Completing a US Form 706 (US Gross Estate Tax Return) allows a decedent who is married and does not fully use his $5,250,000 exemption, to pass his unused exemption (“Decease Spousal Unused Exclusion or DSUE”) to his spouse. This is known as portability.

What does this mean in practical terms?

]]> http://uandacpas.com/blog/2013/06/us-estate-tax-when-filing-is-optional-but-advisable/feed/ 0 http://uandacpas.com/blog/2013/06/hurricane-sandy-repairs-subject-to-nj-sales-tax/ http://uandacpas.com/blog/2013/06/hurricane-sandy-repairs-subject-to-nj-sales-tax/#comments Mon, 10 Jun 2013 21:49:26 +0000 Pamela http://uandacpas.com/?p=1634 After Hurricane Sandy hit, the NJ Division of Taxation was flooded (no pun intended) with inquiries regarding the taxability of repairs. As a result, a helpful “Sales and Use Tax – Frequently Asked Questions” page has been added to its website. This article has the answers, including whether charges for demolition services or tree removal are subject to NJ Sales Tax. To view the article, click here: NJ Division of Taxation FAQ

• Ensure compliance with tax requirements
• Take advantage of tax saving opportunities
• Preserve the assets of the estate
• Clarify the tax ramifications of distributions
• To view the checklist, click here: Executor To-Do List

Many people assume life insurance proceeds, regardless of who the beneficiary is, are exempt from NJ Inheritance tax.  Therefore, even if they are leaving their estate to a beneficiary who is not a spouse or child, they see no need to designate a beneficiary for the life insurance policy.  However, life insurance left to an estate where the ultimate beneficiary is not a spouse or child is not exempt from NJ Inheritance tax.  As NJ Inheritance taxes can be as high as 16%,  it is prudent to take the simple step of naming a beneficiary to avoid the NJ Inheritance Tax. 

Unfortunately life insurance policies owned by individuals are includable for NJ Estate tax purposes, regardless of who is named as the beneficiary, if the assets of the estate are at least $675,000 (not an uncommon scenario for an insured decedent).  However, unless you cherish Chris Christie more than your loved ones, you can at least avoid paying NJ Inheritance taxes by simply naming an individual as beneficiary on your life insurance policy.     

Let’s illustrate:                                                              

Example #1: Uncle Harry dies and names his nephew in his will as sole heir of his entire estate. His only asset is a $500,000 life insurance policy. Since his estate is less than $675,000 there is no US or NJ Estate tax. If he named his nephew as beneficiary of his life insurance policy, there is no NJ Inheritance tax as well. However, if there is no named beneficiary (the estate is the beneficiary), the $500,000 is subject to a 15% inheritance tax, or $75,000.

Example #2: Same as above, except the policy is $1,000,000. NJ law states that the estate calculates the estate tax and the inheritance tax and pays the greater of the two, not both. The NJ Estate tax on $1,000,000 is $33,000. If Uncle Harry named his nephew as beneficiary, the inheritance tax is zero and the estate pays $33,200. If Uncle Harry did not name his nephew as beneficiary, the inheritance tax is 15-16% of $1,000,000 or $153,000. The Estate pays $153,000. The cost of not naming a beneficiary is $119,800 ($153,000 less $33,200).

Jeff, a Certified Valuation Analyst, specializes in several areas including business valuation, gifting/retirement planning, and healthcare practices (financial management, benchmarking, and valuation of practice).

The NJ DOL borrowed money from the federal government to pay Unemployment Insurance Benefits. NJ law requires the government to pass on the interest costs of the loan to NJ employers.

Is this something new?

It’s comparatively new. This is the third year of the assessment.

How much is it?

The assessment is 0.73% of employer unemployment contributions made for 2012. The minimum assessment is $5. You should have received a bill in the mail recently. However, if you thought it was junk mail or moved and did not inform the state of your new address you might not have received it. It’s due June 23, after which it will accrue a 15% interest penalty, and you won’t know about it until NJ sends you a delinquency notice. Ouch!

How do I pay it?

Payment options include:

• Check or money order payable to: NJDOLWD
• EFT
• E-check
• Credit Card

To make a payment online, click here: NJ Division of Revenue On-Line Filing Service

Social Security Disability Benefits– were Josh to become permanently disabled, he would not receive Social Security benefits for his disability unless he satisfied two different earnings tests.  He must meet a “recent work” test based on his age at time of disability. For example at age 31 or more, an individual has to work five years out of the ten years prior to claiming disability. He must also satisfy a “duration of work” test based on his age at disability. For example, at age 50, he needs to have worked 7 years in total prior to his disability.

Lost Wages – If Josh was injured by an insured party, unless he can produce proof of a history of employment he won’t be able to recover any lost wages. 

Medical Insurance Deduction- If Dr. Sally’ s business income is reported on Schedule C, she is deducting the medical insurance expense for her and her family on page 1 of Form 1040. However if Josh is an employee, than he can be the insured. She can now deduct the medical insurance as a business expense on Schedule C.  This would result in significant tax savings, as she is now saving the 3.8% Medicare portion of the self-employment tax. Not a bad deal for an expense you’re incurring anyway.

Credit Rating- Even if Dr. Sally is the breadwinner now, there may come a time that Josh will need to rely on his own credit history. If he is paid a salary it will be much easier for him to obtain the credit he will need.

Social Security Benefits- The amount of Social Security benefits one receives is determined by the average of the 35 highest yearly salaries. Even if Josh’s earning power appears meager at the moment, you never know what the future holds. If he gets a more lucrative job eventually, the years he received a salary from Sally’s firm may ultimately significantly boost his benefits.

Pension Benefits- As an employee, Josh can be enrolled in the company pension plan. This allows the company to make contributions on his behalf. By adding Josh’s pension contribution to Sally’s, the couple will enjoy increased tax free growth on their retirement funds, while the couple will  currently save on both US and NJ income taxes. This is particularly important when you consider the increased 2013 tax rates, which can be as high as 50% federal and state combined! (The highest federal tax rate is 39.6%, which can increase to over 40% when phase outs are factored in).

Dependent Care Credit- Unless both spouses have earned income they are not entitled to the dependent care credit, which is currently up to $1,200 for families with two children or more.

In Reese v. Weis, Defendant Rebecca Weis was receiving $100k annually in alimony from her ex-husband Ronald Reese since their divorce in 1996. In 1998 she began cohabiting with William Stein and his two children. Ronald filed a motion in 2008 to terminate his obligation to pay alimony citing the defendant’s cohabitation. The trial judge determined that defendant’s 10-year cohabitation afforded her significant benefit such as that alimony was no longer warranted. Defendant cross-appealed the ruling, claiming that her monthly contribution to a joint account she held with Stein, in an amount equal to what she received as support from Plaintiff, coupled with proof of annual expenses exceeding the provided support proved she paid her way without Stein’s economic assistance. She also argued that the luxuries and gifts that accompanied her new lifestyle with William should not be considered an economic benefit to terminate her alimony.

The Court however upheld its ruling, rejecting her claim that her enhanced lifestyle should not be a part of the alimony equation. The panel stated to the contrary, that economic benefits, such as when the cohabitant pays for housing costs, as well as more subtle economic benefits, may legitimately be taken into consideration.   

• Reduce your taxes
• Secure your assets
• Take advantage of various tax credit opportunities
• Prepare your budget
• Address compliance issues including DOL and sales tax issues
• Grow and transition your medical practice

To view our physician’s checklist, click here:   Physician’s Financial Checklist