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 over $11 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!
2019 tax season! Go over your prior year returns, especially if you have had a major change in your life, for example a new job, new baby, new house, marriage, divorce, big bonus, big investment, big sale, etc., etc.
Start thinking about how changes in the tax law affect you. Remember that with the new "Trump Tax Plan", IRS eliminated exemptions and the 2% miscellaneous deduction, doubled the standard deduction and the Child Tax Credit, created a new $500 Qualifying Dependent Credit, and limited the SALT deduction (state sales and income taxes, and local real estate tax) to a total deduction of only $10,000!!!! Of major impact this year will be the new Section 199A "Qualified Business Income" deduction.
New Code Section 199A, generally created so most sole-proprietors, partners, and "Sub S" business owners can apply a "20% of combined qualified business income” deduction against their taxable income, subject to limitations and a phaseout. The general intent of this new deduction is to bring the effective tax rate on all business income in parity with the reduction in the new regular corporation income tax rate. Qualification for and computation of this new business tax deduction is most complex and involved. I invite you to call me with your questions!!!
Alimony after 2018: The tax treatment of alimony has changed for couples going through a divorce. Alimony is now nondeductible to the payer and tax-free to the recipient. This is effective after 2018, and taxpayers should know about it since it is a major shift in pre-divorce planning.
2018 Annual Gift Tax Exclusion: Individually 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 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 gift far more (even into the multi-million of dollars range) without paying the Gift Tax, but you will have to file a Gift Tax Return if you do so!
Avoid 2018 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. So if you expect to owe tax, increase withholdings on December payments so that you will have prepaid either 90% of your current year (2018) liability, OR 100% of your prior year (2017) liability (110% if your 2017 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!