SALT TALK: Secret State and Local Tax Revealed

Posted by Wayne K. Berkowitz CPA, J.D., LL.M. on Jun 11, 2019 9:57:26 AM

Elvis Costello, soon to be recognized as an “Officer of the Order of the British Empire” (“OBE”), summed it up best when he penned the lyrics “She thought that I knew and I thought that she knew.[1]” This is exactly how I felt when colleagues, clients, friends and everyone else would ask me questions about the so-called “Jock Tax.” While I never knew what this super-secret mystery tax consisted of, I always thought I should know or at least my superiors certainly would.

So what is this Jock Tax we speak of? You mean you don’t know. All right, I will let you in on a secret. There is no Jock Tax. What we are referring to is simply the nonresident income tax. The same nonresident income tax that any of us are subject to if we perform services in a state other than our state(s) of tax residence.

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TAX TALK: Thinking About Retiring to Another State? Don’t Forget About Taxes

Posted by Hal Zemel, CPA, J.D., LL.M. on Jun 10, 2019 10:17:00 AM

When you retire, you may consider moving to another state — say, for the weather or to be closer to loved ones. Don’t forget to factor state and local taxes into the equation. Establishing residency for state tax purposes may be more complicated than it initially appears to be.

Identify all Applicable Taxes

It may seem like a no-brainer to simply move to a state with no personal income tax. But, to make a good decision, you must consider all taxes that can potentially apply to a state resident. In addition to income taxes, these may include property taxes, sales taxes, and estate taxes.

If the states you’re considering have an income tax, look at what types of income they tax. Some states, for example, don’t tax wages but do tax interest and dividends. And some states offer tax breaks for pension payments, retirement plan distributions and Social Security payments.

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Topics: TAX TALK

T&E TALK: Charitable Lead Trusts offer Philanthropic and Family Benefits

Posted by Scott T. Ditman, CPA/PFS on Jun 10, 2019 7:00:00 AM

High net worth families who wish to give to charity while minimizing gift and estate taxes should consider a charitable lead trust (CLT). These trusts are most effective in a low-interest-rate environment, so conditions for taking advantage of a CLT currently are favorable. Although interest rates have crept up a bit in recent years, they remain quite low.

Two Types of CLTs

A CLT provides a regular income stream to one or more charities during the trust term, after which the remaining assets pass to your children or other noncharitable beneficiaries.

There are two types of CLTs:

1) A charitable lead annuity trust (CLAT), which makes annual payments to charity equal to a fixed dollar amount or a fixed percentage of the trust assets’ initial value, and

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Topics: T&E TALK

SALT TALK: One Small Step (Backward) for Taxpayers, Many Giant Leaps for State Tax Departments

Posted by Wayne K. Berkowitz CPA, J.D., LL.M. on Jun 3, 2019 11:30:00 AM

Is it just me? Readers, have you noticed? Are state tax departments becoming more aggressive? Is this a brand new trend inspired by my tortured paraphrasing of Neil Armstrong’s famous statement upon exiting the lunar module at 10:56 PM on July 20, 1969 and the very recent release of a new documentary film about the Apollo 11 mission?

I think not. State tax departments have always been aggressive. What is new, in my opinion, is the emboldened stance taken by both tax departments and the state governments, which send the departments on their daily missions.

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TAX TALK: The Chances of IRS Audits are Down But You Should Still be Prepared

Posted by Hal Zemel, CPA, J.D., LL.M. on Jun 3, 2019 9:20:00 AM

The IRS just released its audit statistics for the 2018 fiscal year, and fewer taxpayers had their returns examined as compared with prior years. However, even though a small percentage of tax returns are being chosen for audit these days that will be little consolation if yours is one of them.

Latest Statistics

Overall, just 0.59% of individual tax returns were audited in 2018, as compared with 0.62% in 2017. This was the lowest percentage of audits conducted since 2002.

However, as in the past, those with very high incomes face greater odds. For example, in 2018, 2.21% of taxpayers with adjusted gross incomes (AGIs) of between $1 million and $5 million were audited (down from 3.52% in 2017).

The richest taxpayers, those with AGIs of $10 million and more, experienced a steep decline in audits. In 2018, 6.66% of their returns were audited, compared with 14.52% in 2017.

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Topics: TAX TALK

T&E TALK: Leave Your Mark with a Dynasty Trust

Posted by Scott T. Ditman, CPA/PFS on Jun 3, 2019 7:00:00 AM

If a prime objective of your estate plan is to leave a lasting legacy, a dynasty trust may be the right estate planning vehicle for you. And, thanks to the substantially increased generation-skipping transfer (GST) tax exemption amount established by the Tax Cuts and Jobs Act, a dynasty trust is more appealing than ever.

GST Tax and Dynasty Trusts

A dynasty trust allows substantial amounts of wealth to grow and compound free of federal gift, estate and GST taxes, providing tax-free benefits for your grandchildren and future generations. The longevity of a dynasty trust varies from state to state, but it’s becoming more common for states to allow these trusts to last for hundreds of years or even in perpetuity.

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Topics: T&E TALK

SALT TALK: I Read the (State Tax) News Today, Oh Boy

Posted by Wayne K. Berkowitz CPA, J.D., LL.M. on May 28, 2019 11:30:00 AM

I read the state tax news every day. Fifty states, numerous localities and the thirst for revenue practically insures that Berdon will need me when I’m sixty four and beyond. Well, I just had to laugh when I read that come June 1st the Beatles’ Sgt. Pepper’s Lonely Hearts Club Band album will turn fifty-two years old!

I asked several colleagues if I may inquire discretely as to their views and experiences as to the current state of state taxation for nonresident athletes and entertainers. While some said, nothing changed, it’s all the same, and others commented that it’s getting better all the time.

Well, it is Tuesday morning at 9:00 and “Lucy in the Sky with Diamonds” is playing in the background. I’m reminded somehow of the Berdon tagline Listen, Solve, Do and am inspired to do just that. 

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TAX TALK: Hire Your Children This Summer: Everyone Wins

Posted by Hal Zemel, CPA, J.D., LL.M. on May 28, 2019 9:20:00 AM

If you’re a business owner and you hire your children (or grandchildren) this summer, you can obtain tax breaks and other nontax benefits. The kids can gain on-the-job experience, save for college and learn how to manage money. And you may be able to:

  • Shift your high-taxed income into tax-free or low-taxed income,
  • Realize payroll tax savings (depending on the child’s age and how your business is organized), and
  • Enable retirement plan contributions for the children.

It Must Be a Real Job

When you hire your child, you get a business tax deduction for employee wage expenses. In turn, the deduction reduces your federal income tax bill, your self-employment tax bill (if applicable), and your state income tax bill (if applicable). However, in order for your business to deduct the wages as a business expense, the work performed by the child must be legitimate and the child’s salary must be reasonable.

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Topics: TAX TALK

T&E TALK: The Danger of Leaving Specific Assets to Specific Heirs

Posted by Scott T. Ditman, CPA/PFS on May 28, 2019 7:00:00 AM

Planning your estate around specific assets is risky and, in most cases, should be avoided. If you leave specific assets — such as homes, cars, or stock — to specific people, you may inadvertently disinherit them.

Here’s The Problem

Let’s say Debbie has three children — Abbie, Mary Kate, and Lizzie — and wishes to treat them equally in her estate plan. In her will, Debbie leaves a $500,000 mutual fund to Abbie and her home valued at $500,000 to Mary Kate. She also names Lizzie as beneficiary of a $500,000 life insurance policy.

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Topics: T&E TALK

SALT TALK: NYS Tax Department Confirms You Can’t Take it With You When You Go

Posted by Wayne K. Berkowitz CPA, J.D., LL.M. on May 20, 2019 11:30:00 AM

By now, my loyal readers are all well versed in the rules of residency. We are all aware what a difference a day makes and just as aware that days (specifically 184) are far from the only issue in determining residency status. The domicile test, separate and apart from the mechanical day counting attached to the statutory residency test, in and of its own can make you a resident.

New York has a highly developed as well as entertaining fact-specific body of case law examining the nuances attached to domicile determination. The most amusing of these tirades through the most intimate details of one’s personal life tend to revolve around the location of near and dear items.

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