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Taxes

Year End Tax Planning

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Tax planning in the weeks before year-end allows you to take advantage of strategies that might reduce your income tax obligation.

Tax Savings

Capitalize on Winners
Your investments are a good starting point for implementing tax-saving strategies. You can benefit from favorable tax rates on long-term capital gains by selling and taking profits on appreciated securities you’ve held longer than one year. Long-term gains are currently taxed at a maximum rate of 15% for most taxpayers and 20% for taxpayers with taxable income of over $434,550 ($488,850 for joint filers) in 2019.
Cut Your Tax Bite With Losers
Investments that have lost value and have consistently underperformed a benchmark over time may be perfect sell candidates, particularly if you’re not confident of a turnaround. By selling your losers, you can use your losses to offset gains on appreciated securities you’ve sold. Capital losses are fully deductible to offset capital gains and up to $3,000 of ordinary income each year ($1,500 if married filing separately). Any losses that you can’t deduct for 2019 can be carried over for deduction in future years, subject to the same limits.
Don’t make taxes your only reason for selling an investment. Many different factors should be considered when selling securities, including how the sale of a specific investment would affect your overall portfolio.
Curb Surtax Exposure
The 3.8% surtax on net investment income (NIIT) is a relatively new wrinkle for higher income taxpayers. The surtax comes into play when an individual filer’s modified adjusted gross income (AGI) is more than $200,000 ($250,000 on a joint return or $125,000 if married filing separately). The NIIT applies to the lesser of net investment income or the amount by which modified AGI exceeds the threshold. For purposes of the surtax, net investment income includes taxable interest, dividends, annuities, royalties, rents, net capital gain, and income from passive trade or business activities. The surtax doesn’t apply to municipal bond interest or distributions from tax-deferred retirement plans.
Several planning moves are available that may help reduce your exposure to the surtax. These include:
• Maximizing contributions to your employer’s qualified retirement plan. For 2019, you can contribute up to $19,000, plus an additional catch-up amount of $6,000 if you’re age 50 or older and your plan allows. Pretax contributions to a tax-qualified plan reduce your taxable income.
• Contributing to a traditional individual retirement account (IRA). Contributions are tax deductible if neither you nor your spouse actively participates in an employer-sponsored retirement plan. For 2019, the contribution limit is $6,000 ($7,000 with catch-up contribution- for individuals over age 50).
• Investing in tax-free municipal bonds. Be cautious, however, about investing in private activity municipal bonds, which can increase your exposure to the alternative minimum tax (AMT).
• Deferring capital gains through the use of installment sales. The installment method lets you defer taxes on the sale of certain property by recognizing profit over more than one tax year.

As everyone’s situation is different, please contact one of our tax professionals at Urbach & Avraham, CPAs, to discuss your personal circumstances

Deductions for Long-Term Care Insurance

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Many people are taking a closer look at buying long-term care insurance to protect themselves and their families — just in case. Within limits, premiums paid for qualified policies are deductible as an itemized medical expense. For 2019, premiums for qualified policies are tax deductible to the extent that they, along with other unreimbursed medical expenses, exceed 10% of your adjusted gross income.
The typical long-term care insurance policy will pay for nursing home, home care, or other long-term care arrangements after a waiting period has expired, reimbursing expenses up to a maximum limit specified in the policy. Eligibility for reimbursement usually hinges on the covered individual’s inability to perform several activities of daily living, such as bathing and dressing.
Premiums are eligible for a deduction only up to a specific dollar amount (adjusted for inflation) that varies depending upon the age of the covered individual. The IRS limits for 2019 are:

Long-Term Care Insurance Premium Deduction Limits, 2019
             Age                                                             Premium Limit
40 or under                                                                 $420
41-50                                                                            $790
51-60                                                                           $1,580
61-70                                                                           $4,220
Over 70                                                                      $5,270

These limits apply on a per-person basis. For example, a married couple over age 70 filing a joint tax return could potentially deduct up to $10,540 ($5,270 × 2). Keep in mind, however,  itemized medical expenses are deductible only to the extent that they, in total, exceed 10% of adjusted gross income (AGI).

Self- Employed? You may deduct the premiums for long-term care insurance above-the-line. Therefore, if your medical expenses don’t exceed the 10% AGI threshold or you can’t itemize deductions, you can still deduct the long-term care insurance premiums above-the-line. The deduction is limited to your net self-employment income.
NJ Filer? Premiums paid for long-term care insurance are deductible as medical expenses. In contrast to the IRS threshold of 10%, the threshold to deduct medical expenses for NJ is only 2%. Premiums are first subject to the same IRS tables as shown above. The premiums for self-employed individuals are not subject to the 2% NJ threshold.
NY Filer? You may claim a credit equal to 20% of the premiums paid for the purchase of coverage under a qualifying long-term care insurance policy.

As everyone’s situation is different, please contact one of our tax professionals, at Urbach & Avraham, CPAs, to discuss your personal circumstances.

Trucking Co. Hits NJ DOL Pothole Over Employee Status

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Collision with the DOL   A national trucking company operating in NJ had to deliver more than $1 million to the NJ Dept.of Labor after allegedly misclassifying employee drivers as independent contractors for more than a decade.

The Package Deal Eagle Intermodal Inc. agreed to pay $1.25 million in back unemployment and disability contributions, and pledged to come into compliance with the law, the NJ DOL announced on September 12, 2019.

The Dispute began in 2006 when an audit flagged the alleged misclassification, which meant the company had not paid employer payroll contributions, including NJ Unemployment and Temporary Disability Insurance. A special exemption does exist for services performed by certain operators of large trucks. The DOL concluded that Eagle’s operations didn’t qualify for it; and that the company also failed to establish that the drivers were independent contractors, rather than employees, per                 NJ’s ABC Test:

  1. The worker’s performance is not under the control or direction of the firm, and
  2. The services performed are outside of the usual course of the business, and
  3. The worker is customarily engaged in an independently established trade,    occupation, profession or business.

Gov. Phil Murphy has declared a crackdown on employee misclassification, with the NJDOL required to audit 1% of active NJ businesses. Murphy’s Task Force on Employee Misclassification says these audits have uncovered “tens of millions of dollars in employee-related taxes not paid to the state.” The task force report identified trucking, transportation, delivery services, construction, janitorial services, home care, and other labor-intensive, low-wage sectors as “industries where misclassification is widespread.”

The Safer Road Firms who want to avoid fines and penalties should consult with their legal and accounting advisors. Companies should consider issues like employee classification and overtime, and work with their advisors to keep up with the latest developments in state and federal wage and hour regulations. At Urbach & Avraham we work with many qualified employment attorneys who handle these issues. We also represent many companies at US and NJ DOL audits.

Choice of Business Entity

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When you start a business, there are endless decisions to make. Among the most important is how to structure your business. Why is it so significant? Because the structure you choose will affect how your business is taxed and the degree to which you (and other owners) can be held personally liable. Here’s an overview of the various structures.

Sole Proprietorship

This is a popular structure for single-owner businesses. No separate business entity is formed, although the business may have a name (often referred to as a DBA, short for “doing business as”). A sole proprietorship does not limit liability, but insurance may be purchased. You report your business income and expenses on Schedule C, an attachment to your personal income tax return (Form 1040). Net earnings the business generates are subject to both self-employment taxes and income taxes. Sole proprietors may have employees but don’t take paychecks themselves.

Limited Liability Company

If you want protection for your personal assets in the event your business is sued, you might prefer a limited liability company (LLC). An LLC is a separate legal entity that can have one or more owners (called “members”). A one-member LLC is considered to be a “disregarded entity” by the IRS. Usually, income is taxed to the owners individually on Form Schedule C- Business Income (part of Form 1040), and earnings are subject to self-employment taxes. Note: It’s not unusual for lenders to require a small LLC’s owners to personally guarantee any business loans.

An LLC can make an election to be taxed as a corporation or a partnership by filing IRS Form 8832- Entity Classification Election.

Corporation

A corporation is a separate legal entity that can transact business in its own name and files corporate income tax returns. Like an LLC, a corporation can have one or more owners (shareholders). Shareholders generally are protected from personal liability but can be held responsible for repaying any business debts they’ve personally guaranteed. If you make a “Subchapter S” election, shareholders will be taxed individually on their share of corporate income. This structure generally avoids federal income taxes at the corporate level.

Partnership

In certain respects, a partnership is similar to an LLC or an S corporation. However, partnerships must have at least one general partner who is personally liable for the partnership’s debts and obligations. Profits and losses are divided among the partners and taxed to them individually.

Summary

There is no right or wrong entity. The question is which one is correct for your company, needs and circumstances. Call us for a consultation to help you select the appropriate entity form for your business and family.

Business Equipment – Lease or Buy?

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To lease . . . or not to lease. This is an issue business owners often face. If you are weighing the pros and cons of leasing versus buying, here are some things to keep in mind.

Cost Evaluating costs is more complicated than comparing the price of leasing a piece of equipment versus its purchase price. You will also want to consider these issues:

  • How soon will the equipment need to be upgraded or replaced? Highly technical or specialized equipment becomes obsolete quickly and may be a good candidate for leasing.
  • How will you arrange for service and repair? Leasing arrangements often include maintenance of the equipment. If you’re thinking of buying, research the equipment’s repair history as well as the cost and availability of reliable service.
  • How long will you need the equipment? If your use will be short term, then leasing may be the better option.

Cash If you’ve been leasing your equipment, then your costs have been predictable. Purchasing equipment can substantially alter your cash flow. Be sure you consider how purchasing your equipment might affect your business’ finances.

  • Can you save money by buying or leasing equipment? If — and when — cash savings will be realized is an important factor for you to weigh.
  • Do you have the cash available to purchase the equipment? If you use cash for a down payment, you may have less cash for operating and other business expenses.
  • How will financing your equipment purchases affect your ability to get credit for other things? If you anticipate having future credit needs, you may want to avoid adding equipment loans to your current debt load.

If you’re weighing leasing versus buying, give us a call. We can help you look at how the various options will play out.

Stiffing on Employee Overtime can Cost Companies Big Time!

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The State and US Dept. of Labor (DOL)are increasingly paying attention to wage-and-hour calculations and thus launching more wage and hour exams. 

The Plot Unintentionally or otherwise, a NJ landscaper cut some corners, and recently got raked over by the DOL. Fullerton Grounds Maintenance, a Kenvil-based landscaping service, failed to pay more than $500,000 in OT to its employees, per the NJ Dept. of Labor & Workforce Development’s  Division of Wage & Hour Compliance.

The DOL Harvest A 6-month investigation revealed that workers had not been paid $529,898, collectively, in OT for time worked over 40 hours a week. The employer cooperated with the investigation, according to the State, “and agreed to perform a self-audit to calculate the amounts owed to the 362 employees who were paid improperly.”

The NJ DOL investigation also determined that the landscaping company took illegal deductions for uniforms and other items not permitted by the NJ Wage Payment Law. 

Another DOL Shopping Spree An employee-generated 2019 NJ DOL audit recovered $133,490 for nine underpaid supermarket workers. A US DOL exam of R&J Supermarket Corp. in Jersey City, revealed OT, minimum wage and recordkeeping violations. For deficient employee records, the employer paid $49,349 in penalties.

A Growing Concern The pace of wage-hour investigations — many of which are triggered by employee complaints, is on the rise. In 2018, the US DOL’s Wage and Hour Division (WHD) recovered $304 million in back wages. As these NJ audits reflect, once an agency begins to investigate your firm, there’s no telling what it’ll turn up.

 More Concern US and State agencies aren’t the only ones chasing after companies.

Employers will confront more wage-hour class action suits as more plaintiff-lawyers take up the charge. There’s been “an on-going migration of skilled plaintiffs’ class action lawyers into the wage and hour litigation space for close to a decade,” according to the Annual Workplace Class Action Report  by the Chicago law firm Seyfarth Shaw LLP,

An Ounce of Prevention… firms should keep up with the latest developments in State and US wage and hour regulations. They should consult with their legal and accounting advisor regarding any employee classification, overtime or other questions. At Urbach & Avraham, CPAs, we work with many experienced employment attorneys.