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TAX TIPS FOR INDIVIDUALS

Changes to 529 Plans -Start Saving for Jr!

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529 Plans – Does It Make Tax Sense to Contribute?

There have always been huge benefits to saving for higher education using 529 Plans. While the contributions are not deductible,

Jr in First Grade

earnings in a 529 plan grow federal tax-free and will not be taxed when the money is withdrawn to pay for college. The donor stays

in control of the account. The named beneficiary has no legal rights to the funds. You can be assured that the funds will be used for

the intended purpose. This differs from custodial accounts where the child takes control of the assets once he or she reaches legal age. 

Are there any state benefits?

Over 30 states currently offer a full or partial deduction or credit for 529 plan contributions. NJ does not offer any such deduction or credit. However, if you live or work in NY there is a deduction of $5,000 ($10,000 if you’re married filing joint) when you file your NY income taxes.

Are there income limitations?

Unlike Roth IRAs, 529 plans have no income limits, age limits or annual contribution limits. There are lifetime contribution limits per beneficiary depending on the state of approximately $250,000 to $400,000.

One can contribute up to $75,000 in one year per beneficiary and not be subject to a gift tax. Even if the contribution exceeds $75,000, no gift tax is paid until the donor has made lifetime gifts in excess of $10,000,000 (ten million dollars).

What if my child doesn’t use all the funds?

It’s not a “use it or lose it” account. 529 owners can change their beneficiaries at their own discretion and without limitation. For example, if one child doesn’t use all or any of the funds in the 529 plan, the account can be placed in the name of a sibling or other family member.

What’s New in 2018?

The new tax act allows qualified expenses under 529 plans of up to $10,000 per beneficiary per year to be used for elementary and secondary school expenses. These expenses include tuition at religious educational institutions.

And there’s more good news! Amounts from 529 plans may be rolled over to an ABLE account without penalty, provided that the ABLE account is owned by the designated beneficiary of that 529 account, or member of the beneficiary’s family. ABLE (Achieving a Better Life Experience) is a tax-free savings account which meets the needs of individuals with disabilities. An individual’s ABLE account can have up to $100,000 which does not count toward the SSI resource limit.

 Start Saving for Jr. Now!

529 plans were always attractive vehicles to save for higher education. The qualified expenses now expand to elementary and high school tuition. This opens planning opportunities for both low-income families, seeking to receive the earned income credit as well as for high-income families who want to reduce their taxable income.

 

 

Should I Pay My Child Wages?

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Children Running Office

Does It Make Tax Sense to Pay Jr?

Your child probably knows a lot more about technology—from designing a website to posting on social media—than you ever will. At many family businesses, Junior may already be helping with a variety of digital and other tasks.

Have you considered paying your kids for their work? Besides motivating them, putting kid(s) on the payroll is an attractive way to transfer assets to them while saving taxes. You might be able to help them fund their college costs or purchase a home while getting a tax break.

That’s because your company can take a deduction for the salary you’re paying them. The kid’s tax bracket will almost certainly be lower than yours, so the family unit saves thanks to the difference in the tax rates. It’s up to you to match their skills with your business’ needs, but we can help with some of the tax aspects.

Goodbye to Payroll Taxes

Are your children under 18? And are you a sole proprietor, a single-member LLC, or operate a partnership where the only members are you and your spouse? If so, congrats—your children won’t have to pay Social Security, Medicare taxes or NJ unemployment if they work for you. If your child’s earned income—generally salary, as compared to interest and dividends, is less than the standard deduction of $6,350 in 2017, he won’t have to file his own income tax return.

What are my Tax Savings?

Let’s assume, you pay your high school son, your computer tech, a salary of $6,300. He will pay no US or NJ income taxes on this salary. If you are in a high tax bracket, your US and NJ tax savings can be as high as $3,000!  And he will not have to file a tax return.

What If My Children Are Over 18?

Now let’s assume that your college daughter does the graphics and social media for the business. Or your child is under 18 but you own a “C” or “S” Corporation. You pay her $15,000. These wages are subject to Social Security & NJ unemployment. Her federal and N.J. income taxes plus the payroll taxes will be about $3,500. However, at your higher tax bracket, the federal and NJ income tax savings could be as high as $7,500. So the net tax savings to the family may be $4,000. Still a good deal!

The Retirement Savings Credit Saves More…

If your child over 18 who is not a full-time student contributes up to $2,000 into a Roth or traditional IRA, she will receive a Retirement Savings Credit of up to 50%. In our example, her tax burden of $3,500 will be only $2,600. And the family saves $4,900. A homerun!

The Bottom Line

Hiring your kids can be a good experience, while potentially offering some nice tax breaks. There are some twists: you must pay the salary in that tax year, and the pay must be “reasonable”. If your kid sweeps floors, forget about paying enough to cover his college costs and then trying to deduct it as salary expense. The state tax implications may differ from the federal. Before you go ahead and pay your child, it is a good idea to consult with your tax advisor. It could end up saving you money later.

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.

Foreign Bank Account Report- Due June 30

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Got Unreported Assets Overseas? The Clock is Ticking

Foreign Bank Account Reporting (FBAR) Deadline June 30, 2015

Did Grandpa leave you his foreign bank account when he passed away? If you have foreign bank accounts holding more than $10,000 in the aggregate anytime during 2014, you are required to file an FBAR (Report of Foreign Bank Accounts) by June 30th (the 2014 FBAR must be received by the IRS by June 30, 2015). It doesn’t matter whether the foreign accounts generate income or not; just owning them, or having signature authority, requires you to file. There is NO extension to file the FBAR.

What’s the big deal?

Failure to file can result in serious consequences. The sanctions for not completing the FBAR include numerous severe civil penalties and potential prosecution followed by a term in federal prison.

What are your options for prior years?

No longer does one size fit all. Under the “Offshore Voluntary Disclosure Program” (OVDP), taxpayers must file 8 years of amended tax returns and FBARs and pay the additional income tax, penalties and interest as well as a 27.5% “FBAR-related” penalty on the highest balance of their foreign assets in the 8 year period. In June 2014 the IRS announced major changes to the program. Taxpayers who did not report foreign income or assets but whose non-compliance was “non-willful”, do not need to enter the OVDP, but can participate in the Streamlined Filing Compliance Procedures (“SFCP”) by filing only 3 years amended returns and 6 years of FBARs. No income tax penalty and only a 5% “FBAR-related” penalty are due. Under the new rules, any taxpayer seeking to participate in the OVDP, who at any point in the 8 year look back period had an account at a bank which has been publically identified as a target of an IRS criminal tax investigation or as having reached a non- prosecution agreement with the IRS, will be subject to a FBAR penalty of 50% (not 27.5%) on all foreign accounts and assets. Close to 100 Swiss banks are currently negotiating to enter into Non-Prosecution Agreements with the IRS, so the risk of facing a 50% penalty is growing.

We work with several law firms who specialize in this area and help their clients navigate the intricacies of the Voluntary Disclosure Program. For a summary of the Foreign Asset Reporting Requirements please click here: Foreign Asset Reporting . For assistance with your FBAR or entering the OVDP, please contact our Tax Manager, Steven Citron.