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TAX TIPS FOR INDIVIDUALS

ABCs of 2022 RMDs

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Perplexed? Need to take an RMD in 2022? 

Over age 72? – The age for withdrawing from retirement accounts was increased in 2020 from 70.5 to 72. Your first RMD (required minimum distribution) must be taken by April 1 of the year following the year in which you turn 72. After that, your RMDs must be taken by Dec. 31 of each year. However, if you became 72 in 2022, you may want to withdraw the first RMD in 2022. This will avoid having two RMDs in 2023 and bunching income into higher tax brackets. 

Beneficiary of an IRA account?- An individual non-spouse beneficiary must begin taking RMDs on the basis of his/her own life expectancy by Dec.31 of the year after the owner’s death. If the original account owner passed away in 2022 prior to taking this year’s RMD, it still must be withdrawn. The responsibility for taking the year-of-death RMD falls to the beneficiary.

Although the RMDs are calculated based on the beneficiary’s life expectancy, if the original account owner died after Jan. 1, 2020, you need to fully distribute the account within ten years from the owner’s date of death. In year ten, the balance of the account must be distributed. 

If an estate is the beneficiary of an IRA, and the account owner reached age 72, the distributions would be based on the remaining single life expectancy of the IRA owner. If the original account owner passed away in 2022 prior to taking this year’s RMD, the estate must withdraw it by the end of the year. If the owner was younger than 72, the assets must be completely distributed within five years of the owner’s passing, but no annual RMD is required. 

Want to save taxes on the RMD? – Use a Qualified Charitable Distribution (QCD) in 2022 For IRA owners with charitable intentions, there is a huge tax benefit using a QCD. The owner contributes all or part of his RMD to charity. The portion contributed to charity will not be taxed. QCDs can be made as early as age 70.5, even though minimum distributions are not required until age 72. A QCD may only be made by an original account owner, not by a beneficiary. 

What happens if I don’t take the RMD in 2022? If an account owner fails to withdraw a RMD, the amount not withdrawn is taxed at 50%. 

Still perplexed? Everyone’s situation is different. Please consult with a tax advisor at Urbach & Avraham, CPAs, to analyze the impact on your personal situation.

 

Preserve Family Wealth with Portability

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Extension of Time to Elect Portability of the DSUE

and Preserve Family Wealth

In 2011, the IRS introduced the concept of portability of the estate tax exemption from a deceased spouse to a surviving spouse. Currently, with the federal estate tax exemption at $12 million, a married couple can transfer up to $24 million to heirs without a federal estate tax. One of the tools enabling this large tax-free transfer is electing the DSUE, the “Deceased Spouse Unused Exclusion.”

What is Portability and How to Obtain it?

Portability occurs when a surviving spouse files a US Form 706, Gross Estate Tax Return, for the sole purpose of calculating and capturing any unused estate tax exemption from the estate of the first spouse. Completing a Form 706 to make the DSUE election is no easy task.

Why should one elect Portability/DSUE?

If the surviving spouse has an estate worth much lower than the current $12 million estate exemption, why file for the DSUE?

  1. Congress may reduce the estate tax exemption to 5 or 3.5 million
  2. The estate of the surviving spouse may appreciate substantially if there are businesses and/or real estate
  3. A young healthy spouse has many years to accumulate more wealth and have a potential taxable estate
  4. The surviving spouse may inherit from other relatives

When must one file to elect Portability/DSUE?

Good news! This year the IRS extended the time to file for the DSUE election to on or before the fifth anniversary of the decedent’s death.

Conclusion

With the current federal tax exemption so high, spouses should take advantage and claim any unused estate tax exemption after the death of the first spouse. Given the factors mentioned above, even smaller estates should consider filing for portability.

‘Tis the Season- Charitable Deduction Strategies

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The charitable contribution deduction is normally an itemized deduction. The 2022 standard deduction for every filing status is significantly high and there are limits on some itemized deductions — e.g., the deduction for state and local taxes. As a result, many taxpayers can’t itemize. Here are several strategies that can help taxpayers get more tax mileage from their charitable contributions.

Timing Donations With a Donor-Advised Fund
With a donor-advised fund, you make contributions to the fund and instruct how you want your gifts to be disbursed. Contributions to a donor-advised fund are generally tax deductible in the year they are made. If desired, you can put those dollars to use over several years by supporting your favorite charities through your donor-advised fund. You itemize in years you make the contribution and benefit from the high standard deductions in the years you don’t contribute.

Timing Donations by Bunching

Taxpayers can itemize every second or third year and maximize their deductions, by bunching donations. If a married couple’s only non-charitable deduction is $10,000 of state tax, and they donate $15,000 a year, they will take the standard deduction of $25,900 a year for two years, a total of $51,800. If they bunch the contributions into one year and donate $30,000, they take the standard deduction year one and itemize ($30,000 and $10,000) year two, for a total two-year deduction of $65,900. By bunching, they have increased their deduction by $14,100 ($65,900-$51,800).

Donating Appreciated Securities
Many donor-advised funds and public charities accept contributions of publicly traded securities. A donation of highly appreciated securities held more than one year provides a tax deduction for the securities’ fair market value while avoiding the capital gains tax that would be due if the securities were sold.

Making Qualified Charitable Distributions 
A qualified charitable distribution (QCD), also known as an IRA charitable rollover, allows you to donate to qualified charities directly from your individual retirement account (IRA). While there is no tax deduction allowed for the donated assets, they don’t count as income either. What’s more, a QCD can help satisfy your annual required minimum distribution (RMD).
To make a QCD you must be at least 70½ years of age. Gifts must be made directly from your traditional or Roth IRA to a public charity. Up to $100,000 may be transferred annually per spouse.

Charge Year-end Donations to a Credit Card

Donations charged to a credit card before the end of the year count for that year. This is true even if the credit card bill isn’t paid until the next year. In other words, credit card contributions are deductible in the year the charge is entered into the system.

Each individual’s tax situation is different. Please consult with a tax professional at Urbach & Avraham, CPAs to help you analyze the impact on your personal situation.

 

File now for your NJ ANCHOR Property Tax Rebate

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Be Thankful for the NJ ANCHOR Property Tax Rebate

New Jersey recently launched the ANCHOR program to help homeowners and renters save on property taxes. It is an expansion of the Homestead Benefit Program. ANCHOR stands for Affordable NJ Communities for Homeowners and Renters. The current year ANCHOR program covers 2019.

Who is eligible for the 2019 Anchor program?

  • Homeowners with income of $150,000 or less will receive $1,500
  • Homeowners with income over $150,000 and up to $250,000 will receive $1,000
  • Renters with income of $150,000 or less will receive $450

You are considered a homeowner if you owned a house or condominium on Oct. 1, 2019 and paid property taxes. You are a renter if on Oct. 1, 2019 you rented an apartment, condominium or house.
How do I apply?
Homeowners need an ANCHOR ID and PIN to apply online on the NJ Division of Taxation website or by phone at 877-658-2972. Informational mailers with the ID and PIN numbers were sent the first week of Oct. 2022. If you didn’t receive the form, call the ANCHOR hotline at 888-238-1233. If you applied for the Homestead Rebate last year, you can get your ID and PIN online at ANCHOR ID and PIN .
Tenants can and should apply online at Tenant Online Filing. Tenants do not have an ID and PIN.
Owned a home in 2019 but recently moved?
If you did not receive a mailer, access the online ID and PIN Inquiry System   to retrieve your ID and PIN. Or call the ANCHOR hotline.

Paper applications
Some homeowners must file paper ANCHOR applications. They include:

  • You shared ownership of your home with someone who was not your spouse
  • You are a widow(er) and the deed lists both your name and the name of the deceased spouse
  • You are the executor filing on behalf of a deceased homeowner
  • You are filing for property held in trust
  • You are divorced- you should report your percentage of ownership

When will I receive the ANCHOR payment?
Payments will be sent out in late Spring 2023. ANCHOR payments will be paid in the form of a direct deposit or check, not as a credit to your property tax bill.
When is the ANCHOR application deadline?
The initial deadline was December 30, 2022. The new extended deadline is Feb. 28, 2023!
Eligible homeowners and tenants should file as soon as possible to anchor in their 2019 rebate. You’ll be happy when the rebate floats into your bank account in the Spring of 2023.

 

 

Living, Working or Investing in Multiple States

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Taxpayers on the Go!

NY Filers Taxpayers who live, work or have real-estate in NY must file a NY resident or non-resident return. They may benefit from itemizing deductions for NY even if they can’t itemize for the IRS. The NY threshold to itemize is substantially lower than the federal threshold, making it easier to itemize for NY. The US standard deduction in 2021 for married filing joint was $25,100 and $27,800 for married seniors. In contrast, the 2021 NY standard deduction for married couples and married seniors was only $16,050.

Additionally, several deductions are allowed on the NY return which are disallowed or limited on the federal return. Your steep NJ real estate taxes are limited to a $10,000 deduction on the US return but are not limited on the NY return! A deduction up to $10,000 is allowed for college tuition for each eligible student.

These deductions are allowed for NY subject to 2% of your federal adjusted gross income:

  1. Unreimbursed employee expenses
  2. Tax preparation fees
  3. Investment/brokerage fees

Real estate in other states? Have a loss from real estate in other states? There are several reasons why one should file a non-resident return even when there is a loss in that state.

  1. The non-resident state may require that a return be filed based on gross receipts of the real estate investments, even when there is a net loss.
  2. The non-resident state may allow loss carryforwards. These losses will offset future rental income from the property. Upon the sale of the property, the losses will reduce the capital gain.

Credit on the resident return for taxes paid to other states Frequently overlooked!

  1. Make sure that sources of income/loss are correctly grouped on the resident return which may differ greatly from the IRS. This determines the credit for taxes paid to other states.
  2. The credit on the resident return for other jurisdictions should also include taxes paid to other cities, such as Philadelphia.

When filing in non-resident states, review the tax saving options which could be substantial. Your Google search isn’t a substitute for our years of experience with multi-state tax returns. Contact one of our tax professionals for guidance at (732) 777-1158 or  info@ua-cpas.com.

 

NJ Medical Expense Deduction

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The NJ Medical Expense Deduction- Nothing to Sneeze at!

Taxpayers who don’t itemize on their federal tax return frequently overlook the NJ medical expense deduction. It is usually easier to reach the NJ income threshold for the medical deduction of 2%, compared to the federal income threshold of 7.5%. Both retirees as well as employed individuals can benefit from this deduction.

Retirees tend to have lower NJ income than federal income for two main reasons. Social Security is not taxable for NJ and NJ allows a pension income exclusion for taxpayers whose income is less than $150,000. Retirees also tend to have more medical expenses as they age. As a result, retirees should make an effort to take advantage of the considerable NJ medical expense deduction.

Taxpayers who are still receiving compensation have two frequently missed sources of deductible medical expenses for NJ. If you are self-employed or you received wages in 2021 from an S corporation in which you were a more-than-2% shareholder, you can deduct the amount you paid during the year for health insurance for yourself, your spouse, and your dependents. If you are employed and you contribute to your employer-provided health insurance coverage, you can deduct the amount of your contribution. Your federal wages may have been reduced by your contribution to your employer-provided health insurance. However, if your NJ wages were not reduced by the contribution than you may deduct the contribution as a medical expense on your NJ tax return.

Some examples of allowable medical expenses are: payments for doctor’s visits, dental care, hospital care, eye examinations, eyeglasses, medicine, and x-rays or other diagnostic services directed by your physician or dentist. Insurance premiums, including amounts paid under Social Security for Medicare, can be used as medical deductions. You also can deduct transportation costs.

Now that you have reduced your NJ taxes by the medical expense deduction, you probably feel healthier already.