Tag: Tax Controversy

Charitable Donations in Exchange for Real Property Tax Credits in New Jersey

On May 4th, 2018, New Jersey Governor Phil Murphy signed Senate Bill No. 1893 permitting municipalities to issue property tax credits to property owners who donate to one or more charitable funds created by the municipality where the taxpayer’s property is located.

New Jersey property owners may donate up to 90% of their tax bill to their municipality’s charitable fund(s). If the tax credits that result from a charitable donation exceed the taxpayer’s annual real property tax owed, the unused amount of tax credit may be carried forward to subsequent tax bills not to exceed five years.

Under the new law, a municipality establishes a charitable fund or funds, each with a specific public purpose, through an ordinance or resolution of its governing body. Charitable funds may also be used to satisfy property taxes, pay for the cost of establishing the fund and for the tax collector’s ongoing administrative expenses.

The purpose of S-1893 is to potentially allow for a larger itemized deduction on a New Jersey taxpayer’s federal income tax return that exceeds the $10,000 cap on deductions for state and local taxes imposed by President Trump’s tax overhaul bill. It is unclear whether an individual’s potential tax savings resulting from S-1893 will pass muster with the Internal Revenue Service because the taxpayer’s donation may not qualify as a charitable donation under the Internal Revenue Code. Accordingly, there is the potential for back taxes, penalties and interest at the federal level if the taxpayer’s deduction taken pursuant to S-1893 is not accepted. In light of this uncertainty it is best to contact a tax or accounting professional for advice with respect to the application of S-1893.

Offshore Tax Evasion – IRS to End Offshore Voluntary Disclosure Program

In Information Release – 2018-52, the Internal Revenue Service announced on March 13, 2018, that it will shut down and end its Offshore Voluntary Disclosure Program (“OVDP”) on September 28, 2018.  Thus, taxpayers with undisclosed foreign financial assets have time to utilize the OVDP before the program closes, but need to act ASAP and consult with experienced tax controversy counsel so that a complete filing submission is made by September 28, 2018.

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Budget Proposal Announced By New Jersey Governor Phil Murphy

On March 13, 2018, Governor Murphy presented his budget address for Fiscal Year 2019.  It has been said no one would eat a sausage if you watched it being made.  The same can be said of the legislative process.

Between this address and July 1st when the budget for Fiscal Year 2019 is to be in place, there may a number of changes to what was presented.

First, a quick comment upon what was not said.  Even though Candidate Murphy had stated that he would not modify New Jersey’s decision to rescind its Estate Tax, some had speculated it might reappear in some form.  While no one expected to see the exemption revert to the $675,000 level effective for persons who died before December 31, 2016, some adjustments were anticipated.  That still may occur, but was not a point raised in the Governor’s address.

The Governor has proposed a budget of $37.4B.  He has proposed an increase in school related funding.  A goal is to expand pre-K funding statewide.  As a first step in plans to make community college tuition free for all students, over the next year Governor Murphy proposed an additional investment of $50M in community colleges.

The Governor has proposed raising the state property tax deduction from its current level of $10K to $15K.  He has proposed creation of a new Child and Dependent Care Tax Credit for middle class and working families.

The budget also contains other proposals for new programs or expansion of existing programs.

The Governor has proposed reinstating the sales tax rate in New Jersey at 7%.  On the revenue side, the Governor has proposed a “millionaire’s tax” upon those who have taxable income in excess of $1M.  He contemplates such a tax would raise approximately $765M.  He also proposed closing a “loophole” which benefits hedge fund managers.  He believes that doing so will generate an additional $1M.

The Governor also favors legalization of marijuana.  It is not clear that the Legislature will support this concept or, if legislation is enacted the amount of the revenue which might be realized.

In concluding, the Governor declared as his goal the desire to build a stronger and fairer New Jersey.

The Tax Cuts and Jobs Act Headed to President Trump’s Desk

Today, the U.S. House of Representatives and the U.S. Senate passed Tax Cuts and Jobs Act, sending the bill to President Trump’s desk for his signature.  We call your attention to some of the key provisions in the law and encourage you to contact the Firm to discuss best practices for incorporating its provisions into your business, estate, and tax planning, along with any questions you may have about how the law impacts you.

Corporate Rate: The corporate rate is cut to 21 percent starting January 1, 2018.

Taxation on Pass-Through Entities: Pass-through entity owners that meet certain conditions are eligible for a 20 percent deduction on their business income. Pass-through owners who file jointly and earn at least $315,000 in business profits are subject to limitation on the deduction. The restriction is based on how much the pass-through pays in wages or invests in equipment and machinery. Service businesses, such as law and accounting firms, are eligible for the deduction if owners are under the threshold. The deduction would expire in 2026.

Individual Rates: The top individual rate is 37 percent for individuals earning $500,000 and above, and joint filers earning at least $600,000. There are seven tax brackets total: 10, 12, 22, 24, 32, 35, and 37 percent. The law doubles the standard deduction to $24,000 for a couple filing jointly. The rates and standard deduction expansion expire in 2026.

Interest Deductibility: The law limits the interest deduction to 30 percent of a company’s earnings before interest, tax, depreciation, and amortization (EBITDA) for four years. After that, the law limits the deduction to 30 percent of earnings before interest and taxes (EBIT).

Business Expensing: Full expensing of new and used capital investments is permitted for five years.

Corporate Alternative Minimum Tax: The corporate AMT is repealed.

Individual Alternative Minimum Tax: The individual AMT is increased to apply to individual filers earning more than $500,000 or joint filers earning $1 million.

Estate Tax: The exemption is doubled to estates worth $11 million for individuals, $22 million for couples. The exemptions would revert to current levels after 2025.

State and Local Tax Deduction: Taxpayers can deduct up to $10,000 of state and local taxes paid—property taxes and either income or sales taxes.

Mortgage Interest Deduction: The law preserves the deduction for existing mortgages and caps it at $750,000 for newly purchased homes starting Jan. 1, 2018.

Child Tax Credit: The child tax credit is increased to $2,000 per child with up to $1,400 of it being refundable.

Tax Law Client Alert: How the Tax Cuts and Jobs Act Affects You

In November, the U.S. House of Representatives passed the Tax Cuts and Jobs Act, sending the bill to the U.S. Senate.  This past Saturday, the Senate passed its version of the Tax Cuts and Jobs Act.  There are many differences between the House and Senate bills, including the individual tax brackets and how pass-through entities are taxed.  We call your attention to some of the key provisions in the House and Senate bills, along with how the bills change the current tax code.  Now that the Senate has passed its version, the bills need to go through the reconciliation process before they are sent to President Trump’s desk to sign into law.  If the Tax Cuts and Jobs Act is signed into law, we encourage you to contact the Firm to discuss best practices for incorporating the changes into your business and tax planning, along with any questions you may have about how the law impacts you.

Provision Current Law House Tax Cuts and Jobs Act Senate Tax Cuts and Jobs Act
Income Tax Rates 10%, 15%, 25%, 28%, 33%, 35% and 39.6% Would create four personal tax rates of 12%, 25%, 35%, and 39.6% that generally would kick in at higher thresholds than current law, effective in 2018. Would retain seven tax brackets that would apply to higher tax brackets. The proposed brackets are 10%, 12%, 22%, 24%, 32%, 35%, and 38.5%

 

Standard Deduction and Personal Exemption $12,770 for married couples filing jointly; $9,350 for head-of-household; $6,350 for all other taxpayers $24,000 for married couples filing jointly; $18,000 for head-of-household; $12,000 for all other taxpayers. The personal exemption is eliminated.

 

$24,000 for married couples filing jointly; $18,000 for head-of-household; $12,000 for all other taxpayers. The personal exemption is eliminated.
SALT Deductions Currently, taxpayers may deduction state, local and property taxes. Eliminates individual state and local income tax deduction, but retains property tax deduction with cap of $10,000.

 

Eliminates individual state and local income tax deduction, but retains property tax deduction with cap of $10,000.
Taxation of Pass-Through Businesses Currently taxed at the applicable individual income tax rate. The tax rate applied to business-related income from partnerships, limited liability companies and S corporations would be 25% for active participants in the business operations.  Passive investors who do not materially participate in the business would be subject to a 9% tax rate.

 

Permits individuals to deduct 23% of qualified domestic business income, equating to a 29.6% maximum rate, effective in 2018.
Estate Tax For an individual who dies during the 2017 calendar year, the estate tax exemption is $5.49 million. The estate tax exemption amount would be doubled in 2018.  The estate tax would be repealed completely for individuals dying after 2023. The estate tax exemption amount would be doubled in 2018, however the estate tax will be retained going forward.