TAX TALK: Now May be the Time to Buy Business Equipment and Other Depreciable Property

Posted by Hal Zemel, CPA, J.D., LL.M. on Jul 29, 2019 9:20:00 AM

There’s good news about the Section 179 depreciation deduction for business property. The election has long provided a tax windfall to businesses, enabling them to claim immediate deductions for qualified assets, instead of taking depreciation deductions over time. And it was increased and expanded by the Tax Cuts and Jobs Act (TCJA).

Even better, the Sec. 179 deduction isn’t the only avenue for immediate tax write-offs for qualified assets. Under the 100% bonus depreciation tax break provided by the TCJA, the entire cost of eligible assets placed in service in 2019 can be written off this year.

Sec. 179 Basics

The Sec. 179 deduction applies to tangible personal property such as machinery and equipment purchased for use in a trade or business, and, if the taxpayer elects, qualified real property. It’s generally available on a tax year basis and is subject to a dollar limit.

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Topics: TAX TALK

T&E TALK: A Buy-sell Can Provide Liquidity to Cover Estate Taxes

Posted by Scott T. Ditman, CPA/PFS on Jul 29, 2019 7:00:00 AM

If you own an interest in a closely held business, it’s critical to have a well-designed, properly funded buy-sell agreement. Without one, an owner’s death can have a negative effect on the surviving owners.

If one of your co-owners dies, for example, you may be forced to go into business with his or her family or other heirs. And if you die, your family’s financial security may depend on your co-owners’ ability to continue operating the business successfully.

Buy-sell Agreement and Estate Taxes

There’s also the question of estate taxes. With the federal gift and estate tax exemption currently at $11.4 million, estate taxes affect fewer people than they once did. But estate taxes can bring about a forced sale of the business if your estate is large enough and your family lacks liquid assets to satisfy the tax liability.

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Topics: T&E TALK

SALT TALK: I Sue You, You Sue Me, They Sue Us, Here We Go Again[1]

Posted by Wayne K. Berkowitz CPA, J.D., LL.M. on Jul 22, 2019 11:30:00 AM

The States of New Jersey, New York, Maryland, and Connecticut say they are challenging “. . . an IRS final rule that undermines state and local programs designed to promote charitable giving through the use of the state and local tax (SALT) credits.” The IRS says, “to be deductible as a charitable contribution under Section 170, a transfer to an entity. . . must be a contribution or gift. A contribution or gift for this purpose is a voluntary transfer of money or property without the receipt of adequate consideration, made with charitable intent.”

We have all watched the battle amongst the blue and red states over the $10,000 cap imposed on the deductibility of state and local taxes. Many states, including New York, New Jersey, and Connecticut have put workarounds in place allowing charitable contributions and corresponding tax credits. The IRS is of the view that these so-called workarounds are a quid pro quo, no different than having to limit the deduction to your favorite charitable organization’s annual dinner dance, by assigning a value to the meal and reducing the contribution accordingly.

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TAX TALK: If You Volunteer for Charity You May Get a Tax Break

Posted by Hal Zemel, CPA, J.D., LL.M. on Jul 22, 2019 9:20:00 AM

If you’re a volunteer who works for charity, you may be entitled to some tax breaks if you itemize deductions on your tax return. Unfortunately, they may not amount to as much as you think your generosity is worth.

Because donations to charity of cash or property generally are tax deductible for itemizers, it may seem like donations of something more valuable for many people — their time — would also be deductible. However, no tax deduction is allowed for the value of time you spend volunteering or the services you perform for a charitable organization.

It doesn’t matter if the services you provide require significant skills and experience, such as construction, which a charity would have to pay dearly for if it went out and obtained itself. You still don’t get to deduct the value of your time.

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Topics: TAX TALK

T&E TALK: This May be an Ideal Time for a Roth IRA Conversion

Posted by Scott T. Ditman, CPA/PFS on Jul 22, 2019 7:00:00 AM

Roth IRAs offer significant estate planning and financial benefits. If you have a substantial balance in a traditional IRA and are considering converting it to a Roth IRA, there may be no better time than now. The Tax Cuts and Jobs Act (TCJA) reduced individual income tax rates through 2025. By making the conversion now, the TCJA enhances the benefits of a Roth IRA.

Estate Planning Benefits

The main difference between traditional and Roth IRAs is the timing of income taxes. With a traditional IRA, your eligible contributions are deductible on your tax returns but distributions of both contributions and earnings are taxable when you receive them. With a Roth IRA, on the other hand, your contributions are nondeductible — that is, they’re made with after-tax dollars — but qualified distributions of both contributions and earnings are tax-free if you meet certain requirements. As a general rule, from a tax perspective, you’re better off with a Roth IRA if you expect your tax rate to be higher when it comes time to withdraw the funds. That’s because you pay the tax up front, when your tax rate is lower.

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Topics: T&E TALK

SALT TALK: Somewhat Less Favorable REIT Treatment Confirmed by Appellate Division

Posted by Wayne K. Berkowitz CPA, J.D., LL.M. on Jul 15, 2019 11:30:00 AM

Over two years ago, I discussed an exciting taxpayer victory for New York City Real Estate Investment Trust transfers. (March 13, 2017 post) As my regular readers know, to encourage additional liquidity in the real estate market, both New York State and City have provisions in place that effectively cut the tax rate in half for transfers to real estate investment trusts (REITs). Without the incentive, combined tax rates can reach as high as 3.275% of the “consideration paid” for the property.

In addition to providing a rate reduction, the NYC tax has the added bonus of using the estimated market value (EMV), an amount determined by reference to the NYC real property tax assessment and usually significantly less than the actual fair market value of the property, in determining the consideration subject to the Tax.

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T&E TALK: Assets with Sentimental Value Require Extra Planning

Posted by Scott T. Ditman, CPA/PFS on Jul 15, 2019 7:00:00 AM

When planning your estate, you’re likely to be focused on major assets, such as real estate, investments, and retirement plans. But it’s also important to “sweat the small stuff” — your tangible personal property such as jewelry, antiques, and photographs.

These personal items — which often have modest monetary value but significant sentimental value — may be more difficult to deal with, and more likely to result in disputes, than big-ticket items. Squabbling over these items can lead to emotionally charged disputes and even litigation. In some cases, the legal fees and court costs can eclipse the monetary value of the property itself.

Prepare a Personal Property Memorandum

Spelling out every gift of personal property in your will or trust can be cumbersome. Perhaps you want to leave your son a painting he’s always enjoyed and give your daughter your prized first-edition copy of a favorite book. You may want to leave your coin collection, which has never interested your children, to an old friend. And so on.

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Topics: T&E TALK

SALT TALK: Life Coaching, GPS, or Tax Planning

Posted by Wayne K. Berkowitz CPA, J.D., LL.M. on Jul 8, 2019 11:30:00 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 a previous blog we 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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TAX TALK: You May have to Pay Tax on Social Security Benefits

Posted by Hal Zemel, CPA, J.D., LL.M. on Jul 8, 2019 9:20:00 AM

During your working days, you pay Social Security tax in the form of withholding from your salary or self-employment tax. And when you start receiving Social Security benefits, you may be surprised to learn that some of the payments may be taxed.

If you’re getting close to retirement age, you may be wondering if your benefits are going to be taxed. And if so, how much will you have to pay? The answer depends on your other income. If you are taxed, between 50% and 85% of your payments will be hit with federal income tax. (There could also be state tax.)

Important: This doesn’t mean you pay 50% to 85% of your benefits back to the government in taxes. It means that you have to include 50% to 85% of them in your income subject to your regular tax rates.

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Topics: TAX TALK

T&E TALK: Jointly Owning Property Can Have Negative Outcomes

Posted by Scott T. Ditman, CPA/PFS on Jul 8, 2019 7:00:00 AM

A common estate planning mistake is to own property jointly with an adult child or other family member. True, adding a loved one to the title of your home, bank account, or other property can be a simple technique for leaving property to that person without the need for probate. But any convenience gained is usually outweighed by a variety of negative consequences. Here are four:

  1. Higher Gift and Estate Taxes. Depending on the size of your estate, joint ownership may trigger gift and estate taxes. When you add a family member’s name to an asset’s title as joint owner, for example, it’s considered a taxable gift of half the asset’s value. And your interest in the asset — including any future appreciation — remains in your taxable estate. These taxes usually can be minimized or even eliminated by transferring the asset to an irrevocable trust.
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Topics: T&E TALK

About Berdon Blogs

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