Death Tax Changes: Call me if you need help dealing with a love one's estate, including preparation of a NJ Inheritance Tax Return! While NJ has eliminated the Estate Tax, and the Federal Estate Tax generally only applies to very wealthy individuals (worth well over $20 million), NJ still imposes the Inheritance Tax. Depending who inherits a decedent's assets, the Executor and Beneficiaries could be liable for the tax! Tidbits: If you can do a little planning, make sure retirement assets and insurance policies all have individuals or trusts as named beneficiaries (and not the estate!). Do the executor a favor and if possible, title assets including the name of the desired beneficiary (the person to whom the asset will go after a death). Even if a Will exists, title on the asset will dictate and thereby may eliminate the need for an executor to go through Probate in the Surrogate's Office!
2020 tax season! Go over your prior year returns, especially if you have had a major change in your life/family, for example a new job, a baby, new house, marriage, divorce, a death, a big bonus, big investment, big sale, etc., etc.
Start thinking about how changes in the tax law affect you. Remember that for 2019 returns, IRS no longer considers "exemptions" and the 2% miscellaneous deduction, but has more than doubled the old standard deduction, and has limited the "SALT Deduction" (state sales and income taxes, and local real estate tax) to a total deduction of only $10,000!!!! Remember the Child Tax Credit was doubled to $2,000, and there is now a $500 Qualifying Dependent Credit.
Of major impact again this year will be the Section 199A "Qualified Business Income Deduction" introduced into law only last year.
Section 199A, was generally created so most sole-proprietors, partners, and "Sub S" business owners can apply a "20% of qualified business income” deduction against their taxable income, subject to limitations and phaseout. Qualification for and computation of this business tax deduction is most complex and, I invite you to call me with your questions!!!
Due Diligence Requirements: IRS has identified five tax situations where your paid preparer is required to ask specific questions and obtain extended documentation before signing and e-filing your tax return. Penalty for not completing these "Due Diligence Requirements" subjects the preparer to a penalty of $520 per incident, or a total max of $2,600 per tax return. So be prepared for these procedures if you claim any of the following on your return:
Head of Household status
Earned Income Credit
Child Tax Credit and/or Other Dependent Credit
Tuition and Fees Deduction
Tax Treatment of Alimony: Major change for both payers and recipients who have divorced. Alimony is now nondeductible to the payer and tax-free to the recipient. Effective for settlements/agreements after 2018, taxpayers should know about it since it is a major shift in pre-divorce planning.
2020 Annual U.S. Gift Tax Exclusion: Individuals can give anybody up to $15,000 this year without filing a gift tax return. A joint gift of more than $15,000 made by a married couple generally requires a gift tax return to utilize the individual Annual Exclusion. Be sure the donee deposits the check before year end! You can actually gift far more (into the tens of millions of dollars range) without paying any gift tax, but you have to file a Gift Tax Return if you do so! There is no gift tax in the state of NJ.
Avoid 2019 Estimated Tax Penalties: Any tax you have withheld (from your paycheck or interest and dividend earnings, or Pension/IRA distribution, or Social Security, etc.) is treated as having been withheld evenly throughout the year.
Remember you can increase withholding on say November and December payments so that you will have prepaid either 90% of your current year 2019 liability, OR 100% of your prior year 2018 liability (110% if your 2018 AGI was more than $150,000).
NOTICE from IRS or New Jersey!!!!!! Don't automatically go nuts! Often times their computers simply don't match up with how you reported the information on your tax returns. Respond immediately and explain the situation. Provide whatever information is necessary (with documentation) to prove the information was reported!!!! If you don't understand their proposed adjustments, contact me to help with your response. Knowing how to respond can save a lot of tax, interest, and penalties!
IRA, 401(k), and other Retirement Plan Contributions: Most contributions will reduce your current taxable income, and can be made until it's time to file your tax return in mid-April, but this is not true for all type of plans.
3.8% Net Investment Income Tax (the additional "Medicare Tax"): This tax applies to almost all investment income, like interest, dividends, annuities, rents, capital gains, etc., IF (big IF!) adjusted gross income exceeds $250,000 ($200,000 for singles). Idea is to try to reduce AGI so the tax doesn't apply, and deductions generally don't help! Trusts are hit hard because the tax applies to trusts with only $12,150 of taxable income. Trustees should consider distributions to beneficiaries if this additional tax would otherwise apply!
Flexible Spending Accounts (FSA): If you have an FSA speak with your employer to determine if you have to use the funds before year end. Some arrangements have carryover provisions, but others do not!
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