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For those of you watching the detectives or the receptionists, we have some good news:  A New York State Tax Appeals Tribunal decision[1] provides some clarity and reason.

New York State subjects protective and detective services to sales tax.   The problem has been that there is no definition in the Tax Law as to what these services actually constitute and the Tax Department’s view has been broadening over the years.  One 2011 Advisory Opinion goes as far as to say that lifeguard services constitute protective services and are subject to sales tax.

The IRS announced it is opening the 2019 individual income tax return filing season on January 27. Even if you typically don’t file until much closer to the April 15 deadline (or you file for an extension), consider filing as soon as you can this year. The reason: You can potentially protect yourself from tax identity theft — and you may obtain other benefits, too.

Tax Identity Theft Explained

In a tax identity theft scam, a thief uses another individual’s personal information to file a fraudulent tax return early in the filing season and claim a bogus refund.

The legitimate taxpayer discovers the fraud when he or she files a 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 tax year. While the taxpayer should ultimately be able to prove that his or her return is the valid one, tax identity theft can cause major headaches to straighten out and significantly delay a refund.

If you reside in a high-tax state, you may want to consider using nongrantor trusts to soften the blow of the $10,000 federal limit on state and local tax (SALT) deductions. The limit can significantly reduce itemized deductions if your state income and property taxes are well over $10,000. A potential strategy for avoiding the limit is to transfer interests in real estate to several nongrantor trusts, each of which enjoys its own $10,000 SALT deduction.

Grantor vs. Nongrantor Trusts

The main difference between a grantor and nongrantor trust is that a grantor trust is treated as your alter ego for tax purposes, while a nongrantor trust is treated as a separate entity. Traditionally, grantor trusts have been the vehicle of choice for estate planning purposes because the trust’s income is passed through to you, as grantor, and reported on your tax return.

Congress and the President made the first move capping the deduction for state and local taxes (SALT) at a mere $10,000. States were quick to fire back by dreaming up all sorts of alternative schemes to work around the limitation. Some of these included the recharacterization of certain tax obligations, such as property taxes, to charitable contributions. While many of these transformative schemes were questionable from the beginning, the IRS made their move this summer by finalizing regulations effectively stunting most of the SALT workaround strategies.

If, like many people, your traditional IRA holds a mixture of deductible (after-tax) and nondeductible (pretax) contributions, it’s important to track your contributions carefully to avoid double taxation of distributions. Why? Because the IRS treats distributions as a blend of pretax and after-tax dollars. If you treat distributions as fully taxable, you’ll end up overpaying.

An Example

Dan, age 62, withdraws $40,000 from his traditional IRA on August 1, 2019. At the time, his IRA balance is $200,000, consisting of $50,000 in deductible contributions, $80,000 in nondeductible contributions and $70,000 in investment earnings. On December 31, 2019, the IRA’s balance is $170,000 — $200,000 minus the $40,000 distribution plus additional contributions and earnings after August 1.

If you save for retirement with an IRA or other plan, you’ll be interested to know that Congress recently passed a law that makes significant modifications to these accounts. The SECURE Act, which was signed into law on December 20, 2019, made these four changes.

You’re selling (or buying) that long coveted investment property. Since you are a regular reader of my blog, you have considered all of the income and transfer tax implications and have done everything practicable to minimize your expense. But did you think about sales tax? Probably not.

While I can’t think of one state where the sale of land by itself is subject to sales tax, often a property contains a multitude of other assets, such as improvements, inventory and other tangible personal property. Many of these assets in and of themselves would be subject to the sales tax if purchased in a straightforward retail transaction.

While you were celebrating the holidays, you may not have noticed that Congress passed a law with a grab bag of provisions that provide tax relief to businesses and employers. The “Further Consolidated Appropriations Act, 2020” was signed into law on December 20, 2019. It makes many changes to the tax code, including an extension (generally through 2020) of more than 30 provisions that were set to expire or already expired.

Two other laws were passed as part of the law (The Taxpayer Certainty and Disaster Tax Relief Act of 2019 and the Setting Every Community Up for Retirement Enhancement Act).

Here are five highlights.

Long-term Part-timers Can Participate In 401(k)s

Under current law, employers generally can exclude part-time employees (those who work less than 1,000 hours per year) when providing a 401(k) plan to their employees. A qualified retirement plan can generally delay participation in the plan based on an employee attaining a certain age or completing a certain number of years of service but not beyond the later of completion of one year of service (that is, a 12-month period with at least 1,000 hours of service) or reaching age 21.

The IRS has issued final regulations that should provide comfort to taxpayers interested in making large gifts under the current gift and estate tax regime. The final regs generally adopt, with some revisions, proposed regs that the IRS released in November 2018.

The Need for Clarification

The Tax Cuts and Jobs Act (TCJA) temporarily doubled the gift and estate tax exemption from $5 million to $10 million for gifts made or estates of decedents dying after Dec. 31, 2017, and before Jan. 1, 2026. The exemption is adjusted annually for inflation ($11.58 million for individuals and $23.16 for married couples for 2020). After 2025, though, the exemption is scheduled to drop back to pre-2018 levels.

By now we all know the U.S. Supreme Court held in South Dakota v. Wayfair Inc. that physical presence is no longer required to compel out-of-state sellers to collect sales tax. With all the problems and uncertainty caused by the elimination of the physical presence requirement and sellers rushing to collect sales tax, I can’t help but think back to a pre-Wayfair class action lawsuit for allegedly collecting too much sales tax.

I’m not a big fan of donuts, but I was just trying to get one more in before sticking to all my resolutions for the new year. While eating a glazed chocolate donut, I couldn’t help but remember that the United States District Court for the Northern District of Illinois dismissed a class action suit against Dunkin’ Donuts. I was really enjoying my donut, so I couldn’t imagine why anyone would want to bring a consumer fraud suit with the potential to ruin one of the nation’s leading guilty pleasures. Wouldn’t you know the suit had absolutely nothing to do with the quality of the donuts, but to the sales tax collected on certain coffee purchases as compared to what was charged on food for on-premises consumption.