SALT TALK: California Minimum Franchise Tax – May the Swart [1] Be With You

Posted by Wayne K. Berkowitz CPA, J.D., LL.M. on Mar 4, 2019 11:40:00 AM

Here is how the conversation usually goes at Berdon: 

Berdon Person Other Than Me (“BPOTM”): Wayne, I have a client whose only connection to California is a 0.001% non-managing membership interest in manager-managed LLC. The LLC is doing business in California. Do I have to pay the $800 minimum franchise tax?

Me: Well, there is a case with a limited partnership and similar facts that says you don’t have to. But the Franchise Tax Board (“FTB”) has been interpreting it very narrowly and only applies the case to LPs and not LLCs.

BPOTM: Wayne, that’s crazy. The facts and circumstances are exactly the same. Why should my client have to pay $800 and why should we go to the expense of filing the return?

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TAX TALK: If you Own a Pass-Through Entity — Beware the Ides of March

Posted by Hal Zemel, CPA, J.D., LL.M. on Mar 4, 2019 9:20:00 AM

Shakespeare’s words don’t apply just to Julius Caesar; they also apply to calendar-year partnerships, S corporations and limited liability companies (LLCs) treated as partnerships or S corporations for tax purposes. Why? The Ides of March, more commonly known as March 15, is the federal income tax filing deadline for these “pass-through” entities.

Not-so-Ancient History

Until the 2016 tax year, the filing deadline for partnerships was the same as that for individual taxpayers: April 15 (or shortly thereafter if April 15 fell on a weekend or holiday). One of the primary reasons for moving up the partnership filing deadline was to make it easier for owners to file their personal returns by the April filing deadline. After all, partnership (and S corporation) income passes through to the owners. The earlier date allows owners to use the information contained in the pass-through entity forms to file their personal returns.

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Topics: TAX TALK

T&E TALK: Have you Properly Substantiated Your 2018 Charitable Gifts?

Posted by Scott T. Ditman, CPA/PFS on Mar 4, 2019 7:00:00 AM

Donating to charity is a key estate planning strategy for many people. It reduces the size of your taxable estate and it can help you leave a lasting legacy with organizations you care about.

The benefit of making such gifts during life rather than at death is that you may be eligible for an income tax deduction. Qualifying for a charitable deduction is, in some respects, a matter of form over substance. The IRS could disallow a deduction, even if it’s otherwise legitimate, if you fail to follow the substantiation requirements to the letter.

If you’ve made charitable donations in 2018, it’s wise to review the substantiation rules as you file your 2018 tax return. Here’s a quick summary of the rules:

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Topics: T&E TALK

SALT TALK: Head in the Clouds? You Might be Subject to Sales Tax

Posted by Wayne K. Berkowitz CPA, J.D., LL.M. on Feb 25, 2019 11:30:00 AM

I may want you to get off my cloud, but that just might not be possible like it was back in 1965 when Mick Jagger and Keith Richards urgently begged their listeners to do so[1]. You see, those of you not old enough to remember the days when you had to buy software on tangible media (floppy disk, compact disc, or flash drive) and install it yourself may actually have your head in the clouds and not be aware that many jurisdictions are seeking to tax the cloud equivalent, often referred to as “software as a service (SAAS).

A quick scan of the rules indicates that at least 17 states currently subject cloud computing to sales tax. It wasn’t a surprise when a New York State Advisory Opinion[2] took some leaps into the stratosphere answering in the affirmative, that the “Cloud Collaboration Service” offered by the Opinion’s requestor, is subject to the sales tax. 

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TAX TALK: Some Deductions May be Smaller (or Nonexistent) on 2018 Tax Returns

Posted by Hal Zemel, CPA, J.D., LL.M. on Feb 25, 2019 9:20:00 AM

While the Tax Cuts and Jobs Act (TCJA) reduces most income tax rates and expands some tax breaks, it limits or eliminates several itemized deductions that have been valuable to many individual taxpayers. Here are five deductions you may see shrink or disappear when you file your 2018 income tax return:

  1. State and Local Tax Deduction. For 2018 through 2025, your total itemized deduction for all state and local taxes combined — including property tax — is limited to $10,000 ($5,000 if you’re married and filing separately). You still must choose between deducting income and sales tax; you can’t deduct both, even if your total state and local tax deduction wouldn’t exceed $10,000.
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Topics: TAX TALK

T&E TALK: Important Facts about Filing Gift and Estate Tax Returns

Posted by Scott T. Ditman, CPA/PFS on Feb 25, 2019 7:00:00 AM

Have you made substantial gifts of wealth to family members? Or are you the executor of the estate of a loved one who died recently? If so, you need to know whether you must file a gift or estate tax return.

Filing a Gift Tax Return

Generally, a federal gift tax return (Form 709) is required if you make gifts to or for someone during the year (with certain exceptions, such as gifts to U.S. citizen spouses) that exceed the annual gift tax exclusion ($15,000 for 2018 and 2019); there’s a separate exclusion for gifts to a noncitizen spouse ($152,000 for 2018 and $155,000 for 2019).

Also, if you make gifts of future interests in trust, even if they’re less than the annual exclusion amount, a gift tax return is required. Finally, if you split gifts with your spouse, regardless of amount, you must file a gift tax return.

The return is due by April 15 of the year after you make the gift, so the deadline for 2018 gifts is coming up soon. But the deadline can be extended to October 15.

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Topics: T&E 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 Feb 19, 2019 9:30:00 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.

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TAX TALK: Three Big TCJA Changes Impact Individual Tax Returns for 2018 and Beyond

Posted by Hal Zemel, CPA, J.D., LL.M. on Feb 18, 2019 9:20:00 AM


When you file your 2018 income tax return, you’ll likely find that some big tax law changes affect you — besides the much-discussed tax rate cuts and reduced itemized deductions. For 2018 through 2025, the Tax Cuts and Jobs Act (TCJA) makes significant changes to personal exemptions, standard deductions, and the child credit. The degree to which these changes will affect you depends on whether you have dependents and, if so, how many. It also depends on whether you typically itemize deductions.

  1. No More Personal Exemptions. For 2017, taxpayers could claim a personal exemption of $4,050 each for themselves, their spouses, and any dependents. For families with children and/or other dependents, such as elderly parents, these exemptions could really add up.

    For 2018 through 2025, the TCJA suspends personal exemptions. This will substantially increase taxable income for large families. However, enhancements to the standard deduction and child credit, combined with lower tax rates and other changes, might mitigate this increase.
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Topics: TAX TALK

T&E TALK: Building an “On-Off Switch” into Your Estate Plan

Posted by Scott T. Ditman, CPA/PFS on Feb 18, 2019 7:00:00 AM

An effective estate planning strategy for you is likely the one that will produce the greatest tax savings for your family. Unfortunately, there can be tension between strategies that save estate tax and ones that save income tax. This is especially true now that the Tax Cuts and Jobs Act nearly doubled the gift and estate tax exemption — but only temporarily. Through 2025, income tax might be a greater concern, but, after that, estate taxes might be a bigger issue.

Fortunately, it’s possible to build an “on-off switch” into your estate plan.

Why the Conflict?

Generally, the best way to minimize estate taxes is to remove assets from your estate as early as possible (through outright gifts or gifts in trust) so that all future appreciation in value escapes estate tax. But these lifetime gifts can increase income taxes for the recipients of appreciated assets. That’s because assets you transfer by gift retain your tax basis, potentially resulting in a significant capital gains tax bill should your beneficiaries sell them.

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Topics: T&E TALK

SALT TALK: Author Jules Verne was Architect of New York Tax Policy

Posted by Wayne K. Berkowitz CPA, J.D., LL.M. on Feb 11, 2019 11:40:00 AM

Journey to the Center of the Earth, the 1864 science fiction novel by Jules Verne apparently is a favorite of a preponderance of New York lawmakers. The novel revolves around the premise that volcanic tubes permit travelling adventures to the center of the Earth. It seems as though our state and city leaders believe the notion that volcanic tubes or otherwise compel our presence here. If they have not read the book, I would imagine there are prints of those tacky maps of the world with New York at the center, hanging on the walls of their offices.

It has been a long time since I read Journey to the Center of the Earth, but it came to the forefront of my mind when reading this weekend’s New York Times. The headline, “The $238 Million Penthouse Provokes a Fierce Response: Tax It” quickly caused me to murmur to Java, my trusty American Cocker Spaniel, here they go again. While Java did not ask me what I was referring to, you may be curious.

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