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 12:32:08 PM

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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TAX TALK: How Series EE Savings Bonds are Taxed

Posted by Hal Zemel, CPA, J.D., LL.M. on Nov 16, 2020 9:20:00 AM

Many people have Series EE savings bonds that were purchased many years ago. Perhaps they were given to your children as gifts or maybe you bought them yourself and put them away in a file cabinet or safe deposit box. You may wonder: How is the interest you earn on EE bonds taxed? And if they reach final maturity, what action do you need to take to ensure there’s no loss of interest or unanticipated tax consequences?

Fixed or Variable Interest

Series EE Bonds dated May 2005, and after, earn a fixed rate of interest. Bonds purchased between May 1997 and April 30, 2005, earn a variable market-based rate of return.

Paper Series EE bonds were sold at half their face value. For example, if you own a $50 bond, you paid $25 for it. The bond isn’t worth its face value until it matures. (The U.S. Treasury Department no longer issues EE bonds in paper form.) Electronic Series EE Bonds are sold at face value and are worth their full value when available for redemption.

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Topics: TAX TALK

TAX TALK: Tax Responsibilities If Your Business is Closing Amid the Pandemic

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

Unfortunately, the COVID-19 pandemic has forced many businesses to shut down. If this is your situation, we’re here to assist you in any way we can, including taking care of the various tax obligations that must be met.

Of course, a business must file a final income tax return and some other related forms for the year it closes. The type of return to be filed depends on the type of business you have. Here’s a rundown of the basic requirements.

Sole Proprietorships. You’ll need to file the usual Schedule C, “Profit or Loss from Business,” with your individual return for the year you close the business. You may also need to report self-employment tax. 

Partnerships. A partnership must file Form 1065, “U.S. Return of Partnership Income,” for the year it closes. You also must report capital gains and losses on Schedule D. Indicate that this is the final return and do the same on Schedules K-1, “Partner’s Share of Income, Deductions, Credits, Etc.”

All Corporations. Form 966, “Corporate Dissolution or Liquidation,” must be filed if you adopt a resolution or plan to dissolve a corporation or liquidate any of its stock.

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Topics: TAX TALK

T&E TALK: The Executor’s Role

Posted by Ada Clapp, J.D. on Nov 9, 2020 7:00:00 AM

If you have been named as an executor (or if you are choosing your own executor) it is important to understand the duties and responsibilities of this role. Today’s blog provides a broad overview of the process and responsibilities of estate administration. You should also understand that administering an estate responsibly requires a wide variety of skills including administrative, investment, legal, and accounting expertise. While you may not possess all of these skills, you should know that you may retain outside advisors to help you perform this complex role.

Overview of Executor’s Duties and Stages of Estate Administration

The role of an executor is to wind up the affairs of a decedent, collect the assets belonging to the decedent, satisfy the decedent’s claims, and distribute to the decedent’s beneficiaries the assets remaining after estate settlement. The course of the administration of a decedent's estate usually passes through a number of distinct stages:

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Topics: T&E TALK

TAX TALK: 4 Tax Issues Divorcing Couples Should Understand

Posted by Hal Zemel, CPA, J.D., LL.M. on Nov 2, 2020 9:20:00 AM

When a couple is going through a divorce, taxes are probably not foremost in their minds. But without proper planning and advice, some people find divorce to be an even more taxing experience. Several tax concerns need to be addressed to ensure that taxes are kept to a minimum and that important tax-related decisions are properly made. Here are four issues to understand if you’re in the midst of a divorce.

Issue 1: Alimony or Support Payments. For alimony under divorce or separation agreements that are executed after 2018, there’s no deduction for alimony and separation support payments for the spouse making them. And the alimony payments aren’t included in the gross income of the spouse receiving them. (The rules are different for divorce or separation agreements executed before 2019.)

Issue 2: Child Support. No matter when a divorce or separation instrument is executed, child support payments aren’t deductible by the paying spouse (or taxable to the recipient).

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Topics: TAX TALK

SALT TALK: Life Coaching, GPS or Tax Planning

Posted by Wayne K. Berkowitz CPA, J.D., LL.M. on Oct 26, 2020 11:40:41 AM

What do these three items have in common? Depending on whom you ask, they can all help you find your way. Not knowing much about life coaching, and as a male being devoid of the gene to ask directions (even from an inanimate object), I tend to be most helpful providing direction in the form of tax planning.

In an earlier blog, I discussed the trend towards single factor apportionment formulas. Today, we will address its first cousin, market-based or customer-based sourcing. In the old-world manufacturing economy, it was easy to “find your way.” You sent thingamajigs[1] to your customer in Ohio and (very) generally speaking, receipts would be sourced to the thingamajigs’ destination, Ohio. So a New York- based manufacturer would get the benefit of apportioning a percentage of his or her tax base outside of New York and either to Ohio (if there was nexus in Ohio, a topic for at least another 100 posts) or possibly to nowhere.

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