Header Right

Hot Topics

Should I Pay my Spouse a Salary?

by

 

 It’s not worth the Taxes, Right? 

Spouses Working Together

It is not uncommon for one’s spouse to work in the family business, whether as manager or in some other capacity. Assume that Nicole Neurologist owns a medical practice. Her husband, Josh, supervises billing and IT operations. Is it worthwhile for both spouses to receive a salary? It may seem pointless. After all, their money ends up in the same bank account anyway. If Nicole has reached the maximum Social Security and unemployment thresholds, why pay Josh a salary and incur additional steep payroll taxes? While that is true, there are several advantages to employing the spouse that are worth considering.

Social Security Disability Benefits and Lost Wages

If Josh became permanently disabled, he would not receive Social Security benefits for his disability unless he satisfied two different earnings tests.  He must meet a “recent work” test based on his age at disability. For example, at age 31 or more, an individual must work five out of the ten years prior to claiming disability. He must also satisfy a “duration of work” test based on his age at disability. At age 50, he needs to have worked seven years in total prior to his disability.  If Josh was injured by an insured party, unless he has proof of a history of employment, he would not be able to recover any lost wages.

Enjoy Self-Employment Tax Savings

If Nicole’s business income is reported on Schedule C, she deducts the medical insurance expense for her and her family on page 1 of Form 1040. However, if Josh is an employee, then he can be the insured. She can deduct the medical insurance as a business expense on Schedule C.  This would result in significant tax savings, as she now saves the 3.8% Medicare portion of the self-employment tax; good deal for an expense she is incurring anyway.

Good Credit is Essential

Even if Nicole is the breadwinner, there may come a time that Josh will need to rely on his own credit history. If he is paid a salary it will be easier to obtain the credit he will need.

Boost his Social Security Benefits

The amount of Social Security benefits one receives is determined by the average of the 35 highest yearly salaries. Even if Josh’s earning power appears meager, one never knows what the future holds. If he eventually gets a more lucrative job, the years he received a salary from Nicole’s firm may ultimately boost his benefits significantly.

Maximize Pension Contribution

As an employee, Josh can be enrolled in the company pension. This allows the company to make contributions on his behalf. By adding Josh’s pension contribution to Nicole’s, the couple will enjoy increased tax free growth on their retirement funds, while the couple saves on both US and NJ income taxes.

Get a Dependent Care Credit

Unless both spouses have earned income they are not entitled to the dependent care credit, which is currently up to 35 percent of qualifying expenses of $3,000 for one child or dependent, or up to $6,000 for two or more children.

Additional Benefits

There are additional benefits to paying your spouse a salary. Call for a consultation.

 

 

Payroll Tax Savings for NJ Employers- August Deadline

by

Did you check your NJ SUI rates?

Tax Savings

On July 28, 2017, the annual Notice of Employer Contribution Rates were mailed to all New Jersey employers. This is not a bill, but rather a summary of the way the NJ Department of Labor calculates your employer contribution rate for unemployment and disability. This form enables you to determine whether a voluntary contribution would save you money in the subsequent year.

Can I reduce my NJ SUI rate?
A voluntary contribution increases your reserve balance and may reduce your contribution rate. Each employer should calculate the amount of the voluntary contribution required to reduce the rate. The required voluntary payment should be compared to the savings realized from a lower rate.

The unemployment expense is a substantial component of the labor cost of staffing agencies. You should give it careful attention. If you wish to make a voluntary contribution to your reserve balance you have 30 days from the date of your notice to do so. We recommend that you verify all the NJ DOL calculations including the amount of the employer contributions and the benefits charged to your account. Report any discrepancies to the NJ Dept. of Labor.

By making a voluntary payment, employers may reduce the NJ SUI rate for the coming year. Please be aware that this payment increases your reserve balance and helps reduce the NJ SUI rate in future years as well.

Checked your TWES Account?

Good news…if you didn’t receive the Notice and have a Tax Web Enabled System (TWES) account online…you can find your contribution rates there as well. The TWES system provides a wealth of information allowing employers to review their account status, open balance, payment history, employer and worker contribution rates, credit balance and any delinquency. You can log on to the TWES website at https://my.state.nj.us/

Remember doing your summer homework now may save you money down the road! If you would like assistance in determining if a voluntary contribution will save you money, please do not hesitate to contact us immediately.

Managing NJ Dept. of Labor Audits

by

Pamela Avraham, CPA, partner in Urbach & Avraham, CPAs, will be presenting at the 2017 NJ Staffing Alliance (NJSA) Law Day VI which will be held on Feb. 8, 2017. She will discuss NJ Dept. of Labor (DOL) audits; how best to avoid them and to effectively handle them.

The NJ DOL conducts two types of audits: (1) Wage & Hour audits which focus on hourly wage and overtime issues. (2) Independent Contractor vs. Employee audits which determine if a worker is an independent contractor or an employee subject to the state unemployment tax.

Urbach & Avraham has a concentration of clients in the staffing industry. Pamela has successfully handled numerous US and State Dept. of Labor audits for clients in the staffing industry as well as in many other industries.

The 2017 NJSA Law Day VI will be an all-day conference held at the Eisenhower Conference Center in Livingston, NJ.

Lost in a divorce? Use Divorce Checklist as your GPS

by

Divorce Guidebook

When a couple ties the knot, they plan on a lifetime union. Unfortunately, close to 50 percent of marriages end in divorce.  A divorce is never pleasant, but careful planning may make the process less stressful and enable you to obtain a better financial arrangement. To help you through this difficult time, Urbach & Avraham, CPAs has prepared a Divorce Checklist that outlines steps couples should consider.

Click here for Divorce Checklist

Diversion of assets? Unreported income? Family business?

The checklist is an easy-to-understand guide, starting with pre-divorce planning, guiding you through the financial aspects of the proceedings, and highlighting post-divorce issues. This comprehensive list can assist you in navigating through this nerve-wracking ordeal.

The roadmap can help with technical and other questions for your CPA, legal or other financial advisors. We work with many qualified divorce attorneys to seamlessly coordinate your issues.

The Urbach & Avraham Divorce Checklist also highlights complexities presented when a family owned business is involved: Have you engaged a valuation specialist? Suspect unreported income? Accounted for five years of business records?

You’re already coping with many emotional and other issues. We’re here to help lift the burden by assisting you with financial, tax and other matters during this trying time.

 

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

by

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.”