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NJ Budget Increases Real Estate Tax Deduction!

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What’s In the 2019 NJ Budget…and What Does it Mean for You?

While New Jersey residents have been busy surviving the summer heat….Governor Phil Murphy and NJ State lawmakers reached a

Increased Real Estate Tax Deduction

budget deal before the commencement of the fiscal year beginning July 1, 2018.

 

  • NJ residents will now be able to deduct up to $15,000 per year of property taxes. Historically the deduction was limited to $10,000.
  • Approximately 500,000 New Jersey residents who are eligible for the Earned Income Tax Credit will see a small increase of about $53. The budget included funding for the first of a three-year increase from 35% of the federal tax credit to 40%.
  • About 70,000 State residents will become eligible for a new tax credit to help pay for child and dependent care. This credit is aimed at households with income below $60,000.
  • The State’s sales tax rate will not increase but will remain at 6.625%.
  • The budget restores $150 million to the Homestead Property Tax Relief program
  • Plastic and paper bags will be taxed at 5 cents per bag
  • NJ will begin collecting a 50-cent surcharge on solo rides and 25 cent surcharge on shared rides for Uber and Lyft

 Anything else I should be aware of?

New Jersey is planning a 90 day amnesty program through which delinquent taxpayers will have an opportunity to obtain compliance with the Division of Taxation and reduce interest and penalties on their outstanding tax liabilities.  Program details are expected at a later date.  For assistance, please contact our Tax Manager, Steven Citron.

Act Before March 6, 2018 to Reduce 2017 Estate & Trust Income Taxes

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If you are the executor of an estate or the trustee of a trust, you should know that egregiously high income tax rates apply to estates and trusts at very low levels of income. In 2017, for estates and trusts, the 39.6% income tax rate as well as the 3.8% Net Investment Income (NII) tax kicks in at $12,500 of income. That’s not very high. And don’t forget, you don’t need $12,500 of investment income to pay the NII tax. If the total income exceeds the $12,500 threshold, the NII tax might be due on all of the investment income. For example, let’s say an estate has income of $212,500. The tax on the $200,000 (income in excess of the $12,500 threshold), at 43.4% equals a tax of $86,800. Ouch!

 

Help! Is there any hope?

Yes, the estate and trust only pays tax on what’s not distributed. Distributions lower the income tax for the trust and at the same time increase the recipient’s personal income tax. However, individuals do not pay the highest rates unless they are wealthy. In our example, if there are four beneficiaries and each receives $50,000 (one-fourth of the $200,000) many individuals will only pay 15% on that $50,000. That’s $7,500 per beneficiary for a total of $30,000 instead of $86,800 for a tax savings of $56,800.

 

Is there anything I can do?

It’s not too late. There’s a rule allowing distributions made in the first 65 days of the next year to be treated as if made in the preceding year. A special election must be made on the Fiduciary Income Tax Return. This year’s deadline is          March 6, 2018. Executors and trustees should act soon to take advantage of this opportunity for substantial tax savings.

 

Please contact us for assistance with making distributions or any other tax related questions about managing a trust or estate.

 

NJ Honors our Veterans with Tax Savings

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US Veterans

New for Tax Year 2017. You are eligible for a $3,000 exemption on your Income Tax return if you are a military veteran who was honorably discharged or released under honorable circumstances from active duty in the Armed Forces of the United States by the last day of the tax year. Your spouse (or civil union partner) is also eligible for an exemption if he/she is a veteran who was honorably discharged or released under honorable circumstances and you are filing a joint return. This exemption is in addition to any other exemptions you are entitled to claim and is available on both the resident and nonresident returns.

The good

  1. you apply once and are eligible for the exemption for life

 The bad

  1. The application is submitted separately from your e-filed return.
  2. A $3,000 exemption only saves you between $42 and $269 depending on your tax bracket

 The ugly

  1. The submission form must be completed on paper and signed, and then is uploaded, mailed or faxed.

 How do I apply? Complete Veteran Income Tax exemption submission form and submit with a copy of your official discharge document, usually Form DD-214. This can be done before filing your tax return and is recommended for faster processing of your return.

More information is available on the State of New Jersey website.

http://www.state.nj.us/treasury/taxation/military/vetexemption.shtml

 

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 as your Road Map

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The responsibilities of an Executor 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

Overwhelmed?

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 to access the Executor Checklist

 

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 checklist is packed with reminders about technical questions to ask 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.