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NJ Income Taxes

Living, Working or Investing in Multiple States

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Taxpayers on the Go!

NY Filers Taxpayers who live, work or have real-estate in NY must file a NY resident or non-resident return. They may benefit from itemizing deductions for NY even if they can’t itemize for the IRS. The NY threshold to itemize is substantially lower than the federal threshold, making it easier to itemize for NY. The US standard deduction in 2021 for married filing joint was $25,100 and $27,800 for married seniors. In contrast, the 2021 NY standard deduction for married couples and married seniors was only $16,050.

Additionally, several deductions are allowed on the NY return which are disallowed or limited on the federal return. Your steep NJ real estate taxes are limited to a $10,000 deduction on the US return but are not limited on the NY return! A deduction up to $10,000 is allowed for college tuition for each eligible student.

These deductions are allowed for NY subject to 2% of your federal adjusted gross income:

  1. Unreimbursed employee expenses
  2. Tax preparation fees
  3. Investment/brokerage fees

Real estate in other states? Have a loss from real estate in other states? There are several reasons why one should file a non-resident return even when there is a loss in that state.

  1. The non-resident state may require that a return be filed based on gross receipts of the real estate investments, even when there is a net loss.
  2. The non-resident state may allow loss carryforwards. These losses will offset future rental income from the property. Upon the sale of the property, the losses will reduce the capital gain.

Credit on the resident return for taxes paid to other states Frequently overlooked!

  1. Make sure that sources of income/loss are correctly grouped on the resident return which may differ greatly from the IRS. This determines the credit for taxes paid to other states.
  2. The credit on the resident return for other jurisdictions should also include taxes paid to other cities, such as Philadelphia.

When filing in non-resident states, review the tax saving options which could be substantial. Your Google search isn’t a substitute for our years of experience with multi-state tax returns. Contact one of our tax professionals for guidance at (732) 777-1158 or  info@ua-cpas.com.

 

NJ Medical Expense Deduction

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The NJ Medical Expense Deduction- Nothing to Sneeze at!

Taxpayers who don’t itemize on their federal tax return frequently overlook the NJ medical expense deduction. It is usually easier to reach the NJ income threshold for the medical deduction of 2%, compared to the federal income threshold of 7.5%. Both retirees as well as employed individuals can benefit from this deduction.

Retirees tend to have lower NJ income than federal income for two main reasons. Social Security is not taxable for NJ and NJ allows a pension income exclusion for taxpayers whose income is less than $150,000. Retirees also tend to have more medical expenses as they age. As a result, retirees should make an effort to take advantage of the considerable NJ medical expense deduction.

Taxpayers who are still receiving compensation have two frequently missed sources of deductible medical expenses for NJ. If you are self-employed or you received wages in 2021 from an S corporation in which you were a more-than-2% shareholder, you can deduct the amount you paid during the year for health insurance for yourself, your spouse, and your dependents. If you are employed and you contribute to your employer-provided health insurance coverage, you can deduct the amount of your contribution. Your federal wages may have been reduced by your contribution to your employer-provided health insurance. However, if your NJ wages were not reduced by the contribution than you may deduct the contribution as a medical expense on your NJ tax return.

Some examples of allowable medical expenses are: payments for doctor’s visits, dental care, hospital care, eye examinations, eyeglasses, medicine, and x-rays or other diagnostic services directed by your physician or dentist. Insurance premiums, including amounts paid under Social Security for Medicare, can be used as medical deductions. You also can deduct transportation costs.

Now that you have reduced your NJ taxes by the medical expense deduction, you probably feel healthier already.

 

Increased NJ Child Care Credit for 2021!

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More NJ families will benefit in 2021 from the 

Child and Dependent Care Credit.

The taxable income threshold has increased to $150,000, from $60,000 in 2020. Resident taxpayers who are allowed a federal child tax credit are eligible for a credit against their NJ gross income tax

The credit will reduce the amount of New Jersey Gross Income Tax a taxpayer owes and may result in a refund even if no taxes are owed. Taxpayers may be able to claim the New Jersey Child and Dependent Care Credit if they:

  • Paid expenses for the care of one or more qualifying individuals so that they are able to work or actively look for work;
  • Are allowed the federal child and dependent care credit; and
  • Have New Jersey taxable income of $150,000 or less.

The amount of the NJ credit is a percentage of the taxpayer’s federal child and dependent care credit and varies according to the amount of the taxpayer’s NJ taxable income.

                                                        Tax Year 2021
        NJ taxable income                  NJ Credit
            0 to $30,000  50% of federal credit
         $30,001  to   $60,000 40% of federal credit
         $60,001  to   $90,000 30% of federal credit
          $90,000  to   $120,000 20% of federal credit
         $120,001 to $150,000 10% of federal credit

This increased child care credit provides more relief to working families and is only for 2021.

 

NJ Increases 2021 Pension Exclusion

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NJ Retirement Income Exclusions 

Grandfather and grandson at the Jersey Shore

For 2021, NJ increased the retirement income exclusion to encourage seniors to stay in the Garden State. You can exclude all or part of your pension income for 2021 if you meet the following:

  • You were 62 or older or disabled on the last day of the tax year.
  • Your 2021 total income was $150,000 or less (increased from $100,000 in 2020)

If you and your spouse file a joint return and only one of you is 62 or older or disabled, you can still claim the maximum pension exclusion. However, you can only exclude the pension income of the qualified spouse.

Total Income of $100,000 or Less

If your total income is $100,000 or less, you can exclude taxable pension, annuity and IRA withdrawals up to the maximum amount per your filing status as below:

Married Filing Joint               Married Filing Separate         Single or Head of Household

$100,000                                      $50,000                                              $75,000

Total Income of $100,001 – $150,000

If your total income is $100,001, but not more than $150,000, you can exclude a percentage of your taxable pension income. The chart below indicates your exclusion amount. 

Total Income Filing Status % of Taxable                 Pension
$100,001- $125,000 Married Filing Joint 50%
Single/head of household 37.50%
$125,001- $150,000 Married Filing Joint 25%
Single/head of household 18.75%

 Beware of the cliff!

If you file married filing joint and your taxable income is $100,000, your maximum pension exclusion could be as high as $100,000. If you earn an additional $1 and have taxable income of $100,001 you could lose $50,000 of the pension exclusion.

Any planning ideas?

When planning to sell securities at a gain at year-end, taxpayers whose income is approaching the $100,000 cliff should be careful not to add a small amount of income pushing them over the cliff. This additional income could increase your NJ taxes by $1,000. An additional year-end IRA distribution could also put your income over the $100,000 cliff and cause you to lose up to 50% of the exclusion.

With a little bit of planning, New Jerseyans can maximize the pension exclusion. This may keep more seniors in the Garden State to enjoy the Jersey Shore with their grandchildren.

 

 

 

 

 

 

 

 

 

 

Conducting Business in Multi-States

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Year-end is a good time to review all operations and to ascertain if you are doing business in additional states. No matter where your company is headquartered, there’s a good chance you conduct business across other state borders. How do taxes work in this situation? Learn about multi-state taxes  to ensure that your business is registered with each appropriate secretary of state, and collecting and submitting the proper taxes.

If your business is headquartered in one state, but you sell your products across the border, do you have to pay taxes in the recipients’ state? This answer depends largely on whether you have what is referred to as a “nexus,” meaning an establishment in the recipients’ state. So what is a nexus and what constitutes an establishment?

Any of the following might create a nexus in a given state:

  • A temporary or permanent office
  • A warehouse
  • A storage locker
  • A sales representative based in that state

The rules have a lot of subtleties, however, and each state may have slightly different interpretations of how the rules work, further complicating the issue. Take for example, New Jersey, which does a lot of cross-border business with New York and Pennsylvania. New Jersey says any of the following may create nexus:

  • Selling, leasing, or renting tangible personal property or specified digital products or services
  • Maintaining an office, distribution house, showroom, warehouse, service enterprise (e.g., a restaurant, entertainment center, business center), or other place of business
  • Having employees, independent contractors, agents, or other representatives (including salespersons, consultants, customer representatives, service or repair technicians, instructors, delivery persons, and independent representatives or solicitors acting as agents of the business) working in the state

Of course, regulatory changes and court cases can change this interpretation at any time. Indeed, the New York State Department of Taxation and Finance issues more opinion letters on sales tax issues than on all other state taxes combined. Many states are desperate for additional tax revenues and are very ingenious at identifying out-of-state businesses operating in their jurisdiction.

With 45 states imposing a sales tax, it’s essential you stay in touch with us to ensure that you’re in compliance. Contact one of our tax professionals at Urbach & Avraham, CPAs to review your multi-state tax situation.

NJ Tax Amnesty Program -Running Now!

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The Clock is Ticking…NJ Tax Amnesty Program Runs Through Jan. 15, 2019  

Gift from State of NJ

Businesses and individuals with unpaid NJ tax liabilities may be able to get a break on penalties under the Amnesty Program  which is in effect from November 15, 2018 through  January 15, 2019.  The measure applies 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 the Division of Taxation will forgive all penalties, and one-half of the accrued interest due at Nov. 1, 2018. 

 Here are some of the details 

  • NJ Amnesty will provide relief for 2008 – 2016 delinquent individual or business tax return filers. 
  • Requests for amnesty must be filed electronically 
  • The Division of Taxation recently mailed a letter to all taxpayers who are known to have amnesty-eligible deficient and/or delinquent accounts 
  • If you didn’t receive a letter and you want to participate, you will need to register or self-report through the Non-Outreach Portal 
  • Federal tax liabilities are not included under the program 

 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 might be right for you, please contact our Tax Manager, Steven Citron.