Header Right

Income Taxes

Still Time to Save on 2018 Estate and Trust Income Taxes

by

  Distribute by March 6, 2019 to Reduce High Estate & Trust Income Taxes 

Tax Savings for Estates and Trusts

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.  Despite the new tax act, in 2018, for estates and trusts, a 37% 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.   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 40% equals a tax of $80,000. 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 10% – 24% on that $50,000 instead of 40%.  Potential tax saving could range from $32,000 to $60,000 depending on the individual tax bracket of each beneficiary.

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, 2019. 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 Tax Amnesty: Cool Savings Despite Sizzling Summer Heat

by

 Businesses and individuals facing unpaid NJ tax liabilities may be able to get a break on penalties according to the tax amnesty measure signed into law on July 1, 2018. The amnesty period will not begin before November 1, 2018 and will end by January 15, 2019. The program will apply to state tax liabilities for tax returns due on and after February 1, 2009 and prior to September 1, 2017. The measure will apply to all state taxes including gross income, corporate business tax and sales and use tax. However, it does not apply to unemployment type taxes administered by the Department of Labor. 

Why should I do this now? Because under this limited-time offer (remember, the clock runs out by January 15, 2019) the Division of Taxation will forgive all penalties, and one-half of the accrued interest due at Nov. 1, 2018. 

Here are some more details

    • The program will also apply to amounts currently under audit or being contested with the NJ Div. of Taxation.
    • A start date for the program has not yet been announced.
    • NJ Amnesty will provide relief for 2009 – 2016 delinquent individual or business tax return filers.
    • The program also forgives all penalties and 50% of interest for delinquent sales and use tax filings for quarters ending Dec. 31, 2009 – June 30, 2017.

Is there a hitch?  Sort of. The bad news is that if a taxpayer is eligible for amnesty and does not take advantage of it, an additional 5% penalty will be added to the already imposed penalties and interest on the original tax liability.

To see if this program is right for you, please contact our Tax Manager, Steven Citron

 

 

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

by

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.

 

Distribute by March 6, 2017 to Reduce 2016 Estate & Trust income taxes

by

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 2016, for estates and trusts, the 39.6% income tax rate as well as the 3.8% Net Investment Income (NII) tax kicks in at $12,400 of income. That’s not very high. And don’t forget, you don’t need $12,400 of investment income to pay the NII tax. If the total income exceeds the $12,400 threshold, the NII tax might be due on all of the investment income. For example, let’s say an estate has income of $212,400. The tax on the $200,000 (income in excess of the $12,400 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, 2017. 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.

Executor of Estate? Use our Executor Checklist

by

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.

Hit by the NJ Exit Tax on Sale of Real Estate? You Can Recoup Your Money

by

The New Jersey “Exit Tax”, which became law in 2007, requires the real estate seller to file a GIT/REP form

Exiting NJ?

(Gross Income Tax form) in order to record a Deed for  the transfer of his property.

When a non-resident sells property, New Jersey will withhold this income tax in the amount of either 8.97 percent of the profit or 2 percent of the total selling price, whichever is higher. Therefore, even if the property is sold at a loss, tax must be withheld to fulfill the two percent requirement.

What Can I do?

It’s important to realize that while the Exit Tax requires a substantial withholding, it doesn’t have any impact on the actual tax liability. If the seller files a NJ tax return he is refunded the difference between what was withheld and what is owed. This recovery can be very significant when one factors in the selling costs and original purchase price, both of which reduce the taxable gain.

Estates Should Pay Special Attention

The recovery is often even greater in the case of real estate sold by an estate, as there is a step up in cost basis which would typically minimize a gain on the sale, often resulting in full recovery of the entire withholding. To quickly expedite the recovery of the excess withholding, it would be prudent to timely file Form NJ1040 NR (individual) or NJ1041 (estate/fiduciary).

How do I know if I am considered a “non-resident”?

So who’s considered a “resident” and who’s a “non-resident” with regard to this tax? The law defines a resident taxpayer as one of the following:

  • An individual who is and intends to continue to maintain a permanent place of abode (home, residence) in New Jersey on/after the day of transfer
  • An estate established under the laws of New Jersey
  • A trust established under the laws of New Jersey

A nonresident is simply defined as “any taxpayer that does not meet the definition of resident taxpayer.”