Berdon Blogs

T&E TALK: Proposed Valuation Regulations May Have a Major Impact on Real Estate Families

Posted by Scott T. Ditman, CPA/PFS on Aug 29, 2016 1:00:00 PM

In my August 15 blog, I noted that proposed regulations issued by the Treasury Department and IRS would significantly limit the ability to use valuation discounts in the context of transferring interests in family-owned entities to family members. These regulations would have a particularly significant impact in the case of real estate business owners.

All business owners have an opportunity to take advantage of discounts now by gifting family entity interests before the rules become final.  However, when you have a real estate entity, there are some special considerations.  With real estate, the income tax basis of the assets could be significantly lower than the market value because in real estate you can depreciate the assets as well as refinance mortgages and distribute additional dollars out to the owners.

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Topics: T&E TALK

TAX TALK: Bunch Miscellaneous Itemized Deductions to Maximize Tax Benefit

Posted by Hal Zemel, CPA, J.D., LL.M. on Aug 29, 2016 11:00:00 AM

You will only receive a tax benefit from your miscellaneous itemized deductions to the extent that they exceed, in aggregate, 2% of your adjusted gross income (AGI). You may have found over the years that while you may have had otherwise deductible expenses, you received no tax benefit for the expenses because you did not have enough to exceed the floor. By bunching these expenses into a single year you may be able to exceed this “floor,” and therefore, receive a tax benefit for the expenses. So now is a good time to add up your potential deductions to date to see if bunching is a smart strategy for you this year.

Should you bunch into 2016 or defer into 2017?
If your miscellaneous itemized deductions are getting close to — or they already exceed — the 2% floor, consider incurring and paying additional expenses by Dec. 31, such as:

  • Deductible investment expenses, including advisory fees, custodial fees and publications;
  • Professional fees, such as tax planning and preparation, accounting, and certain legal fees; and
  • Unreimbursed employee business expenses, including vehicle costs, travel, and allowable meals and entertainment.
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Topics: TAX TALK

SALT TALK:  State Tax Auditors are People Too?

Posted by Wayne Berkowitz CPA, J.D., LL.M. on Aug 29, 2016 7:00:00 AM

It is 3 p.m., Thursday, Aug. 24. My office phone rings.  Glancing over at the caller ID, I can see it is one of the many state tax departments calling me.  As I’m not trying to avoid any auditors at the moment, I decide to answer the call.  

Mr. Berkowitz, I’m Mr. X from the State of Y Department of Revenue.  I see you are going to be representing ABC LLC in its  upcoming audit.  There is a problem with the Power of Attorney authorizing you to represent ABC.  The period you indicated on the Power doesn’t coincide with the audit period.

What did I put on the Power, I ask?  The response: January 1, 2013 through May 31, 2016.  So I don’t see the problem?  

Well Mr. Berkowitz, the audit period goes through May 2018.  

Really? You do know that 2018 hasn’t happened yet?  

Mr. Berkowitz, I don’t understand, why aren’t you being cooperative?  

Mr. X, is this a new State policy to extend audits two years out into the future?  

Mr. Berkowitz, is that really necessary, and by the way, when can we set up our first appointment?  

Mr. X, please listen to what you are saying. 2018 really hasn’t happened yet.  I am not trying to give you a hard time!

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TAX TALK: Combining Business and Vacation Travel: What Can You Deduct?

Posted by Hal Zemel, CPA, J.D., LL.M. on Aug 22, 2016 1:00:00 PM

Mixing business and pleasure? If you go on a business trip within the United States and tack on some vacation days, you can deduct some of your expenses.

Here’s a quick list as to what you can deduct:

  • Transportation costs to and from the location of your business activity. But business must come first: If vacation is the primary reason for your travel, then generally no transportation expenses are deductible.
  • Costs for rail travel or the use of your personal car.
  • Other out-of-pocket expenses, such as lodging, hotel tips, meals (subject to the 50% disallowance rule), seminar and convention fees, and cab fare.
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Topics: TAX TALK

T&E TALK: Tread Carefully If You and Your Spouse Have Similar Trusts

Posted by Scott T. Ditman, CPA/PFS on Aug 22, 2016 11:00:00 AM

When spouses have similar irrevocable trusts for each other’s benefit, they can be subject to the “reciprocal trust” doctrine. It prohibits tax avoidance through trusts that 1) are interrelated, and 2) place both grantors in the same economic position as if they’d each created trusts naming themselves as life beneficiaries.

What to do
To avoid unintended tax consequences, trusts should be designed to avoid the reciprocal trust doctrine. There are many ways to accomplish this, but essentially the goal is to vary factors related to each trust, such as the trust assets or terms, trustees, beneficiaries, or creation dates. This strategy will diminish the chances that the two trusts are deemed “substantially similar” by the IRS.

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Topics: T&E TALK

SALT TALK:  NYC TAT Opinion Puts Example C on Par with “Plan 9”

Posted by Wayne Berkowitz CPA, J.D., LL.M. on Aug 22, 2016 7:00:00 AM

Ed Wood’s classic B movie, “Plan 9 from Outer Space,[1]” tells the story of extraterrestrials sent to Earth to stop the human race from creating a doomsday weapon and obliterating itself.  Similarly, the New York City Tax Appeals Tribunal[2] (“TAT”), affirming the Administrative Law Judge (see my July 11, 2016 blog post…[3]) sets out to obliterate a relatively common New York State and City Transfer Tax planning technique.

Those of us who are experts in the State and City Transfer Tax have often taken the position that the transfer of a deed cannot be aggregated with the transfer of an entity interest.  A critical part of this position relied on the assertion that the Transfer Taxes are very formalistic in nature and accordingly the step-transaction doctrine could never apply.  In what is now authority citable as precedent, the Tribunal let us know in no uncertain terms that as long as there is nothing in the law prohibiting the application of the step transaction doctrine, the Tribunal has the ability to do so. That means that two transactions, that on their own would not be subject to transfer taxes, will be collapsed into one and accordingly subject to the tax.

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T&E TALK:  Proposed Regulations Demand Review of Your Estate Plan

Posted by Scott T. Ditman, CPA/PFS on Aug 15, 2016 1:00:00 PM

Proposed regulations issued by the Treasury Department and IRS on Aug. 2 would significantly limit the ability to use valuation discounts in the context of transferring interests in family-owned entities to family members. This technique has been frequently used to minimize gift and estate taxes. The new regulations would include active businesses owned by a family, including real estate operating companies.

The proposals are already facing opposition by tax practitioners, taxpayers, and other advisors who argue that the IRS has overstepped its authority and ignored state law by issuing these regulations.  A public hearing is scheduled for Dec. 1, 2016, and the new valuation rules could go into effect 30 days following the hearing.

So what does this mean to you?

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Topics: T&E TALK

SALT TALK:  Sales Tax Holidays – State Governments Attempt to Improve the Staycation?

Posted by Wayne Berkowitz CPA, J.D., LL.M. on Aug 15, 2016 11:00:00 AM

By a show of hands, how many of you took a staycation this summer?  Well, I see some hands in the air.  Not as many as I would have expected, but it probably has to do with states cutting back on the so-called sales tax holidays they have bestowed upon taxpayers.

Sales tax holidays are typically one to two week periods of time when lawmakers have decided it would be a great idea to suspend the sales tax on certain goods.  The holidays are typically scheduled to coincide with the beginning of the back-to-school shopping season and are generally targeted at items such as clothing and school supplies.  I think it’s safe to say that everyone loves a holiday, so why would states be cutting back on them? And why would a holiday that saves you money create a controversy?

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TAX TALK: Simple Gifting Strategies for Income and Estate Taxes Purposes

Posted by Hal Zemel, CPA, J.D., LL.M. on Aug 15, 2016 8:59:23 AM

If you have a large estate that is in excess of the 2016 lifetime gift and estate tax exemption of $5.45 million (twice that for married couples with proper estate planning strategies in place), you should consider making gifts during your lifetime to reduce your taxable estate. You can make annual exclusions gifts of up to $14,000 per person ($28,000 if you are married) without using any of your lifetime exemption.

Even if your estate would not be subject to tax today, it’s possible that the estate tax exemption could be reduced in the future or your wealth could increase significantly, and estate taxes could become a concern. Also, gifting assets to low income taxpayers may have income tax benefits (assuming the kiddie-tax does not apply).

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Topics: TAX TALK

T&E TALK: Common Mistakes That Can Derail Your Financial  Planning (Part 2)

Posted by Scott T. Ditman, CPA/PFS on Aug 8, 2016 1:00:00 PM

In last week’s blog, I looked at cash flow planning and the impact of market forces as two overlooked areas of financial planning. Two additional areas that frequently get insufficient attention include insurance planning and estate planning.

It is human nature to want to purchase insurance based solely on the lowest cost to you. This practice simply increases the odds that you will have inadequate protection, particularly when it comes to homeowners insurance. You may not even know if you are covered for such catastrophes as floods and tornados — until you file a claim. Even if you have chosen your advisor well, you may forget to inform this person of changing circumstances such as home upgrades, additions to the home, or a change in the status of a property, say from your residence to a rental property. 

Your life insurance advisor is also an important part of your financial team along with your accountant and attorney. Life insurance can be a key component of your financial planning as it can provide liquidity to pay for projected estate taxes and other expenses when you are gone.  In addition, your insurance advisor should periodically review the policies with you to make sure that they are performing as planned.

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Topics: T&E 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.

SALT TALK: Hear an insider’s perspective on the business issues, legislative updates in state and local tax, and tax aspects behind today’s headlines.

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.

TAX TALK: Get an all-inclusive perspective on regulatory changes, industry issues, and trends from our team of multidisciplinary tax professionals – many of whom also hold J.D. and LL.M degrees.

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