Troubled couples often try to hide money from each other, whether to spend it on extramarital mischief or keep from sharing it in a divorce. They will often open up secret on-line brokerage accounts or hide cash in a safety deposit box. Whatever the method, the hiding spouse is forewarned:  Electronic discovery has made it much easier to track your covert activity.

There are many ways a spouse can uncover secret financial dealings. A suspicious spouse might go through their partner’s web surfing history and social networks to uncover traces of hidden bank accounts and business deals. Some may even install software that records every keystroke their spouses make. Among the wackier tactics include replacing spouse’s GPS with a nearly identical one, allowing tracking of the vehicle’s location and even pictures of who’s sitting in the front seat. Smartphones, as well, are playing an increasingly large role in discovering hidden assets. Mr. Lewis, a data forensic expert in New York, says he recently worked on a case where the spouse enabled the “find my phone” software on all of her family’s smartphones, and quickly learned of her husband’s frequent trips to an ATM, where he withdrew cash she didn’t know about. Continue Reading »

Should you be classified as an employee or independent contractor? This is an issue that has drawn a lot of attention from the IRS lately, as more employers have been trying to cut costs and classify employees as independent contractors thereby avoiding thepayroll taxes. To clarify how one determines his or her status the IRS has released Publication 1779, which looks at three areas: behavioral control, financial control, and the relationship of the parties to determine worker classification.

To view the template, click here: Employee Vs Independent Contractor Status

On June 22^nd, 2012, Partner Jeff Urbach will be speaking at the Rutgers 6^th Annual Fraud Conference, which will take place at the Rutgers School of Business in Newark. He will be discussing the role of forensic accountants in divorce litigation, as well as presenting a PowerPoint presentation on Matrimonial Accounting. The latter will be based on a course he developed. Mr. Urbach’s presentation on Forensic Accounting will give students the opportunity of observing abstract accounting principles actually applied in the real world. Jeff is an alumnus of the Graduate School where he received his MBA in 1975 and has taught as an adjunct for many years on both the undergraduate and graduate level.

For those who want to be extra cautious about retaining financial records, here are specific reasons why you should keep your actual tax returns even if the statute of limitations has expired. And what exactly are the statutes of limitations which are relevant?

Tax Records

Supporting documents, such as 1099’s, W-2’s, receipts for charitable contributions, etc. should be kept for 3 years after the return was filed or the due date, whichever is later. For example, the documents for your 2011 return filed March 1, 2012 should be retained until April 15, 2015. Note that if your 1099 is attached to a brokerage statement that shows evidence of the purchase cost of a financial asset it’s critical to hold onto the statement until you dispose of that asset.

As for the tax returns themselves, it’s a good idea to save them forever. They may be needed for Medicaid, immigration, pension, divorce and other purposes. They may also contain useful data in filing future returns.  At a minimum we recommend retaining them for 10 years.  Certain items on a tax return affect later years and need to be kept until the statutes of those later years’ tax returns expire. For example: Continue Reading »

An important and commonly misunderstood law regarding gift giving prior to one’s death was recently highlighted in a NJ case. As background, when a child inherits from a parent there is no New Jersey inheritance tax, whereas there is a tax if any other relative or friend inherits. As a result, if one gifts an unusually large amount of money within three years of his or her death to someone other than a child, the possibility that the gift   was made to avoid paying state inheritance tax comes into   question. A common misunderstanding is that unless there is reason to assume the giver was aware of his impending death the transfer is not a taxable one.  In fact, the truth is quite to the contrary. Continue Reading »

Your rental property went down in value so much that it was worth less than your $500,000 mortgage, so you walked away from the property. Let the bank enjoy it!

You pat yourself on the back for your clever move until the following January. January is 1099 time and you get a 1099-C from the bank stating you have $500,000 of cancellation of debt (COD) income

Your cronies at the club tell you that you have to pay US and NJ income tax on the $500,000 at ordinary income tax rates, not the favorable capital gains rates. You calculate that your brilliant move will cost you $200,000.

HELP! Continue Reading »

Supporting your financially distressed relative is a commendable act that can also result in significant tax savings. If the recipient meets all of the criteria required to be deemed a “qualified relative”, you can benefit in several ways. First of all, the qualified relative can be claimed as a dependent and you can therefore take his personal exemption ($3,750 in 2011) on your return. Another benefit is that you can add his medical expenses to yours for the medical expense itemized deduction. This is especially important for those whose medical expenses do not exceed the 7.5% of AGI (Adjusted Gross Income) minimum threshold to deduct medical expenses. Even if you don’t itemize, you can still benefit by filing as head of household instead of as single, resulting in a much greater standard deduction (in 2011 the standard deduction was $5,800 for single and $8,500 for head of household). The criteria to be a “qualified relative” are as follows: Continue Reading »

 Now that tax season is out of the way, you’re probably left with an intimidating stack of documents wondering “How long do I have to hang on to this stuff?” To shed light on this common issue, here’s a rundown on the essentials you need to know.

Tax Records

Supporting documents, such as 1099’s, W-2’s, receipts for charitable contributions, etc. should be kept for 4 years after the return was filed. For example, the documents for your 2011 return filed April 17, 2012 should be retained until April 16, 2016. If you will file on extension by October 15, 2012, you should hold on to your documents until October 14, 2016. Note that if your 1099 is attached to a brokerage statement that shows evidence of the purchase cost of a financial asset it’s is critical to hold onto the statement until you dispose of that asset.  

As for the tax returns themselves, it’s usually a good idea to save them forever. They may be needed for Medicaid, immigration, pension and other purposes. They may also contain useful data in filing future returns. At a minimum we recommend retaining them for 10 years. Continue Reading »

IRA Distributions: Federal VS NJ

Contributing to a traditional IRA reduces your federal income and, as a result, when you take a distribution down the road it’s fully taxable. While the distribution is fully taxed on the federal level because of this previous tax benefit, what many overlook is the fact that the distribution is not necessarily fully taxable to New Jersey. When the contributions to the traditional IRA were made, they were not deductible for NJ. Continue Reading »

The IRS “Fresh Start” initiative was introduced last year as a response to the inability of struggling taxpayers to pay their taxes. In 2012, the IRS is significantly expanding the program with two major additions.

First, there will be a new “failure-to-pay penalty relief” for two categories of taxpayers:

• Wage earners who have been unemployed at least 30 consecutive days during 2011 or in 2012 up to the April 17 deadline for filing a federal tax return this year
• Self-employed individuals who experienced a 25 percent or greater reduction of business income in 2011 due to the economy Continue Reading »