March 31, 2015

Estate Tax Chases Retirees From NJ

            They say the only sure things in life are death and taxes, but in New Jersey even after you have passed on, the state still has a hand in your pocket.  No state levies taxes when people die as aggressively as New Jersey.  Knowing that helps to explain why parents are either headed South for the rest of their lives or are making plans to move as soon as they can.

           State Senator Steven Oroho said IRS figures show that New Jersey lost $12 billion of taxable income between 2004 and 2011.  “If New Jerseyans stopped moving their primary residences elsewhere to avoid the estate tax, the state would actually see a rise in income tax revenues.” 
 
            Only New Jersey and Maryland apply an estate tax AND an inheritance tax.  Maryland passed a law to raise the estate tax exemption to the federal level.  

            New Jersey taxes estates worth more than $675,000, the lowest threshold among states.  That may sound like a lot of money but when considering the cost of housing in New Jersey, furnishings, other assets and life insurance, that number is reached in a hurry.  This contrasts with the 2015 federal estate tax threshold of $5,430,000.

            There is also an inheritance tax, which applies to the transfers of $25,000 or more to the deceased’s siblings, their children’s spouse or a transfer of $500 or more to relatives or friends.  This tax ranges from 11 to 16 percent. Asbury Park Press 2/15/15 p. A13. 

Internet Access May Be Deductible

  A self-employed financial advisor who worked partly from home paid a utility company a monthly fee for a combination of services for his residence that included telephone, internet access, and cable television.  The Tax Court ruled that the cost of internet access is a utility expense and is not subject to the strict substantiation rules and the Tax Court (but not the IRS) believed him when he said he used the internet 75% for business.  Kaminski TC Summ Op 2015-7.

  The IRS is not bound by Summary Opinions; so if claimed the IRS can contest the deduction.

IRS Budget Cut

  The IRS has ignored Congress’ request to cut its own waste and stop the abuse of taxpayers.  As a result, a separate budget law cuts IRS’s total funding by $345.6 million for 2015.  The $10.95 billion is less than it got in 2008, the first year of Obama presidency.  Taxpayer services will get $34 million more than in 2014, but that will not be enough to vastly improve services.  Wait times to get through to a live person will be long, especially since many taxpayers are expected to call for help about complying with the new tax rules involved with OBAMACARE.
  Funding for enforcement is slashed by $254 million.  Thus, the audit rate will keep on plummeting.  This is a direct result of the IRS, Department of Justice and the White House stonewalling Congress on their conspiracy to violate the constitution and to avoid or prevent tax-exempt status for groups they disagree with and their targeting of individuals, connected with those groups, for audit.  The Kiplinger Tax Letter 12/19/14.
 
.09% Obamacare Tax on Wages Hurts

  The IRS is still working out the kinks in this surtax on wages.  This levy, which was enacted as part of the health reform law, kicks in for singles and heads of households with earnings over $200,000…. $250,000 for married couples.  Employers begin to withhold the tax from workers paychecks in the pay period when wages first exceed $200,000 and report this withholding on the W-2 in the same box as the standard 1.45% Medicare tax.  According to an IRS official, many taxpayers who are unaware of this surtax think their employers over-withheld.  This has prompted some to file refund claims, which wastes the IRS’s already strained resources.  Look for the IRS to eventually revise the W-2 to add a separate box for the surtax.

  And if you owed taxes when you filed your 1040 because of the surtax, consider increasing your withholding.  This will be especially helpful for couples where each spouse earns less than $200,000 but the combined wages exceed $250,000.  The same goes for a worker with a self-employed spouse if their combined earnings exceed $250,000.  Ditto for our employee with a profitable side business.  The Kiplinger Tax Letter 3/27/15.

Home Office Deduction Is IRS Red Flag

  A sole proprietor claimed he used the living room of his small home for business.  IRS nixed his write off and the Tax Court agreed.  Because access to all the rooms in the home was through the living room, the space was not used solely and exclusively for business.  Savulionis, TC Summary Opinion 2015-19.

           As always, if you have any questions about these or any other matters, do not hesitate to call us.

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