MEDIA/PRESS

While most of us think of a day as the interval of light between two successive nights, taxing jurisdictions that look to the statutory residency test certainly had something much shorter in mind. While the New York statutes don’t bother to define what constitutes a day for purposes of the count, the regulations clearly state that “presence within New York State for any part of a calendar day constitutes a day spent within New York. . .”

Despite the broad reach of the regulations, two very limited exceptions are carved out. The first of these pertains to travel days within New York. If in New York solely to board a plane, ship train, bus, etc. to travel to a point outside of New York, this will not count as a day.

Americans who are 65 and older qualify for basic Medicare insurance, and they may need to pay additional premiums to get the level of coverage they desire. The premiums can be expensive, especially if you’re married and both you and your spouse are paying them. But one aspect of paying premiums might be positive: If you qualify, they may help lower your tax bill.

Medicare Premium Tax Deductions

Premiums for Medicare health insurance can be combined with other qualifying health care expenses for purposes of claiming an itemized deduction for medical expenses on your individual tax return. This includes amounts for “Medigap” insurance and Medicare Advantage plans. Some people buy Medigap policies because Medicare Parts A and B don’t cover all their health care expenses. Coverage gaps include co-payments, co-insurance, deductibles and other costs. Medigap is private supplemental insurance that’s intended to cover some or all gaps.

Charitable giving is a key part of estate planning for many people. If you have a collection of valuable art and are charitably minded, consider donating one or more pieces to receive tax deductions. Generally, it’s advantageous to donate appreciated property to avoid capital gains taxes. Because the top federal capital gains rate for art and other “collectibles” is 28%, donating art is particularly effective.

Considerations Before Donating

Here are three tips to keep in mind:

1. Get an Appraisal. Given the subjective nature of art valuation and the potential for abuse, the IRS scrutinizes charitable donations and other transactions involving valuable artwork. Most art donations require a “qualified appraisal” by a “qualified appraiser.” IRS rules contain detailed requirements about the qualifications an appraiser must possess and the contents of an appraisal.

For those of you who have been following my blog, you know that one way to be taxed as a resident in New York State and/or NYC (collectively referred to as NY) is to be a statutory resident. One must have a permanent place of abode (PPA) and be present in NY for more than 183 days.

While understanding what constitutes a day in NY would seem to be a simple task, for the purpose of the statutory residency test this is simply not the case. Before we even explain how to count days and the various exceptions, the most important point to understand is that the burden of proof rests with you.

Do you want to save more for retirement on a tax-favored basis? If so, and if you qualify, you can make a deductible traditional IRA contribution for the 2018 tax year between now and the tax filing deadline and claim the write-off on your 2018 return. Or you can contribute to a Roth IRA and avoid paying taxes on future withdrawals.

You can potentially make a contribution of up to $5,500 (or $6,500 if you were age 50 or older as of December 31, 2018). If you’re married, your spouse can potentially do the same, thereby doubling your tax benefits.

The deadline for 2018 traditional and Roth contributions for most taxpayers is April 15, 2019 (April 17 for those in Maine and Massachusetts).

There are some ground rules. You must have enough 2018 earned income (from jobs, self-employment or alimony) to equal or exceed your IRA contributions for the tax year. If you’re married, either spouse can provide the necessary earned income. And you can’t make a deductible contribution to a traditional IRA if you were 70½ or older as of December 31, 2018. (But you can make one to a Roth IRA after that age.)

If your estate plan includes a revocable trust — also known as a “living” trust — it’s critical to ensure that the trust is properly funded. Revocable trusts offer significant benefits, including asset management (in the event you become incapacitated) and probate avoidance. But these benefits aren’t available if you don’t fund the trust.

Funding the Trust

Funding a living trust is a simple matter of transferring ownership of assets to the trust or, in some cases, designating the trust as beneficiary. Assets you should consider transferring include real estate, bank accounts, certificates of deposit, stocks and other investments, partnership and business interests, vehicles, and personal property (such as furniture and collectibles).

In the ongoing NYS war over taxes, the additional surcharge on certain high-value non-primary residences in New York City, discussed in last week’s blog, proved to be a Mission Impossible. Intense lobbying by the NYC real estate industry and questions about enforceability sealed its fate. But never fear!

The Governor, New York State Assembly and New York State Senate finally agreed on the 2019 – 2020 State Budget late yesterday. The most significant provisions include an increase in the New York State Transfer Tax and the New York State “Mansion Tax” for certain properties located in New York City. The increases are effective for conveyances occurring on or after July 1, 2019. Binding written contracts entered into on or before April 1, 2019 will not be subject to the increases.

If you participate in a qualified retirement plan, such as a 401(k), you must generally begin taking required withdrawals from the plan no later than April 1 of the year after which you turn age 70½. However, there’s an exception that applies to certain plan participants who are still working for the entire year in which they turn 70½.

The Basics of RMDs

Required minimum distributions (RMDs) are the amounts you’re legally required to withdraw from your qualified retirement plans and traditional IRAs after reaching age 70½. Essentially, the tax law requires you to tap into your retirement assets — and begin paying taxes on them — whether you want to or not.

For years, life insurance has played a critical role in estate planning, providing a source of liquidity to pay estate taxes and other expenses. Today, the gift and estate tax exemption has climbed to $11.4 million, so estate taxes are no longer a concern for the vast majority of families. But even for nontaxable estates, life insurance continues to offer estate planning benefits.

Replacing Income and Wealth

Life insurance can protect your family by replacing your lost income. It can also be used to replace wealth in a variety of contexts. For example, suppose you own highly appreciated real estate or other assets and wish to dispose of them without generating current capital gains tax liability. One option is to contribute the assets to a charitable remainder trust (CRT).

Former Governor and now Senator from Florida, Rick Scott, wrote a scorching editorial in last week’s Wall Street Journal directing New Yorkers to stop whining about high taxes and fix the problem ourselves. Whether or not you agree with Senator Scott’s political views, one point he made is simply undisputable. “America is a marketplace where states are competing with each other, and New York is losing.” Senator Scott even points out that “[t]here’s a reason Rep. Alexandria Ocasio-Cortez’s mom left New York for Florida.”

This all stems from New Yorker’s continuing to blame the sag in the luxury real estate market on the limit set of $10,000 for the deduction of state and local taxes. While the Senator did not say as much, I can almost hear the utterance that if New York and its high tax state brethren spent as much time trying to cut state taxes as they have to find ways around the cap, the problem would almost take care of itself.