The title of this week’s post is frequently attributed or misattributed to the twentieth President of the United States, James Abraham Garfield (As he pulled it from the Bible). Regardless of who said it first, I find it very relevant as applied to the smorgasbord of voluntary disclosure programs offered by the various state and local taxing jurisdictions. For those of you old enough to remember smorgasbords (current translation is “the cocktail hour”), while many of the offerings seem identical, like the various voluntary disclosure programs, it is essential to be aware of the specifics of what is being offered up.

If you’ve worked a lifetime to build a large estate, you undoubtedly would like to leave a lasting legacy to your children and future generations. Educating your children about saving, investing and other money management skills can help keep your legacy alive.

Teaching Approaches

There’s no one right way to teach your children about money. The best way depends on your circumstances, their personalities and your comfort level.

If your kids are old enough, consider sending them to a money management class. For younger children, you might start by simply giving them an allowance in exchange for doing household chores. This helps teach them the value of work. Opening a savings account or a CD, or buying bonds, can help teach kids about investing and the power of compounding.

In today’s tightening job market, to attract and retain the best employees, small businesses need to offer not only competitive pay, but also appealing fringe benefits. Benefits that are tax-free are especially attractive to employees. Let’s take a quick look at some popular options.

Insurance

Businesses can provide their employees with various types of insurance on a tax-free basis. Here are some of the most common:

Health Insurance. If you maintain a health care plan for employees, coverage under the plan isn’t taxable to them. Employee contributions are excluded from income if pretax coverage is elected under a cafeteria plan. Otherwise, such amounts are included in their wages, but may be deductible on a limited basis as an itemized deduction.

It was one of those days where I remember exactly where I was and what I was doing. February 28, 2017 is etched forever in my mind as the day the California Franchise Tax Board (“FTB”) released FTB Notice 2017-01. My heart was warmed over (or maybe it was just that it was 58 degrees in New York at the end of February) by the fact that the FTB saw the light and decided to follow the law.

For the uninitiated, California is notorious for grabbing the $800 minimum franchise tax (plus interest and penalties) from unsuspecting “taxpayers” whose only contact with California is a deminimus interest in a partnership or LLC. I outlined the typical scenario in my March 6, 2017 blog (https://blogs.berdonllp.com/salt-talk-california-minimum-franchise-tax-refund-opportunity-may-the-swart-1-be-with-you) to commemorate the release of the Notice.

If you’re age 70½ or older, you can make direct contributions — up to $100,000 annually — from your IRA to qualified charitable organizations without owing any income tax on the distributions. This break may be especially beneficial now because of Tax Cuts and Jobs Act (TCJA) changes that affect who can benefit from the itemized deduction for charitable donations.

Counts toward your RMD

A charitable IRA rollover can be used to satisfy required minimum distributions (RMDs). You must begin to take annual RMDs from your traditional IRAs in the year you reach age 70½. If you don’t comply, you can owe a penalty equal to 50% of the amount you should have withdrawn but didn’t. (Deferral is allowed for the initial year, but you’ll have to take two RMDs the next year.)

So if you don’t need the RMD for your living expenses, a charitable IRA rollover can be a great way to comply with the RMD requirement without triggering the tax liability that would occur if the RMD were paid to you.

If you dream of spending your golden years in a tropical paradise, a culture-rich European city or another foreign locale, it’s important to understand the potential tax and estate planning implications. If you don’t, you could be hit with some unpleasant surprises.

Avoiding the Pitfalls

If you’re a citizen of the United States, U.S. taxes will apply even after you move to another country. So, if your estate is large, you might be subject to gift and estate taxes in your new country and in the United States (possibly including state taxes if you maintain a residence in a U.S. state). You also could be subject to estate taxes abroad even if your estate isn’t large enough to be subject to U.S. estate taxes. In some cases, you can claim a credit against U.S. taxes for taxes you pay to another country, but these credits aren’t always available.

As a kid, I always loved to look at maps and still do. GPS devices of all kinds have eliminated the need to consult with the paper monsters thereby eliminating the required graduate degree in Origami[1] to return the map to its original neatly folded state.  The need to consult a map to get from here to anywhere is gone.

Map lovers do not fret. The paper might be gone from the equation, but the internet provides us with the ability to look at anywhere in the world at any time.

What does any of this have to do with state and local tax, other than this author indulging his sense of humor? Well, in charting a course to a state and local tax planning strategy, some see it as nothing more than a chart. As all practitioners know, we are often asked to boil down complex issues to chart form. With the ability to generate a so-called custom chart from one of the various research services, the temptation and the pressure to chart your course becomes overwhelming at times.

For investors, fall is a good time to review year-to-date gains and losses. Not only can it help you assess your financial health, but it also can help you determine whether to buy or sell investments before year end to save taxes. This year, you also need to keep in mind the impact of the Tax Cuts and Jobs Act (TCJA). While the TCJA didn’t change long-term capital gains rates, it did change the tax brackets for long-term capital gains and qualified dividends.

For 2018 through 2025, these brackets are no longer linked to the ordinary-income tax brackets for individuals. So, for example, you could be subject to the top long-term capital gains rate even if you aren’t subject to the top ordinary-income tax rate.

Old Rules

For the last several years, individual taxpayers faced three federal income tax rates on long-term capital gains and qualified dividends: 0%, 15% and 20%. The rate brackets were tied to the ordinary-income rate brackets.

When married couples neglect to prepare an estate plan, state intestacy laws step in to help provide financial security for the surviving spouse. It may not be the plan they would have designed, but at least it offers some measure of financial security. Unmarried couples, however, have no such backup plan. Unless they carefully spell out how they wish to distribute their wealth, a surviving life partner may end up with nothing.

Marital Advantages

Because intestacy laws offer no protection to an unmarried person who wishes to provide for his or her partner, it’s essential for unmarried couples at minimum to employ a will or living trust. But marriage offers several additional estate planning advantages that unmarried couples must plan around, such as:

Regular readers of SALT TALK know that many states and localities follow a similar model in determining whether one will be a tax resident of the jurisdiction and subject to tax on one’s world-wide income. Two tests, domicile or, in the alternative, statutory residency are out to accept your tax dollars.

Focusing on the statutory residency test, if one has a permanent place of abode (a term of art in itself, but for sake of simplicity let’s simply view it for this blog as a place for you to stay that you have unfettered access to) and is present in the jurisdiction for more than 183 days, the test is met (or failed, depending on your perspective) and a resident of the jurisdiction you will be.

I have had more than one potential resident make the statement to me that because I walked down the street in New York City one afternoon that cost me $5 million. My answer: Well, maybe. That one-day putting taxpayers over the edge of the day count can result in one of the most costly strolls ever down Fifth Avenue. Hence the importance of documenting one’s days through some straightforward and not so straightforward documentation techniques.

If you are the paranoid-government-conspiracy-theory-loving-type, this post is not for you. You will cringe at the very thought of the suggestions and ideas contained herein and will insist that I am an integral part of the treachery. For the more practical-minded reader who thinks they may have a residency issue, read on.