Berdon Blogs

T&E TALK: Basis Consistency Rules in Play When Administering an Estate or Inheriting Property

Posted by Scott T. Ditman, CPA/PFS on Jul 23, 2018 7:00:00 AM

When it comes to tax law changes and estate planning, the substantial increases to the gift and estate tax exemptions under the Tax Cuts and Jobs Act are getting the most attention these days. But a tax law change enacted in 2015 also warrants your attention.

That change generally prohibits the income tax basis of inherited property from exceeding the property’s fair market value (FMV) for estate tax purposes. Why does this matter? Because it prevents beneficiaries from arguing that the estate undervalued the property and, therefore, they’re entitled to claim a higher basis for income tax purposes. The higher the basis, the lower the taxable gain on any subsequent sale of the property.

Conflicting Incentives

Before the 2015 tax law change, estates and their beneficiaries had conflicting incentives when it came to the valuation of a deceased person’s property. Executors had an incentive to value property as low as possible to minimize estate taxes, while beneficiaries had an incentive to value property as high as possible to minimize capital gains, should they sell the property.

The 2015 law requires consistency between a property’s basis reflected on an estate tax return and the basis used to calculate gain when it’s sold by the person who inherits it. It provides that the basis of property in the hands of a beneficiary may not exceed its value as finally determined for estate tax purposes.

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Topics: T&E TALK

SALT Talk:  New York Fires Its Latest Warning Shot at the TCJA

Posted by Wayne K. Berkowitz CPA, J.D., LL.M. on Jul 16, 2018 11:30:00 AM

Warning shots are sent as a way to persuade a potential enemy to withdraw from its position and cease further threatening actions.  Since the passage of the Federal Tax Cuts and Jobs Act (TCJA) it is getting difficult to follow who fired last.  The virtual elimination of the itemized deduction for state and local income and property taxes clearly has created the biggest display of fireworks between the federal government and high tax states.

How appropriate that on July 3, while most of us were leaving early for the Independence Day holiday, New York State released guidance on the implementation of the Employer Compensation Expense Tax (ECET).  The ECET was created as a workaround to the limited SALT deduction by allowing employers to elect to pay a payroll tax expense for employees. 

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Topics: SALT TALK

TAX TALK: Volunteering?  Here’s what you can and can’t Deduct

Posted by Michael Eagan, J.D., LL.M. on Jul 16, 2018 9:20:00 AM

Because donations to charity of cash or property generally are tax deductible (if you itemize), it only seems logical that the donation of something even more valuable to you — your time — would also be deductible. Unfortunately, that’s not the case.

Donations of time or services aren’t deductible. It doesn’t matter if it’s simple administrative work, such as checking in attendees at a fundraising event, or if it’s work requiring significant experience and expertise that would be much more costly to the charity if it had to pay for it, such as skilled carpentry or legal counsel.

However, you potentially can deduct out-of-pocket costs associated with your volunteer work.

The Basic Rules

As with any charitable donation, for you to be able to deduct your volunteer expenses, the first requirement is that the organization be a qualified charity. You can use the IRS’s “Tax Exempt Organization Search” tool (formerly “Select Check”) to find out.

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Topics: TAX TALK

T&E TALK: A SLAT can serve as a Financial Backup Plan

Posted by Scott T. Ditman, CPA/PFS on Jul 16, 2018 7:00:00 AM

The most effective estate planning strategies often involve the use of irrevocable trusts. But what if you’re uncomfortable placing your assets beyond your control? What happens if your financial fortunes take a turn for the worse after you’ve irrevocably transferred a sizable portion of your wealth?

If your marriage is strong, a spousal lifetime access trust (SLAT) can be a viable strategy to obtain the benefits of an irrevocable trust while creating a financial backup plan.

Indirect Access

A SLAT is an irrevocable trust that authorizes the trustee to make distributions to your spouse if a need arises. Like other irrevocable trusts, a SLAT can be designed to benefit your children, grandchildren, or future generations. You can use your lifetime gift tax and generation-skipping transfer tax exemptions (currently, $11.18 million each) to shield contributions to the trust, as well as future appreciation, from transfer taxes. And the trust assets also receive some protection against claims by your beneficiaries’ creditors, including any former spouses.

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Topics: T&E TALK

SALT TALK:  Need a Break from SCOTUS and Wayfair?  New York – Why Make a Federal Case about It?

Posted by Wayne K. Berkowitz CPA, J.D., LL.M. on Jul 9, 2018 11:30:00 AM

Yes, I know the Supreme Court decision in Wayfair certainly may turn out to be the most important case related to state and local taxes the court has addressed in the last 25 years and maybe for the next 100 years.  Nevertheless, I need a break and likely so do you.  Therefore, I digress to another taxing topic my readers should find interesting.

We all have heard, and The Wall Street Journal has reported, that audits by the Internal Revenue Service have been on a downward trend and continue to plummet to extremely low levels.  Since virtually every state and local jurisdiction somehow ties the computation of tax due to a federal reference or starting point, the drop in federal audits and the corresponding mandate to report federal changes to state and local authorities has added another source of lost revenue to the coffers. 

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Topics: SALT TALK

TAX TALK: A Green Home can save on Taxes

Posted by Michael Eagan, J.D., LL.M. on Jul 9, 2018 9:20:00 AM

“Going green” at home — whether it’s your principal residence or a second home — can reduce your tax bill in addition to your energy bill, all while helping the environment.  The catch is that, to reap all three benefits, you need to buy and install certain types of renewable energy equipment in the home.

Invest in Green and save Green

For 2018 and 2019, you may be eligible for a tax credit of 30% of expenditures (including costs for site preparation, assembly, installation, piping, and wiring) for installing the following types of renewable energy equipment:

  • Qualified solar electricity generating equipment and solar water heating equipment;
  • Qualified wind energy equipment;
  • Qualified geothermal heat pump equipment; and
  • Qualified fuel cell electricity generating equipment (limited to $500 for each half kilowatt of fuel cell capacity).
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Topics: TAX TALK

T&E TALK: Fortify your Estate Plan Against “Undue Influence” Claims

Posted by Scott T. Ditman, CPA/PFS on Jul 9, 2018 7:00:00 AM

You should expect the declarations in your will to be carried out, as required by law, and, usually, that’s exactly what happens with wills.  However, it’s possible your will could be contested and your true intentions defeated if someone is found to have exerted “undue influence” over your decisions.

What is Undue Influence?

Undue influence is an act of persuasion that overcomes the free will and judgment of another person. It may include exhortations, insinuations, flattery, trickery, and deception.

Frequently, undue influence happens when an elderly individual, who may or may not have all of his or her bearings, is convinced to change provisions in a will or otherwise suddenly rewards another person, such as a caregiver.

Conversely, not all influence is “undue.” For instance, it’s perfectly reasonable for a child or close friend to advise an elderly person. It’s usually up to a court to decide if the “suggestion” constitutes undue influence.

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Topics: T&E TALK

SALT TALK:  New Jersey Parks and Beaches Stay Open – (Multi) Millionaires Go Elsewhere

Posted by Wayne K. Berkowitz CPA, J.D., LL.M. on Jul 2, 2018 11:30:00 AM

On the hottest weekend of the year, New Jersey avoided a shutdown of its parks, beaches, and everything else, by raising the price of admission for millionaires. Who can forget the photos of former Governor Christie sitting on the closed State Beach with family in tow? Hoping to avoid another such photo opportunity, just hours before the deadline, with a government shutdown looming, Governor Phil Murphy and legislative leaders struck a budget deal.

The key point of contention, a so-called millionaire’s tax, was agreed to. Beginning for tax years on or after January 1, 2018, those earning $5 million or more will see a top tax rate increase to 10.75% from the current 8.97%. The Governor was pushing for a $1 million rate differential. Just so corporations won’t feel left out, a four-year surcharge will be imposed on companies earning in excess of $1 million per year. The current rate of 9% will be increased by 2.5% for the first two years. The rate increase will be phased out over the subsequent two years until returning back to 9%.

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Topics: SALT TALK

TAX TALK: Know the ABCs of HSAs, FSAs, and HRAs

Posted by Michael Eagan, J.D., LL.M. on Jul 2, 2018 9:20:00 AM

There continues to be uncertainty about the Affordable Care Act and the potential impact on health care costs.  So it’s critical to leverage all tax-advantaged ways to fund these expenses, including HSAs, FSAs and HRAs. Here’s how to make sense of this alphabet soup of health care accounts.

HSAs

If you’re covered by a qualified high-deductible health plan (HDHP), you can contribute pretax income to an employer-sponsored Health Savings Account — or make deductible contributions to an HSA you set up yourself — up to $3,450 for self-only coverage and $6,900 for family coverage for 2018. Plus, if you’re age 55 or older, you may contribute an additional $1,000.

You own the account, which can bear interest or be invested, growing tax-deferred similar to an IRA. Withdrawals for qualified medical expenses are tax-free, and you can carry over a balance from year to year.

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Topics: TAX TALK

T&E TALK: Self-Canceling Installment Notes have Pros and Cons

Posted by Scott T. Ditman, CPA/PFS on Jul 2, 2018 7:00:00 AM

Many estate planning techniques are intended to minimize or even eliminate gift and estate taxes when transferring assets to family members. Sometimes, the most powerful techniques also have a significant drawback: mortality risk.

Example

You may have to outlive the term of a trust to realize its tax benefits. A self-canceling installment note (SCIN) eliminates mortality risk, so it may be appropriate for anyone in poor health who isn’t expecting to reach his or her actuarial life expectancy. But it has other potential downsides.

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Topics: T&E TALK

About Berdon Blogs

Our experts examine the latest trends, economics, business conditions and industry issues to provide timely information you need to maximize your tax advantages and meet your financial goals.

SALT TALK: Hear an insider’s perspective on the business issues, legislative updates in state and local tax, and tax aspects behind today’s headlines.

T&E TALK: Gain insights into how changes in tax laws, shifts in the financial markets, and regulatory concerns will impact assets and affect preserving and transferring wealth.

TAX TALK: Get an all-inclusive perspective on regulatory changes, industry issues, and trends from our team of multidisciplinary tax professionals – many of whom also hold J.D. and LL.M degrees.

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