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Income Taxes

Executor of Estate? Use our Executor Checklist

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In Charge of Dad’s or Mom’s Estate? 

Overwhelmed?

When a loved one passes away and you’re named as executor of his or her estate, you’re likely to feel a mix of emotions. Sadness over the individual’s demise, of course but mixed with that, will be feelings of apprehension: “How can I be sure I’m honoring the decedent’s last wishes and fulfilling all my responsibilities?”

What Do I Need to Know?
The responsibilities aren’t limited to deciding who gets which assets – it also means identifying all the decedent’s assets, and ensuring that the proper paperwork is filed with the IRS, the State and other agencies. To help you through this overwhelming time, Urbach & Avraham, CPAs has prepared an Executor Checklist that outlines the issues that an executor needs to consider.

Click here for the link to our Executor Checklist

Difficult Beneficiaries?….Family Owned Business?….IRA Nightmares?
The checklist is a roadmap of tasks, from probating the will, to filing a final Income Tax return and other required estate filings, to dealing with beneficiaries and distributing the assets. It’s loaded with tips on how to locate all assets, save various taxes and efficiently manage the estate administration.

This handy guide is packed with reminders about technical questions for your CPA, legal or other financial advisor. We work with many qualified estate attorneys to seamlessly coordinate your situation.

Finally, the Urbach & Avraham Executor Checklist highlights the complexities presented when a family owned business is involved. Was there a buy sell agreement? Who is paying the estate tax on the business, and are funds available to pay the tax?

As an executor, you’re already coping with a lot of emotional and other issues. We’re available to help lift the financial burden by assisting you with accounting and tax matters during this difficult time.

Hit by the NJ Exit Tax on Sale of Real Estate? You Can Recoup Your Money

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The New Jersey “Exit Tax”, which became law in 2007, requires the real estate seller to file a GIT/REP form

Exiting NJ?

(Gross Income Tax form) in order to record a Deed for  the transfer of his property.

When a non-resident sells property, New Jersey will withhold this income tax in the amount of either 8.97 percent of the profit or 2 percent of the total selling price, whichever is higher. Therefore, even if the property is sold at a loss, tax must be withheld to fulfill the two percent requirement.

What Can I do?

It’s important to realize that while the Exit Tax requires a substantial withholding, it doesn’t have any impact on the actual tax liability. If the seller files a NJ tax return he is refunded the difference between what was withheld and what is owed. This recovery can be very significant when one factors in the selling costs and original purchase price, both of which reduce the taxable gain.

Estates Should Pay Special Attention

The recovery is often even greater in the case of real estate sold by an estate, as there is a step up in cost basis which would typically minimize a gain on the sale, often resulting in full recovery of the entire withholding. To quickly expedite the recovery of the excess withholding, it would be prudent to timely file Form NJ1040 NR (individual) or NJ1041 (estate/fiduciary).

How do I know if I am considered a “non-resident”?

So who’s considered a “resident” and who’s a “non-resident” with regard to this tax? The law defines a resident taxpayer as one of the following:

  • An individual who is and intends to continue to maintain a permanent place of abode (home, residence) in New Jersey on/after the day of transfer
  • An estate established under the laws of New Jersey
  • A trust established under the laws of New Jersey

A nonresident is simply defined as “any taxpayer that does not meet the definition of resident taxpayer.”

Israel now Taxing US Trusts with Israeli Beneficiaries

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If you have family living in Israel for whom you set up an irrevocable trust, Israel now wants its share. Until 2014, irrevocable trusts settled by foreign residents in favor of Israeli resident beneficiaries weren’t taxed by Israel unless the beneficiaries exercised “control or influence” over the trust. This is no longer the case.

Beginning January 1, 2014, Israel is taxing any trust anywhere in the world that has an Israeli resident beneficiary. There are two types of Israeli Beneficiary Trusts.

A Relatives Trust (or Family Trust) is a trust where the settlor is the parent, spouse, child, grandchild or grandparent of the beneficiary.

A Non-Relatives Trust is all other Israeli Beneficiary Trusts.

If the trust is a Relatives Trust, the trustee must choose between two possible tax regimes. Israel will impose a tax rate of 30% of income distributed to beneficiaries. Alternatively, it’s possible to elect to be taxed at a rate of 25% on annual trust income regardless of distributions.  An irrevocable election must be made by June 30, 2014 to choose the tax regime.

An exception applies to new and senior returning residents (who lived abroad 10 years) who arrived after 2006. They enjoy a 10-year Israeli tax holiday regarding overseas income, gains and asset reporting.

Thinking about excluding Israeli resident beneficiaries? It’s not so simple. The new 2014 rules impose Israeli tax on all trusts that ever had Israeli resident beneficiaries since inception. Consultation with qualified and competent U.S. and Israeli tax professionals is critical to deal effectively with the new tax liability.

 

 

Discharge of Executor IRS Liabilities

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While being the executor or executrix of an estate has its financial advantages, it can carry an enormous liability as well. Suppose Aunt Gertrude dies, leaving behind a $1 million dollar estate. You, the executor, fairly distribute the estate to the beneficiaries. Most people would assume it’s all over at that point. The shocking reality is that if Gertrude had an income or gift tax liability when she died, that liability now rests squarely on your shoulders. As far as the IRS is concerned, the executor or executrix should have kept the funds in the estate until the liabilities were paid off, even if he or she knew nothing about the tax liability at the time of the distribution. The only door they will come knocking on is yours. There is hope however, in the form of three important IRS forms that help alleviate your liability as executor or executrix: [Read more…] about Discharge of Executor IRS Liabilities

Selling Investment Real Estate in New Jersey? Beware of the “Exit Tax”

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If you’re a non-resident selling investment real estate in New Jersey, there’s a unique NJ withholding tax you should be aware of. Both residents and non-residents always had to pay income tax on the gain upon the sale of real estate. This tax is required to be withheld for non-residents.  The “Exit Tax”, which came into law six years ago, requires the seller to file a GIT/REP form (Gross Income Tax form) in order to record a Deed for the transfer of his property. When a non-resident sells the property, New Jersey will withhold this income tax in the amount of either 8.97 percent of the profit or 2 percent of the total selling price, whichever is higher. Therefore, even if the property is sold at a loss, tax must be withheld to fulfill the two percent requirement. When such a seller eventually files his NJ tax return he is refunded the difference between what was withheld and what was owed. [Read more…] about Selling Investment Real Estate in New Jersey? Beware of the “Exit Tax”

Supporting a Relative? You May be Entitled to Tax Breaks

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Supporting your financially distressed relative is a commendable act that can also result in significant tax savings. If the recipient meets all of the criteria required to be deemed a “qualified relative”, you can benefit in several ways. First of all, the qualified relative can be claimed as a dependent and you can therefore take his personal exemption ($3,750 in 2011) on your return. Another benefit is that you can add his medical expenses to yours for the medical expense itemized deduction. This is especially important for those whose medical expenses do not exceed the 7.5% of AGI (Adjusted Gross Income) minimum threshold to deduct medical expenses. Even if you don’t itemize, you can still benefit by filing as head of household instead of as single, resulting in a much greater standard deduction (in 2011 the standard deduction was $5,800 for single and $8,500 for head of household). The criteria to be a “qualified relative” are as follows: [Read more…] about Supporting a Relative? You May be Entitled to Tax Breaks