SALT TALK: Having a Pied-À-Terre in New York City May Result in Higher Real Property Taxes

Posted by Wayne K. Berkowitz CPA, J.D., LL.M. on Dec 22, 2020 2:58:47 PM

My colleague Richard Goldstein and I worked on an alert for clients on identical bills currently in committee in the NYS Assembly and Senate that, if passed, would raise the real property tax in NYC on residential properties that are not the owner’s primary residence. To learn more click here.

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TAX TALK: Can You Qualify for a Medical Expense Tax Deduction?

Posted by Hal Zemel, CPA, J.D., LL.M. on Dec 21, 2020 9:20:00 AM

You may be able to deduct some of your medical expenses, including prescription drugs, on your federal tax return. However, the rules make it hard for many people to qualify. But with proper planning, you may be able to time discretionary medical expenses to your advantage for tax purposes.

Itemizers Must Meet a Threshold

For 2020, the medical expense deduction can only be claimed to the extent your unreimbursed costs exceed 7.5% of your adjusted gross income (AGI). This threshold amount is scheduled to increase to 10% of AGI for 2021. You also must itemize deductions on your return in order to claim a deduction.

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Topics: TAX TALK

SALT TALK: Traps in Transactions - Tax Free for Fed Doesn’t Mean Tax Free for State and Local

Posted by Wayne K. Berkowitz CPA, J.D., LL.M. on Dec 14, 2020 11:40:00 AM

A common tax misconception is the belief that because a transaction is tax free (really, tax deferred) for federal tax purposes the states will tag along and not subject the transaction to tax. While this certainly isn't true when we are addressing the possibility of transfer taxes or even sales tax for that matter, it may not even be true for state income tax purposes.

Put yourself in the shoes of the state taxing authorities. While a properly structured like-kind (1031) exchange can defer income taxes for years, it's technically only a deferral. The newly acquired property will inherit the lower basis of the old property. In theory, the federal government will eventually collect the tax on the ultimate sale in a straight transaction. State tax collectors may not be so lucky. What if the property being sold is in New York City and the replacement property is in Florida? As the law now stands, both New York State and New York City are out of luck and not entitled to any tax resulting from the appreciation on the New York property.

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TAX TALK: Maximize Your 401(k) to Save for Retirement

Posted by Hal Zemel, CPA, J.D., LL.M. on Dec 14, 2020 9:20:00 AM

Contributing to a tax-advantaged retirement plan can help you reduce taxes and save for retirement. If your employer offers a 401(k) or Roth 401(k) plan, contributing to it is a smart way to build a substantial sum of money.

If you’re not already contributing the maximum allowed, consider increasing your contribution rate. Because of tax-deferred compounding (tax-free in the case of Roth accounts), boosting contributions can have a major impact on the size of your nest egg at retirement.

With a 401(k), an employee makes an election to have a certain amount of pay deferred and contributed by an employer on his or her behalf to the plan. The contribution limit for 2020 is $19,500. Employees age 50 or older by year end are also permitted to make additional “catch-up” contributions of $6,500, for a total limit of $26,000 in 2020.

The IRS recently announced that the 401(k) contribution limits for 2021 will remain the same as for 2020.

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Topics: TAX TALK

TAX TALK: Small Businesses May be Able to Cash in on Depreciation Tax Savers

Posted by Hal Zemel, CPA, J.D., LL.M. on Dec 7, 2020 9:20:00 AM

As we approach the end of the year, it’s a good time to think about whether your business needs to buy business equipment and other depreciable property. If so, you may benefit from the Section 179 depreciation tax deduction for business property. The election provides a tax windfall to businesses, enabling them to claim immediate deductions for qualified assets, instead of taking depreciation deductions over time.

Even better, the Sec. 179 deduction isn’t the only avenue for immediate tax write-offs for qualified assets. Under the 100% bonus depreciation tax break, the entire cost of eligible assets placed in service in 2020 can be written off this year.

But to benefit for this tax year, you need to buy and place qualifying assets in service by December 31.

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Topics: TAX TALK

SALT TALK: Beyond COVID-19, There are Taxing Reasons Not to Visit Your Relatives for the Holidays

Posted by Wayne K. Berkowitz CPA, J.D., LL.M. on Nov 30, 2020 11:40:00 AM

At the very least, COVID-19 has provided an excuse for not making that unwanted trip to visit relatives for the holidays. For those of you who might still get some negative feedback, our holiday gift to you is two-fold: firstly another excuse (at least a new one) not to attend that family function, and secondly, potential tax savings for using our excuse.

The excuse: I can’t spend another day in (fill in the appropriate tax jurisdiction) because I will be taxed as a resident and owe an additional (please fill in the appropriate dollar amount) in personal income tax. Even worse, the House and Senate are currently weighing changes to state and local tax law, so I’m not even sure where I stand!

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TAX TALK: Employees: Don’t Forget About your FSA Funds

Posted by Hal Zemel, CPA, J.D., LL.M. on Nov 30, 2020 9:20:00 AM

Many employees take advantage of the opportunity to save taxes by placing funds in their employer’s health or dependent care flexible spending arrangements (FSAs). As the end of 2020 nears, here are some rules and reminders to keep in mind.

Health FSAs 

A pre-tax contribution of $2,750 to a health FSA is permitted in both 2020 and 2021. You save taxes because you use pre-tax dollars to pay for medical expenses that might not be deductible. For example, they wouldn’t be deductible if you don’t itemize deductions on your tax return. Even if you do itemize, medical expenses must exceed a certain percentage of your adjusted gross income in order to be deductible. Additionally, the amounts that you contribute to a health FSA aren’t subject to FICA taxes.

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Topics: TAX TALK

SALT TALK: DC Eliminates the Terminating Business Gain Exclusion for the UBT Effective January 1, 2021

Posted by Wayne K. Berkowitz CPA, J.D., LL.M. on Nov 23, 2020 11:40:00 AM

My colleagues Sarah Kim and Ken Maeng report on the District of Columbia Budget Support Emergency Act which eliminates the Terminating Business Gain Exclusion for Unincorporated Business Franchise Tax effective January 1, 2021. To learn more, click here.

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TAX TALK: Taking Distributions from Traditional IRAs

Posted by Hal Zemel, CPA, J.D., LL.M. on Nov 23, 2020 9:20:00 AM

Although planning is needed to help build the biggest possible nest egg in your traditional IRA (including a SEP-IRA and SIMPLE-IRA), it’s even more critical that you plan for withdrawals from these tax-deferred retirement vehicles. There are three areas where knowing the fine points of the IRA distribution rules can make a big difference in how much you and your family will keep after taxes:

Early Distributions. What if you need to take money out of a traditional IRA before age 59½? For example, you may need money to pay your child’s education expenses, make a down payment on a new home or meet necessary living expenses if you retire early. In these cases, any distribution to you will be fully taxable (unless nondeductible contributions were made, in which case part of each payout will be tax-free). In addition, distributions before age 59½ may also be subject to a 10% penalty tax. However, there are several ways that the penalty tax (but not the regular income tax) can be avoided, including a method that’s tailor-made for individuals who retire early and need to draw cash from their traditional IRAs to supplement other income.

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Topics: TAX TALK

SALT TALK: Should State Apportionment of Income Change with Your Mood(y’s)?

Posted by Wayne K. Berkowitz CPA, J.D., LL.M. on Nov 16, 2020 11:40:00 AM

When I was in law school, Constitutional Law and Tax Policy were my least favorite subjects. Little did I know I would grow up to be a SALT expert and these subjects would be the foundations of my chosen practice area. Not on a day-to-day basis, but as the essential foundation to everything we do.

While my eyes may have occasionally glazed over in class, I did manage to learn that tax policy is what makes the law and it isn’t the law that should be making tax policy. This distinction might seem subtle or nonexistent, but I think is illustrated in all its grandeur in a New York State ALJ Decision, In the Matter of Moody’s Corporation & Subsidiaries, (DTA Nos. 828094 and 828203, October 24, 2019.)

There were four separate issues in this case, but the focus will be on the apportionment of receipts to New York State by the taxpayer, Moody’s Investors Services (MIS). MIS is hired by issuers of corporate debt to perform what we all know as bond rating services used by the investment public in making decisions regarding the appropriateness and the risk of investing in specific debt issues. Both the Tax Department and the taxpayer agreed that MIS performs these services for debt issuers with commercial domiciles throughout the world, the services are “used” by investors throughout the world, but most of the activities (roughly fifty seven percent) in formulating the ratings are performed in New York State.

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