included a provision tightening the rules for the home sale gain exclusion. Fortunately, that provision didn’t make it into the version that was signed into law.

As a result, if you’re selling your principal residence, there’s still a good chance you’ll be able to exclude up to $250,000 ($500,000 for joint filers) of gain. Gain that qualifies for exclusion also is excluded from the 3.8% net investment income tax.

To qualify for the exclusion, you must meet certain tests. For example, you generally must own and use the home as your principal residence for at least two years during the five-year period preceding the sale. (Gain allocable to a period of “nonqualified” use generally isn’t excludable.) In addition, you can’t use the exclusion more than once every two years.

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Topics: TAX TALK

T&E TALK: Provide for your Spouse and Children with a QTIP Trust

Posted by Scott T. Ditman, CPA/PFS on May 21, 2018 7:00:00 AM

If you want to preserve as much wealth as possible for your children, but you leave property to your spouse outright, there’s no guarantee your objective will be met. This may be a concern if your spouse has poor money management skills or, more importantly, if you are in a second marriage and have children from the first marriage. In both of these situations, a properly designed qualified terminable interest property (QTIP) trust may be the answer.

How QTIPs Work

A QTIP trust provides your spouse with income for life while preserving the trust principal for your children. By appointing a qualified trustee, you can have greater confidence that the assets will be invested and managed wisely. And the trust documents will ensure that, upon your spouse’s death, the trust assets will be distributed to your children according to your wishes.

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Topics: T&E TALK

SALT TALK: New York on My Mind – Sourcing on New York’s Mind

Posted by Wayne K. Berkowitz CPA, J.D., LL.M. on May 14, 2018 11:06:28 AM

Did you know that Hoagy Carmichael was an attorney? That’s right, the coauthor of the song “Georgia on My Mind" received his law degree from Indiana University in 1926. While he very briefly hung up a shingle in West Palm Beach, the composer, singer, actor, and bandleader apparently pursued other interests. I’ll bet you didn’t know that Georgia Code Title 50, State Government Section 3-60 (50-3-60) designates the song as the official song of the State of Georgia and proceeds to list the lyrics. One more diversion before we talk tax; I’ll bet you also didn’t know that the State of Georgia successfully pursued a copyright infringement action asserting that the Georgia Code is copyrighted and payment must be made for its reproduction. 

The connection you’ve been waiting for — on one day in April (the sixth), the New York State Department of Taxation and Finance released not one, but three Technical Memorandums, all addressing the sourcing of income to New York. Interestingly enough, the first and second address New York State Tax Law changes made in 2017, while the third addresses the sourcing of income related to a federal law change (Internal Revenue Code Section 457A) enacted during the Bush administration and effective as of January 1, 2009.

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TAX TALK: Time to Adjust your Withholding?

Posted by Michael Eagan, J.D., LL.M. on May 14, 2018 9:31:16 AM

If you received a large refund after filing your 2017 income tax return, you’re probably enjoying the influx of cash. But a large refund isn’t all positive. It also means you were essentially giving the government an interest-free loan.

That’s why a large refund for the previous tax year would usually indicate that you should consider reducing the amounts you’re having withheld (and/or what estimated tax payments you’re making) for the current year. But 2018 is a little different.

The TCJA and Withholding

To reflect changes under the Tax Cuts and Jobs Act (TCJA) — such as the increase in the standard deduction, suspension of personal exemptions and changes in tax rates and brackets — the IRS updated the withholding tables that indicate how much employers should hold back from their employees’ paychecks, generally reducing the amount withheld.

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T&E TALK: Received an Inheritance? Beware IRD Liability

Posted by Scott T. Ditman, CPA/PFS on May 14, 2018 9:24:11 AM

Most people are genuinely appreciative of inheritances. But sometimes it may be too good to be true. While inherited property is typically tax-free to the recipient, this isn’t the case with an asset that’s considered income in respect of a decedent (IRD). If you inherit previously untaxed property, such as an IRA or other retirement account, the resulting IRD can produce significant income tax liability.

What is IRD?

IRD is income that the deceased was entitled to, but hadn’t yet received, at the time of his or her death.  It is included in the deceased’s estate for estate tax purposes, but not reported on his or her final income tax return, which includes only income received before death.

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SALT TALK: Use Caution Navigating State Tax Credits

Posted by Wayne K. Berkowitz CPA, J.D., LL.M. on May 7, 2018 11:30:00 AM

Just like the beautiful Sirens luring nearby sailors to a rocky shipwreck, those aimlessly navigating the waters of state tax credits can end up with a similar fate. The Sirens, in this case, are certain purveyors of state tax credit services. They will sing you songs of promises to provide you free money that your accountant doesn’t know about. And best of all, at no cost to you.

While state tax credits are a great resource as are a handful of practitioners that specialize in securing them, many have a rudimentary understanding of federal and state tax planning in general, let alone your specific circumstances. While a taxpayer may be able to secure a tax credit from a particular state, surprisingly this may have little or no impact on your overall tax burden. In fact, it may end up costing you.

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TAX TALK: 2018 Tax Planning - Start Now in Light of the TCJA

Posted by Michael Eagan, J.D., LL.M. on May 7, 2018 9:20:00 AM

With the April 17 individual income tax filing deadline behind you (or with your 2017 tax return on the back burner if you filed for an extension), you may not want to think about taxes for the next several months. But for maximum tax savings, now is the time to start tax planning for 2018.  It’s especially critical to get an early start this year because the Tax Cuts and Jobs Act (TCJA) has substantially changed the tax environment.

Many Variables

A tremendous number of variables affect your overall tax liability for the year. Looking at these variables early in the year can give you more opportunities to reduce your 2018 tax bill.

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Topics: TAX TALK

T&E TALK: Blended Family? Here are Four Estate Planning Techniques

Posted by Scott T. Ditman, CPA/PFS on May 7, 2018 7:00:00 AM

Today, it’s not unusual for a family to include children from prior marriages. These “blended” families can create estate planning complications that may lead to challenges in the courts after your death.

Fortunately, you can reduce the chances of family squabbles by using techniques designed to preserve wealth for your heirs in the manner you want, with a minimum of estate tax erosion, if any. Here are four examples:

  1. Will. Your will generally determines who gets what, when, where, and how. It may be combined with “inter vivos trusts” established during your lifetime or be used to create testamentary trusts, or both. While you can include a few tweaks for your blended family through a codicil to the will, if the intended changes are substantive — such as removing an ex-spouse and adding a new spouse — you should meet with your estate planning attorney to have a new will prepared.
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Topics: T&E TALK

TAX TALK: Tax Document Retention Guidelines for Small Businesses

Posted by Michael Eagan, J.D., LL.M. on Apr 30, 2018 11:10:20 AM

You may have breathed a sigh of relief after filing your 2017 income tax return (or requesting an extension). But if your office is strewn with reams of paper consisting of years’ worth of tax returns, receipts, canceled checks and other financial records (or your computer desktop is filled with a multitude of digital tax-related files), you probably want to get rid of what you can. Follow these retention guidelines as you clean up.

General Rules

Retain records that support items shown on your tax return at least until the statute of limitations runs out — generally three years from the due date of the return or the date you filed, whichever is later. That means you can now potentially throw out records for the 2014 tax year if you filed the return for that year by the regular filing deadline. But some records should be kept longer.

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