Berdon Blogs

SALT TALK: Inferences, Conclusions, Relationships, and Residency Audit Traps

Posted by Wayne Berkowitz CPA, J.D., LL.M. on Mar 20, 2017 12:50:00 PM

There are two very disparate pursuits in which I have partaken for almost 30 years; marriage and residency audits.  While the burden of proof in relationships and audits may be different, inferences drawn and conclusions reached hastily can be a disaster for both.  While no one knows the rules for lasting relationships, readers of my blog know that many jurisdictions use a two-pronged approach to determining whether an individual taxpayer is a resident for state tax purposes. 

First and foremost is domicile.  With certain exceptions, if an individual is domiciled in a state, they will be a tax resident of a state.  The so-called statutory residency test looks to whether one has a permanent place of abode in the jurisdiction and whether more than 183 days have been spent in the jurisdiction.  I have blogged extensively about the intricacies of these tests and browsing through the previous blogs at is highly recommended.

While I would love to list some of the inferences to be drawn, conclusions (false or otherwise) reached and relationship consequences thereof, my spouse has strongly advised me to stick to what I know best.  Here are some of the inferences, hasty conclusions, and traps I have heard over the years.

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TAX TALK: There is Still Time to Make 2016 IRA Contributions

Posted by Hal Zemel, CPA, J.D., LL.M. on Mar 20, 2017 11:00:00 AM

You have until the original due date for filing your federal 1040 to make a contribution to your individual retirement account (IRA). This year, due to Patriot’s Day, the IRS has moved the due date for filing to April 18, 2017 (normally it is April 15).  Depending on the type of IRA, you may receive a federal tax deduction for the contribution.

Other Benefits

Tax-advantaged retirement plans like IRAs allow your money to grow tax-deferred — or, in the case of Roth accounts, potentially tax-free. However, the annual contributions to the IRAs are limited, and any unused limit can’t be carried forward to make larger contributions in future years. The 2016 limit for total contributions to all IRAs generally is $5,500 ($6,500 if you were age 50 or older on December 31, 2016). If you make smaller contributions before the deadline, you will not be able to make additional contributions after the deadline to reach the annual limit.

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Topics: TAX TALK

T&E TALK: April 1 - It May be Time to Take Required Minimum Distributions

Posted by Scott T. Ditman, CPA/PFS on Mar 20, 2017 7:00:00 AM

No, you cannot keep retirement funds in your account indefinitely. If you reached age 70½ in 2016, you may need to take a Minimum Required Distribution (MRD) attributed to 2016 for your qualified retirement plans.  

Generally, you must start taking withdrawals from your IRA, SIMPLE IRA, SEP IRA, or retirement plan account when you reach age 70½. Roth IRAs do not require withdrawals until after the death of the owner.

Your MRD is the minimum amount you must withdraw from your account each year.

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Topics: T&E TALK

TAX TALK: Dependent Exemption for Elderly Parents

Posted by Hal Zemel, CPA, J.D., LL.M. on Mar 13, 2017 12:50:00 PM

If you are providing financial support for your aging parents, you may qualify to claim an exemption for them as a dependent on your tax return. The exemption allows eligible taxpayers to deduct up to $4,050 for each dependent claimed on their 2016 tax return.

Basic Qualifications

For your parents to qualify as your dependent, in most cases they must have less gross income for the tax year than the exemption amount. (Exceptions may apply if your parent is permanently and totally disabled).  Generally, their Social Security benefit is excluded from this income limitation, but income from dividends, interest, and retirement plans are included.

Also, you must have contributed more than 50% of your parent’s total financial support. If you shared caregiving duties with a sibling and your combined support exceeded 50%, you can claim the exemption even though no one individually provided more than 50%. However, only one of you can claim the exemption.

Other Considerations

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Topics: TAX TALK

SALT TALK: NYC Taxpayer Gets Favorable REIT Transfer Tax Rate - ALJ Rules Everything is Less Than Zero

Posted by Wayne Berkowitz CPA, J.D., LL.M. on Mar 13, 2017 11:00:00 AM

A recent taxpayer victory[1] related to one of the most onerous taxing schemes, the New York City Real Property Transfer Tax and the New York State Real Estate Transfer Tax (Transfer Tax) provides a light at the end of the tunnel for those of us facing the continued administrative assaults on relatively clear and legitimately enacted tax incentives. 

To encourage additional liquidity in the market, both New York State and City have provisions in place that effectively cut the tax rate in half for transfers to real estate investment trusts (REITs).  Without the incentive, combined tax rates can reach as high as 3.025% of the “consideration paid” for the property.  In addition to the rate reduction, the NYC tax has the added bonus of using the estimated market value (EMV), an amount determined by reference to the NYC real property tax assessment.  This amount is usually significantly less than the actual fair market value of the property.

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T&E TALK: Irrevocable Life Insurance Trust — A Great Wealth Preservation Tool

Posted by Scott T. Ditman, CPA/PFS on Mar 13, 2017 7:00:00 AM

Life insurance can provide peace of mind, if you’re concerned about your family’s financial well-being after you’re gone.  Going a step further and setting up an irrevocable life insurance trust (ILIT) to hold the policy offers additional estate planning benefits.

Asset Protection

If you’re concerned about your heirs’ money management skills, an ILIT may be the answer. Your loved ones won’t receive the proceeds directly, as they would if they were the policy beneficiaries. Rather, they’re the beneficiaries of the trust, and the trust controls when they receive proceeds.

You can also establish conditions for distributing funds from an ILIT. For example, you might instruct the trustee to withhold funds from a beneficiary who drops out of school or develops a substance abuse problem.

A properly drafted ILIT can also protect trust assets against your and your beneficiaries’ creditors, particularly if it’s established in a state with favorable asset protection laws.

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Topics: T&E TALK

TAX TALK: Repair & Improvement Safe Harbors Help Accelerate Tax Deductions

Posted by Hal Zemel, CPA, J.D., LL.M. on Mar 6, 2017 12:50:00 PM

If last year your business made repairs to tangible property, such as buildings, machinery, equipment, or vehicles, you may be eligible to deduct the expenses on your 2016 income tax return. However, you must determine if the expenses qualify as “repairs,” and are not actually “improvements.”

The distinction between repairs and improvements is important. In general, a cost that results in an improvement to a building structure or any of its building systems (for example, the plumbing or electrical system) or to other tangible property must be capitalized and depreciated over a period of years.  But, you can take an immediate expense for the costs incurred for incidental repairs and maintenance.

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Topics: TAX TALK

SALT TALK: California Minimum Franchise Tax Refund Opportunity – May the Swart [1] Be With You

Posted by Wayne Berkowitz CPA, J.D., LL.M. on Mar 6, 2017 11:00:00 AM

Here is how the conversation usually goes at Berdon: 

Berdon Person Other Than Me (“BPOTM”): Wayne, I have a client whose only connection to California is a 0.001% non-managing membership interest in manager-managed LLC.  The LLC is doing business in California.  Do I have to pay the $800 minimum franchise tax?

Me:  Well, there is a case with a limited partnership and similar facts that says you don’t have to.  But the Franchise Tax Board (“FTB”) has been interpreting it very narrowly and only applies the case to LPs and not LLCs.

BPOTM:  Wayne, that’s crazy.  The facts and circumstances are exactly the same.  Why should my client have to pay $800 and why should we go to the expense of filing the return?

Me:  Well, I agree with you, but you should explain to your client that the FTB is likely to send a notice indicating that tax is due and ultimately issue an assessment.  In order to clear this up, the cost is likely to exceed $800.  I sympathize, and if it was my own return I would seriously consider not filing, but we need to make a practical business decision here.

BPOTM:  I hear you.  I’ll speak to my client and help them make a decision on how to deal with this nuisance.

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T&E TALK: Special Planning When Leaving Your IRA to Someone Other Than Your Spouse

Posted by Scott T. Ditman, CPA/PFS on Mar 6, 2017 7:00:00 AM

If you leave an IRA to your children or to someone other than your spouse, certain benefits can be lost without careful planning.

An Inherited IRA Stretches the Tax Benefits

Surviving spouses who inherit IRAs are permitted to roll them into their own IRAs, allowing the funds to continue growing tax-deferred or tax-free until they are withdrawn in retirement or after age 70½.

Beneficiaries other than your spouse, such as your children, are treated differently.

To take full advantage of an IRA’s tax benefits, nonspouse beneficiaries must transfer the funds directly into an “Inherited IRA.” Although the beneficiaries will have to begin taking distributions by the end of the following year, they’ll be able to stretch those distributions over their life expectancies, allowing earnings to grow tax-deferred or tax-free as long as possible.

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Topics: T&E TALK

TAX TALK: Simplified Method for Determining Potential Estate Tax Exposure

Posted by Hal Zemel, CPA, J.D., LL.M. on Feb 28, 2017 10:50:56 AM

While not exact, here is a simplified way to project your potential estate tax exposure.

  • Determine the value of your assets, net of any debts.
  • Subtract any assets that will pass to charity on your death.
  • If you’re married and your spouse is a U.S. citizen, subtract any assets you’ll pass to him or her. Those assets qualify for the marital deduction and avoid potential estate tax exposure until the surviving spouse dies.
  • The net number represents your taxable estate.
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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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T&E TALK: Gain insights into how changes in tax laws, shifts in the financial markets, and regulatory concerns will impact assets and affect preserving and transferring wealth.

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