Berdon Blogs

SALT TALK: NYS Proposal Would Have a Major Impact on Real Estate Transactions

Posted by Wayne Berkowitz CPA, J.D., LL.M. on Feb 21, 2017 12:50:00 PM

Housed in the New York State Fiscal Year 2018 Executive Budget is proposed legislation that would significantly impact real estate transactions in the State by expanding the scope of the real estate transfer tax.

Currently, real estate transfers in New York State are subject to a 0.4% tax on the consideration paid for an interest in real property (the “Tax”). The Tax applies to deed transfers as well as transfers of controlling interests in entities that own real property. Generally, a 50% or more shift in ownership in an entity that owns an interest in property located in the State constitutes the transfer of a controlling interest. There is also an aggregation concept that consolidates multiple transfers that are “part of a plan” to determine whether a 50% or more shift has occurred.

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Topics: SALT TALK

TAX TALK: Are You Required to File a 2016 Gift Tax Return by April 18?

Posted by Hal Zemel, CPA, J.D., LL.M. on Feb 21, 2017 11:00:00 AM

If last year you made significant gifts to your children, grandchildren, or other heirs as part of your estate planning strategy, or you just wanted to provide loved ones with some helpful financial support, it’s important to know when you are required to file a gift tax return.

Some transfers require a gift tax return even if you do not owe any tax. Also, sometimes it is desirable to file a return even if it is not required.

Mandatory Filing Requirement

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Topics: TAX TALK

T&E TALK: Five Estate Planning Questions for Single Parents

Posted by Scott T. Ditman, CPA/PFS on Feb 21, 2017 7:00:00 AM

In many respects, estate planning for single parents of minor children is similar to estate planning for families with two parents.  But when only one parent is involved, certain aspects of an estate plan demand special attention. Here are five questions single parents should ask:

  1. Are my will and other estate planning documents up to date? If you haven’t reviewed your estate plan recently, do so to ensure that it reflects your current circumstances. The last thing you want is for a probate court to decide your children’s future.
  2. Have I selected an appropriate guardian? If the other parent is unavailable to take custody of your children should you become incapacitated or die suddenly, does your estate plan designate a suitable and willing guardian to care for them? Will the guardian need financial assistance to raise your children and provide for their education? If not, you might want to preserve your wealth in a trust until your children are grown.
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Topics: T&E TALK

T&E TALK: Post Mortem Estate Planning Strategies for Couples

Posted by Scott T. Ditman, CPA/PFS on Feb 13, 2017 11:00:00 AM

While it is always important to review and update your estate plan in light of significant life changes or new tax laws, it’s equally important to be aware of strategies that can be implemented after your death to achieve your goals. The flexibility of post mortem strategies is especially important during times of estate tax law uncertainty, like now. If you’re married, here are two post mortem estate planning strategies to consider.

1. Spousal Right of Election

This election provides a way to alter the planned distribution of your wealth after you’re gone. In most states, a surviving spouse has the right to circumvent his or her spouse’s will and take an elective share (one-half or one-third, for instance) of certain property.

Example: Let’s say you leave all of your assets to your children or other beneficiaries. Your spouse might exercise his or her right of election if it would produce a more favorable tax outcome. Even if the federal estate tax is repealed, which is on the agenda of President Trump and the Republican majority in Congress, there may be state estate tax or income tax consequences to consider.

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Topics: T&E TALK

SALT TALK: Change of NY Domicile Successful by Dumping Old Girlfriend; Keeping Old Dog

Posted by Wayne Berkowitz CPA, J.D., LL.M. on Feb 13, 2017 7:00:00 AM

A recent New York State Tax Appeals Tribunal Decision[1] held that a taxpayer successfully demonstrated, by clear and convincing evidence, a change in domicile from New York City to Dallas, Texas.  The extremely well-reasoned Opinion is notable in recognizing the domicile change occurred through a complex series of events and not simply by one overt act.  Rather than simply reiterating the Tax Department’s own Nonresident Audit Guidelines, (which, despite what an auditor may tell you, are not the law) the Tribunal looked to the precedential jurisprudence and reminded all that a change of domicile is a question of fact, not a question of law.  The circumstances surrounding the changes can vary widely depending on the individual.

The details of the Opinion are way too complex to cover in this short space, but the series of events which evidenced the intent to abandon the old domicile and establish a new one included the termination of a relationship with his long-term girlfriend, changing career goals and circumstances, listing of his $2.4 million New York City apartment, renting a small apartment in Dallas, and culminated with moving his “large, senior dog[2]” to Dallas.

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Topics: SALT TALK

TAX TALK: Basics of Incentive Stock Options

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

Incentive stock options (“ISOs”) allow you to buy your employer’s stock in the future at a fixed exercise price. The exercise price must at least equal the stock’s fair market value on the date granted. If the stock appreciates above the exercise price, the ISOs will allow you to buy the stock at a price below the fair market value (“FMV”) on the exercise date. However, complex tax rules apply to this type of compensation.

Tax Treatment of ISOs

ISOs must comply with many rules (not discussed here), but receive tax-favored treatment:

GRANT DATE: On the date your employer grants your ISOs - You owe no tax.

EXERCISE DATE (purchase stock at exercise price) On the date you exercise the ISOs:

  • Regular Tax
    1. You owe no regular income tax. There may be other tax consequences if you leave your employment and exercise the ISO.
    2. Your basis in the stock will equal the exercise price that you pay.

  • Alternative Minimum Tax (“AMT”)
    1. You will have an AMT adjustment equal to the FMV of the stock on the date of exercise in excess of the exercise price of the ISOs.
    2. Depending on your tax situation, the AMT adjustment may cause you to pay AMT.
    3. You will add the AMT adjustment to your basis in the stock in order to calculate your AMT gain or loss when you sell the stock.
    4. Generally, you will receive an AMT credit carry-forward to offset future regular tax liability to alleviate potential double taxation.
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Topics: TAX TALK

TAX TALK: The Domestic Production Activities Deduction Applies to More than Just Manufacturing

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

The Section 199 deduction, also called the “domestic production activities deduction,” is intended to boost US jobs by encouraging domestic manufacturing.  In fact, it’s often referred to as the “manufacturers’ deduction.” But, this potentially valuable tax break can be used by many other types of businesses besides manufacturing companies.

Sec. 199 Deduction 101

A company calculates its Sec. 199 deduction by first determining its qualified production activities income (“QPAI”).  QPAI is the net income from qualified production activities. A company computes its QPAI by taking its domestic production gross receipts (“DPGR”) and subtracting the cost of goods sold and other expenses allocable to DPGR.

Most companies will need to allocate receipts between those that qualify as DPGR and those that don’t. If less than 5% of receipts do not qualify as DPGR, the company may treat all of the receipts as DPGR.  Also, the company will need to allocate its expenses to those that directly and indirectly relate to the DPGR and those that do not relate to DPGR.

The Sec. 199 deduction is determined by multiplying the lesser of the qualified production activities income or taxable income by 9%. The deduction is also limited to 50% of W-2 wages paid by the taxpayer that are allocable to domestic production.

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Topics: TAX TALK

SALT TALK: As Amazon Goes, So Goes the Nation

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

In the days before Twitter, November 4, 1936 to be exact, James Farley, Franklin Roosevelt’s campaign manager gave us a preview of things to come.  His sound bite to the press, “As goes Maine, so goes Vermont,” was his witty remark commenting on the landslide victory where FDR won every state but Maine and Vermont.  Well under the 140 character Twitter limit, and based on the even earlier Twitter appropriate comment addressing Maine as the first state to enact prohibition (As goes Maine, So goes the Nation), it should be obvious to us all, that 140 character politics is nothing new.  If we could only find a way to legislate and issue all new regulations through Twitter, we might really have something.

While this past November Maine did go as Vermont, prohibition is long gone (Maine allows alcohol in movie theaters, while New York is still working on it) I thought this would be an opportune time to revitalize and put Twitter to good use for some long needed federal action as applied to state tax reform.

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Topics: SALT TALK

T&E TALK: Set up Trusts in a More “Trust-friendly” State

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

While it is natural to set up trusts in the state where you live, you may be losing out on significant benefits available in more “trust-friendly” states. For example, some states:

  • Don’t tax trust income,
  • Authorize domestic asset protection trusts, which provide added protection against creditors’ claims,
  • Permit silent trusts, under which beneficiaries need not be notified of their interests,
  • Allow perpetual trusts, enabling grantors to establish “dynasty” trusts that benefit many generations to come,
  • Have directed trust statutes, which make it possible to appoint an advisor or committee to direct the trustee with regard to certain matters, or
  • Offer greater flexibility to draft trust provisions that delineate the trustee’s powers and duties.

To take advantage of these and other benefits, review your state’s trust laws and trust-related tax laws with your advisor and consider whether another state’s laws would be more favorable.

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Topics: T&E TALK

TAX TALK: Investment Interest Expense Deduction and Its Limitations

Posted by Hal Zemel, CPA, J.D., LL.M. on Jan 30, 2017 12:50:00 PM

If you borrow money and use the proceeds to buy assets held for investment, such as margin debt used to buy securities, generally the interest on the debt is deductible for both regular tax and alternative minimum tax purposes. However, there are limitations that apply that may reduce the benefits of this itemized deduction.

Deduction Limitations

First, interest is only deductible to the extent you invest in securities that produce taxable income. You cannot deduct interest you incurred to produce tax-exempt income. For example, if you borrow money to invest in municipal bonds, which are exempt from federal income tax, you cannot deduct the interest.

Second, your investment interest deduction is limited to your net investment income. Your net investment income, for the purposes of this deduction, generally includes taxable interest, nonqualified dividends and net short-term capital gains, reduced by other investment expenses. In other words, net investment income includes only investment income taxed at ordinary income tax rates and not investment income taxed at preferential capital gain tax rates such as long-term capital gains and qualified dividends.

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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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