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The IRS has provided guidance to employers regarding the recent presidential action to allow employers to defer the withholding, deposit and payment of certain payroll tax obligations. The three-page guidance in Notice 2020-65 was issued to implement President Trump’s executive memorandum signed on August 8.

Private employers still have questions and concerns about whether, and how, to implement the optional deferral. The President’s action only defers the employee’s share of Social Security taxes; it doesn’t forgive them, meaning employees will still have to pay the taxes later unless Congress acts to eliminate the liability. (The payroll services provider for federal employers announced that federal employees will have their taxes deferred.)

Deferral Basics

President Trump issued the memorandum in light of the COVID-19 crisis. He directed the Secretary of the Treasury to use his authority under the tax code to defer the withholding, deposit and payment of certain payroll tax obligations.

The federal gift, estate, and generation-skipping transfer (“GST”) tax exemptions are currently at an all-time high of $11.58 million per individual for 2020 ($23.16 million for a married couple).   However, these increased exemption amounts won’t be around forever, so if you want to preserve the current $11.58 million, you would be wise to use your gift and GST tax exemptions in 2020.

Increased Federal Exemptions Are Temporary

The federal gift and estate tax exemptions allow an individual to make lifetime gifts or transfers at death (that would not otherwise qualify for a marital or charitable deduction or an exclusion—and so would be taxable) up to the exemption amount free of gift or estate tax.   The two exemptions are “unified”; which means that any part of the $11.58 million exemption used to shelter lifetime gifts from gift tax reduces the amount available to shelter death-time transfer from estate tax.

My colleague Richard Goldstein reports on recent New York City legislation reducing the late payment interest rate for property taxes due on July 1, 2020 for eligible property owners impacted by COVID-19. For the details, click here.

Wayne Berkowitz, a tax partner and co-leader of the State and Local Tax Group at Berdon LLP, advises on the unique requirements of governments and municipalities across the nation.

Despite the COVID-19 pandemic, students are going back to school this fall, either remotely, in-person, or under a hybrid schedule. In any event, parents may be eligible for certain tax breaks to help defray the cost of education.

Here is a summary of some of the tax breaks available for education.

1. Higher Education Tax Credits. Generally, you may be able to claim either one of two tax credits for higher education expenses — but not both.

• • With the American Opportunity Tax Credit (AOTC), you can save a maximum of $2,500 from your tax bill for each full-time college or grad school student. This applies to qualified expenses including tuition, room and board, books and computer equipment and other supplies. But the credit is phased out for moderate-to-upper income taxpayers. No credit is allowed if your modified adjusted gross income (MAGI) is over $90,000 ($180,000 for joint filers).

If you’re going through a divorce, you probably feel overwhelmed. Not only is it a difficult time emotionally, but there are a lot of legal and financial decisions you have to make to terminate your marriage.  Chances are you are not thinking about your estate planning—but you really should be. Here’s why:

Every person going through a divorce needs all of his or her estate planning documents reviewed, first when the divorce is commenced and again after the divorce is finalized. In addition, during negotiations, thought should be given to the estate or gift tax implications of proposed settlement obligations.

Wills and Trusts

To start, you should immediately review your will and revocable trust (collectively your “Will”). Under the laws of some states, bequests or fiduciary appointments (e.g., executor or trustee appointments) under a Will in favor of a former spouse are automatically revoked upon divorce. However, not all states provide for such revocation.

I’ve never been without a pet and have always considered them to be family members, not tangible personal property. Apparently, the New York State Department of Taxation and Finance agreed with me when they held “[d]og walking is not among these enumerated services subject to sales tax^[1].” Yet, less than two years later, the Department growled out another Advisory finding that “pet sitting, which includes dog walking, refreshing cat litter boxes, or providing food to the pets is subject to State and local sales and use tax^[2].”

The Department reasoned that “. . . maintaining, servicing or repairing tangible personal property . . .” is an enumerated service and the Regulations clearly define animals to be tangible personal property. Why the sudden shift in opinion? I would like to think it was the Department’s desire to administratively broaden the tax base and not due to any bias against cats^[3].

If you’re getting close to retirement, you may wonder: Are my Social Security benefits going to be taxed? And if so, how much will you have to pay?

It depends on your other income. If you’re taxed, between 50% and 85% of your benefits could be taxed. (This doesn’t mean you pay 85% of your benefits back to the government in taxes. It merely means that you’d include 85% of them in your income subject to your regular tax rates.)

Crunch the Numbers

To determine how much of your benefits are taxed, first determine your other income, including certain items otherwise excluded for tax purposes (for example, tax-exempt interest). Add to that the income of your spouse, if you file joint tax returns. To this, add half of the Social Security benefits you and your spouse received during the year. The figure you come up with is your total income plus half of your benefits. Now apply the following rules:

A loved one has just left you a bequest—but should you accept it?  You are now in the unique position of doing what is called “post mortem” planning.If you don’t need the assets, or there are tax savings or other advantages to be gained, it may make sense for you to refuse thebequest.You would do this via a qualified disclaimer. A qualified disclaimerallows the bequest to bypass you and go to the next beneficiary in line. There are many reasons why you might want to disclaim a bequest-- here are five:

1. Estate and Gift Tax Savings. This is often cited as the main incentive for using a qualified disclaimer. In 2020, an individual can shelter a generous $11.58 million in assets from gift and estate tax. By maximizing portability of a spouse’sunused estate tax exemption, a married couple can effectively pass up to $23.16 million in 2020 to their heirs free of gift and estate taxes. The gift and estate tax exemption may be used to shelter transfers to non-spouse beneficiaries, such as your children and grandchildren, from gift or estate tax (transfers between spouses are sheltered by the unlimited marital deduction).

While you probably don’t have any problems paying your tax bills, you may wonder: What happens in the event you (or someone you know) can’t pay taxes on time? Here’s a look at the options.

Most importantly, don’t let the inability to pay your tax liability in full keep you from filing a tax return properly and on time. In addition, taking certain steps can keep the IRS from instituting punitive collection processes.

Common Penalties

The “failure to file” penalty accrues at 5% per month or part of a month (to a maximum of 25%) on the amount of tax your return shows you owe. The “failure to pay” penalty accrues at only 0.5% per month or part of a month (to 25% maximum) on the amount due on the return. (If both apply, the failure to file penalty drops to 4.5% per month (or part) so the combined penalty remains at 5%.) The maximum combined penalty for the first five months is 25%. Thereafter, the failure to pay penalty can continue at 0.5% per month for 45 more months. The combined penalties can reach 47.5% over time in addition to any interest.

If your child recently graduated from high school and is now in college, consider providing a few estate planning documents that he or she may need at this stage of life.

Needless to say, having all the necessary financial and medical documents may be more important than ever because of the COVID-19 pandemic. And even if your student is staying home to participate in online learning this year, having these documents prepared now can provide peace of mind when he or she returns to campus.

Let’s take a closer look at four such documents: