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Connecticut Rules Against Double Dip in Determining Alimony

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The “Anti-Steneken” Decision

On May 21, 2019 The Appellate Court of Connecticut ruled against the “double dip” in the case of PENNY OUDHEUSDEN v. PETER OUDHEUSDEN. The decision takes the opposite position of the New Jersey Appellate Court in 2004 in Steneken v. Steneken, 367 N.J. Super. 427 (App. Div. 2004) which decided the “double dip” was permissible.

So, what is the “double dip”? According to NJ attorneys Charles F. Vuotto and Lisa Steinman:

The “double-dip” refers to the double counting of a marital asset, once in the property division and again in the alimony award. More specifically, where a court uses a business owner’s “excess earnings” to value the interest in the business and also fixes support on that spouse’s total income (inclusive of the “excess earnings” used to value the business), a “double-dip” occurs. The tacit acceptance (by some) of a rule against the “double-dip” served to ameliorate the harsh result of distributing undiscounted business values while also fixing alimony on the same income stream used to value a business. However, the recent decision of Steneken, has submerged the availability of a rule against the “double-dip”.

Could this impact NJ divorce law? As of this writing we don’t know if the decision will be appealed to the Connecticut Supreme Court.  As forensic accountants and non-attorneys, we don’t know if New Jersey attorneys, using an out of state case, can try and overturn Steneken – something that would require a New Jersey Supreme Court Decision presumably on a new matter. That effort would take years and thousands of dollars in legal and expert fees. For the right case with enough dollars at stake it may make sense.

If you would like a copy of the PENNY OUDHEUSDEN v. PETER OUDHEUSDEN decision email Jeffrey D. Urbach, partner at jdu1@ua-cpas.com.  Jeff has been providing Court related litigation support services for over thirty years. He is a NJ Roster Rule 1:40 Mediator and is trained in Collaborative Law. Jeff is a CPA, ABV (Accredited in Business Valuations by the AICPA) and a CVA (Certified Valuation Analyst by the NACVA) among other advanced designations.

 

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.

Urbach Teaching Divorce Taxation Webinar

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Back by popular demand, Jeff Urbach, partner, a long time NACVA (National Association of Certified Valuators and Analysts) Instructor and Course Developer, will be teaching Divorce Taxation Including the Impact of the 2017 TCJA (Tax Cut and Jobs Act) for the third time in 2019. The course is Day 5 of a Five-Day Matrimonial Litigation Series of Webinars given by NACVA.

What will the course cover?

  • Impact of TCJA
  • Taxation of Alimony and Equitable Distribution 
  • Marital Residence
  • QDROs
  • Marital Tax Fraud
  • Tax Filing Status
  • Other Related Topics

Jeff authored this popular course and first taught it in Ft. Lauderdale in December 2018. Since then, he led a Webinar in March 2019 and presented the class live at the NACVA/CTI 2019 Annual Consultants Conference in Salt Lake City in June 2019.

When?

The webinar is on Friday, August 9, 2019 at 1:00 PM EST is open to anyone through registration on the NACVA (www.nacva.com ) website. It will also be presented live again in Ft. Lauderdale in December 2019.

Who can benefit?

Attorneys and financial experts involved with the complex area of divorce taxation will find this program helpful either as a refresher class for experienced practitioners or an introduction for those new to the field.

Tax Planning for College Expenses

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It’s no secret that a college education is expensive. Average annual charges for tuition, fees, and room and board at four-year public colleges and universities stood at $20,770 for in-state

Jr in First Grade

students and $36,420 for out-of-state students for the 2017-2018 school year. Average charges were $46,950 at four-year private colleges and universities.1 These costs are likely to increase in the future.

Parents should take the time to look into the various tax benefits that can help reduce the costs of sending a child to college. Getting an early start on tax planning for college expenses can help reduce some of the anxiety surrounding the whole issue of trying to figure out how to pay for college. Here are some areas worth further investigation.

Savings Programs

Parents have several education savings opportunities that come with built-in tax benefits. Section 529 plans have grown in popularity over the years, but Coverdell education savings accounts also offer valuable tax benefits.

Section 529 Savings Plans

Section 529 college savings plans* are specifically designed for educational saving. You can invest a little at a time or contribute a larger lump sum, whatever approach works best for you. You choose how you want your contributions invested; your plan investments are then professionally managed. These plans offer several features that parents may find appealing:

  • Investment earnings accumulate tax deferred and won’t be subject to federal income taxes when withdrawn for your child’s qualifying educational expenses. (Excess withdrawals are subject to tax and a potential 10% penalty.)
  • Some states offer their residents tax incentives for investing in an in-state plan. New York taxpayers (both resident and non-resident) may deduct up to $5,000 from the NY income taxes for contributions to 529 plans ($10,000 for married filing joint taxpayers)
  • As a parent, you retain control of the money in the account even after the child turns 18.
  • If your child does not attend college or deplete the fund, you can change the account beneficiary to another qualifying family member without losing tax benefits.

Coverdell Education Savings Accounts

Annual contributions to these accounts are limited to $2,000 per child. This maximum phases out (is gradually reduced to zero) for taxpayers with modified adjusted gross income (AGI) between $95,000 and $110,000 (between $190,000 and $220,000 for joint filers).

Your contributions accumulate tax deferred at the federal level and earnings are tax free when used for qualified educational expenses such as tuition, room and board, and books. If you make withdrawals from the account for non-educational expenses, the earnings portion of the withdrawal may be subject to federal income tax and an additional 10% penalty.

What are the advantages of a Coverdell ESA? The Coverdell ESA allows you to self-direct your investments. Also, in addition to college expenses, Coverdells can be withdrawn tax-free to pay for a broad range of K-12 expenses, while 529 plans are limited to K-12 tuition.

Scholarships

Young adults who demonstrate high academic promise or who possess certain desirable skills may receive scholarships that can defray a percentage of the cost of attending college. Scholarships are generally exempt from income tax if the scholarship is not compensation for services and is used for tuition, fees, books, supplies, and similar items (and not for room and board).

Tuition Tax Credits

A tax credit gives you a dollar-for-dollar reduction against the taxes you owe the IRS. The following two education tax credits can help eligible parents alleviate the costs of educating a child.

American Opportunity Tax Credit (AOTC) 

This credit is worth up to $2,500 per year for each eligible student in your family. It’s for the payment of tuition, required enrollment fees, and course materials for the first four years of post-secondary education. The credit is allowed for 100% of the first $2,000 of qualifying expenses, plus 25% of the next $2,000. Were the credit to exceed the amount of tax you owe, you may be eligible for a refund of up to 40% of the credit. The available credit is phased out for single taxpayers with modified AGI between $80,000 and $90,000, and for married couples with modified AGI between $160,000 and $180,000.

Lifetime Learning Credit (LLC)

This credit can be as much as $2,000 a year (per tax return) for the payment of tuition and required enrollment fees at an eligible educational institution. It is calculated as 20% of the first $10,000 of expenses. You cannot claim the credit for a student if you are claiming the AOTC for the student that year. Unlike the AOTC, qualified expenses for the LLC do not include academic supplies and no portion of the credit is refundable. The LLC is phased out (in 2018) for single taxpayers with modified AGI between $57,000 and $67,000, and for married couples with modified AGI between $114,000 and $134,000.

Student Loan Interest Deduction

A tax deduction lowers your tax liability by reducing the amount of income on which you pay tax. You can deduct interest on qualified loans you take out to pay for your child’s post-secondary education. The maximum deduction is $2,500 per year, but it phases out for taxpayers who are married filing jointly with AGI between $135,000 and $165,000 (between $65,000 and $80,000 for single filers). The deduction is available even if you don’t itemize deductions on your return.

*Certain 529 plan benefits may not be available unless specific requirements (e.g., residency) are met. There also may be restrictions on the timing of distributions and how they may be used. Before investing, consider the investment objectives, risks, and charges and expenses associated with municipal fund securities. The issuer’s official statement contains more information about municipal fund securities, and you should read it carefully before investing.

Questions about college savings opportunities? Please call us to discuss. It is never too early to start saving for junior’s college.

Selling your home? Don’t share the profit with Uncle Sam

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Itching for a change of scenery? Whether you plan to sell your home because of retirement, a job change,

or a desire to downsize or move to a larger home, you may be eligible for a very attractive tax break.

If your home has appreciated in value, you may be able to exclude all or part of your profit from the sale of your home on your federal income tax return. Eligible individuals may exclude up to $250,000 of gain from their income, while married couples who file jointly may be able to exclude up to $500,000 of gain. Just be sure you familiarize yourself with the rules before you sell your home.

Who and What Qualifies?

Your home can be a house, a cooperative apartment, a condominium, or another type of residence. To qualify for the exclusion, you must have owned and used the home as your principal residence for at least two years (a total of 24 full months or 730 days) during the five-year period ending on the date of the sale. The tax law allows you to utilize the exclusion multiple times over your lifetime as long as you meet the applicable requirements. However, you may not use it more than once every two years.

You can have only one principal residence at a time. That means that if you own two homes, the home you use for the majority of the year would generally be considered your principal residence for that year.

In the case of the $500,000 exclusion for a married couple filing jointly, only one spouse must meet the ownership requirement, although neither spouse may have excluded gain from a previous home sale during the two-year period ending on the sale date. Both spouses must meet the residence (use) requirement in order to qualify for the $500,000 exclusion.

Ownership and Use Do Not Have to Be Continuous

Your ownership and use of the home do not necessarily have to coincide. As long as you have at least two years of ownership and two years of use during the five years before you sell your home, the ownership and use can occur at different times. For example, you can move out of the house for up to three years and still qualify for the exclusion.

A Reduced Exclusion Is Possible

If you are unable to meet the qualifications for the full $250,000/$500,000 exclusion, you may be eligible for a reduced exclusion under certain circumstances. These are:

  • You have to sell your home because of a change in place of employment;
  • You must move for health reasons; or
  • You must move because of other qualifying “unforeseen circumstances.”

The amount of the reduced exclusion is generally based on the portion of the two-year use and ownership periods you satisfy.

As you can see from this general summary, the rules for the gain exclusion can be complex.

How do I measure the gain before any possible exclusion? The calculation of the basis of a home varies depending on how the home was acquired. Did you purchase your home? Substantially improve your home? Receive all of the home or an interest in the home by inheritance or gift? All these factors effect how to calculate the basis of your home to measure the capital gain. We can provide more details regarding how to qualify for this valuable tax exclusion and how to calculate the gain on the sale of your home. Please contact us when contemplating selling your  home.

Above-the-Line Deductions: Can You Benefit?

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Any deductible expense is useful because it reduces the amount of income subject to tax. But for individual taxpayers, deductions  that can be claimed

Tax Savings

in arriving at adjusted gross income (AGI) –referred to as “above-the-line” deductions — are especially significant. By lowering AGI, above-the-line deductions increase your chances of qualifying for various other deductions and credits.

For example, for those with substantial medical expenses, the medical expense deduction on Schedule A- Itemized Deductions, is limited to 10% of your AGI. By lowering your AGI, you are increasing your medical expense deduction.

Here are some of the above-the-line deductions available for the 2019 tax year.

Traditional IRA contributions. Contributions of up to $6,000 ($7,000 for individuals age 50 or older) to a traditional individual retirement account (IRA) are potentially deductible on your 2019 return. AGI-based limitations apply if you (or your spouse) are an active participant in an employer-sponsored retirement plan.

Extra Tax Tip for IRAs– for self-employed individuals eligible for a Qualified Business Income Deduction, (QBI) a contribution to an IRA will not reduce your qualifying business income. In contrast, contributions to other retirement plans do reduce your qualifying business income and therefore the corresponding QBI deduction.

Rental property/trade or business expenses. Expenses associated with property held for the production of rents are deductible above the line on Schedule E, whereas sole proprietors also deduct their trade or business expenses above the line on Schedule C.

Hidden rental property expense– frequently taxpayers do not provide us with the cost of the rental property insurance. It is usually paid via the escrow account if there is a mortgage on the property. Although you don’t pay this directly, it is being paid with your funds and should be deducted. Review your escrow account for other deductions.

Student loan interest. Taxpayers may deduct up to $2,500 of interest expense on qualified higher education loans, though phaseouts apply to those at higher levels of modified AGI.

Health savings account (HSA) contributions. The 2019 deduction limits are $3,500 for those with self-only coverage under an eligible high-deductible health plan and $6,900 for those with family coverage. An additional $1,000 deduction is available to those 55 and older who are not enrolled in Medicare.

Self-employed taxpayers. The self-employed also may be able to deduct retirement plan contributions, qualified health insurance premiums, and a portion of their self-employment taxes.