New Jersey Estate Planning & Elder Law Blog : New Jersey Estate Planning Lawyer & Attorney : Deirdre Wheatley-Liss : Fein Such Kahn & Shepard Law Firm : Elder Law, Tax Planning

Tough times are all around, and apparently the IRS recognizes this as well.  The IRS recently announced a series of new initiatives to " to help individuals and small businesses meet their tax obligations, without adding unnecessary burden to taxpayers. "

The changes center around how the IRS files liens against taxpayers for failure to pay their taxes, and include 5 key provisions:

• Significantly increasing the dollar threshold when liens are generally issued, resulting in fewer tax liens.  This is being done to address inflation.
• Making it easier for taxpayers to obtain lien withdrawals after paying a tax bill.
• Withdrawing liens in most cases where a taxpayer enters into a Direct Debit Installment Agreement.  This will apply to taxpayers with $25,000 or less of unpaid taxes, interest and penalties who have entered into a payment plan with the IRS.  You can see a video about the Direct Debit Installment Program here.
• Creating easier access to Installment Agreements for more struggling small businesses.  This will be done by increasing the program participation threshold of unpaid  taxes, interest and penalties from $10,000 to $25,000.
• Expanding a streamlined Offer in Compromise program to cover more taxpayers.  The income limits will be increased to $100,00, and the tax liability threshold doubled from $25,000 to $50,000.

A federal tax lien is a tool of the IRS whereby they have a legal claim to the property of a taxpayer who has not paid their taxes. It includes all property owned by the taxpayer at the time filed or after acquired.  Needless to say, a federal tax lien dramatically decreases your credit worthiness.

Questions on addressing federal tax liens are handled through the Firm's Tax Department, or complete a request for more information to the right ------>

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Trenton is offering expanded tax credits to New Jersey businesses who are hiring or expanding. NJ.com reports that N.J. firms snap up revamped tax break "Lured by more money and looser requirements, New Jersey businesses are lining up take advantage of a revamped tax incentive program aimed at keeping jobs in the state."

The numbers are impressive.  The article reports that:

So far this year, 16 companies have received a total of $44.1 million in tax breaks for retaining 6,000 jobs, and several others have won preliminary approval by the state's Economic Development Authority.
During the same period last year, five companies received $1.4 million in tax breaks for keeping about 1,400 jobs in the state.

Two key areas of change:

* Tax credits issued for retaining employees, not just hiring new ones

* Commercial tenants (as opposed to land owners) having a sales tax exemption on all equipment purchases and property improvements financed through a lease arrangement with the landlord.

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Identity theft is now hitting a new playing field - claiming and taking your tax refund.  Larry Margasak at the Associated Press reports today that:

The IRS is grappling with a nearly five-fold increase in taxpayer identity theft between 2008 and 2010, a Government Accountability Office [GAO} official plans to tell a House hearing Thursday. There were 248,357 incidents in 2010, compared to 51,702 in 2008.

Yikes - this is clearly not a minor problem. However, the GAO finds that most identity thieves get away with taking your refund.  The IRS Criminal Investigations Division only prosecutes around 4700 cases total a year for any criminal tax activity.  Note however that their success rate is in the high 90%, so if a revenue officer with a gun ever shows up to ask you questions, you are likely to be the guest of the state for some time.  

Think you might have been a victim of tax identity theft?  The article offers some advice:

Tax form 14039, the IRS Identity Theft Affidavit, allows the agency to mark an account to identify future questionable activity. A task force of the IRS and other agencies established a website, STOPFRAUD.gov, which tells taxpayers what to do if they suspect identity fraud.

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Check out the second episode of The Wealthy and Wise. 

In this episode we acknowledge that that estate plans can seem remote, mysterious, complicated and expensive when you don’t know “What makes up an estate plan” and don’t have an overview the information necessary to make informed decisions about your estate.We clear the air on the episode of The Wealthy and Wise as we talk to you about:

What makes up an estate plan?
What happens to your assets if you die without an estate plan?
Determining your net worth from an estate perspective
Sorting out powers of attorney, living wills, health care proxy and advanced directives
Your beneficiaries – who gets your assets, how and when?
Is the government your beneficiary?
How are trusts tools to protect money?
Probate v. Non-Probate assets
And much, much more

The goal of The Wealthy and Wise, as always, is to educate you about how you can take steps in your own life to protect and build your wealth. How’d we do? We’d love your questions and comments, either below or to questions@thewealthyandwise.com. You may find yourself featured in an upcoming episode or podcast!

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 I came across Top 10 'Bad Ideas' for Taxing the Rich and couldn't help but share it.

The premise, how to encourage the rich to pay more in taxes, in a tongue in cheek fashion.  Author Robert Frank summarized some of the "best" suggestions:

1–Naming Rights. Depending on your tax bill, you get naming rights for federal property such as highways, bridges, etc.

2–Frequent Flier Points. One reader wrote: “High income taxpayers would accumulate points based on their tax percentile, which could then be redeemed for the ultimate status symbols: merchandise frankly (yet discreetly) proclaiming the bearer’s high income bracket. Imagine, for example, a metallic Coach tote with a sterling ‘1%’ charm on the zipper, proclaiming that the woman carrying it is in the top 1% of US taxpayers. And what businessperson wouldn’t want the Montblanc half percent pen, with a simple ‘.5%’ engraved in the snowy tip of the pen? Those in the know would recognize and respect these symbols of achievement.”

3–A Parade. On April 15, rich people who paid more than $500,000 in taxes could march down Constitution Avenue and shake hands with the President and members of Congress at the end.

4–Tax the Foreign Rich. We should provide “expedited citizenship” to immigrants who will buy a home for a value of at least $300K-$400K. This will reduce our excess housing stock, bring capital into the country and probably bring in productive taxpayers.

5–Access Passes. The rich would get preferred access to public parks/national museums.

6–Exemption from jury duty.

7–The “Fat Tax.” Impose tax incentives tied to a person’s overall Body Mass Index (BMI), as well as a % change in BMI versus the prior tax year.

8–A telethon. A 24-hour live TV auction offering one-on-one experiences with 1,000 “A-List” Stars of entertainment, sports, business and politics with 100% of proceeds earmarked to help fund a specific U.S. Government program. Experiences might include lunch with the President, a concert with Lady Gaga and helicopter skiing with Will Smith. All proceeds would go to taxes and the stars would revel in the patriotism of helping the government.

9–Rent out paintings and other artifacts from the Smithsonian. “The Smithsonian provides 1,000 treasures that are each available for one-year (or more) rentals at $50+ million (plus shipping) annually to the highest (sealed) bidder,” one reader suggested.

10–Shame. Anyone who agrees to pay a higher tax rate will be exempt from having their names published in the local newspaper. Rich people, after all, hate adverse publicity.

I personally like 2, 4, 6 and 9 :)

Photo:  © Alexandr Denisenko | Dreamstime.com

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 Valentine's Day usually puts one in the mind of hearts, flowers and candy. This year however, it's going to be a favorite day for the millions of taxpayers who itemize their returns, because it's the first day that those tax payers returns will be able to be filed into the IRS system.

 I previously advised to Hold your Horses on Filing those Income Tax Returns because the IRS needed to update its internal computer software to reflect the changes in the 2010 Tax Act.  The IRS issued an alert yesterday that:

Beginning Feb. 14, the IRS will start processing both paper and e-filed returns claiming itemized deductions on Schedule A, the higher education tuition and fees deduction on Form 8917 and the educator expenses deduction. Based on filings last year, about nine million tax returns claimed any of these deductions on returns received by the IRS before Feb. 14.

However, for those of you who e-file, you can go ahead and put all of your return information into the system. The filing software will hold your return until the February 14 "Go" date if yours is the type of return that cannot yet be filed.

The biggest impact itemize return filers – if they're only starting to process the returns on February 14, and by their own numbers they received 9 million such returns by February 14 of last year, you're likely not getting your tax refund happily direct deposited in a 10 day time frame that you been used to.

Looking who to blame for the interest free loan you're extending to the government by waiting to get your refund back? Point the finger at Congress and the President who waited until December of 2010 to create the income tax rules for income earned in 2010.

Image: graur razvan ionut / FreeDigitalPhotos.net

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Here's another problem with last minute or retroactive tax planning by Congress - the IRS needs to come up with forms that you can file to comply with teh new law.  Julie Garber reports today in Julies' Wills & Estate Planning Blog that the IRS is working on it:

• For the estates of people who died between January 1, 2010 and December 16, 2010, if they are filing a Form 706 Estate Tax Return, it will be due on September 19, 2011, so the IRS still has time to put the form together.
• For the estates of people who died between January 1, 2010 and December 16, 2010, if they are using the 1022 basis step up methodology, a form is being generated that again will be due on September 19, 2011, so the IRS still has time to put the form together
• For the estates of people who died between December 17, 2010 and December 31, 2010, the Form 706 Estate Tax Return will be due 9 months after the date of death.  Again, this gives the IRS lots of time for the IRS to update Form 706.
• On the other hand, the Gift Tax Return, Form 709, is due by April 18, 2011 reporting gifts made during 2010. Julie advises that "This leaves the IRS frantically working to revise Form 709 to comply with the 2010 gift tax rules, so expect the 2010 version of Form 709 and its instructions to be released by the end of January."

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 I author this blog, quite simply, because I'm really passionate about what it is that I do.

I enjoy helping people find ways to pay their legally minimum required taxes. I think that the government's partnership in everything you earn shouldn't be a secret – everybody should know how tax law will affect their decisions.

I think that it's a shame that people who worked their entire lives, served in our military, and built the country that we know today are fearful of how they will be cared for or be able to stay in their own homes as they get older.  I feel good about showing families that there are steps that they can take today to be in a position of empowerment tomorrow.

I find other people's businesses fascinating – what's their growth strategy, what's their secret to success, what are their fears? I love working with business owners to find ways, through the legal arrangements that they enter into, to support those successes and minimize those fears.

I blog about these things because this platform is my soapbox, where I get to stand up and grab my virtual loudspeaker. So many of my clients have the same concerns, the same questions, are seeking the same information. This blog gives me an opportunity to educate a whole world of people that I haven't yet met about why they should be concerned about how the law impacts their daily lives, to answer questions that are commonly asked, and to give people information so that they have the ability take action in their own lives.

What was the inspiration for this soliloquy? I was recently interviewed by Lexblog (the company that hosts and supports this site) and it got me thinking about why this blog has been part of my life for the past five years. You can enjoy the interview here, or even listen to the podcast (a first for me).

Right now, all the ideas on the topics covered on this blog come from my head, out of conversations with my associates and partners, out of client meetings, or through what I'm reading in the news as I keep up with the ever-changing terrain of law. What I'd love to know is what kind of questions do you have that you'd like to see me addressing on my virtual soapbox?

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New York City is justifiably known for its bagels - having lived in other parts of the country I can testify that it must be something in the water because they just can't get bagels right in Boston, Charlotte, Tampa or LA. What can't New York get right? How it taxes its famous bagels.

This a a true head scratcher. Buy an unsliced bagel - no sales tax. Buy a sliced bagel - sales tax. Now I know that everyone is looking for sales tax revenue, but seriously? What are they going to do, send in undercover bagel auditors to do a tally of sliced versus not? And what if the bagel is purchased wholesale pre-packed sliced with spread? Since you were not the perpetrator of the slice, are you subject to tax? Or if you offer a knife to your customers, do they need to pay for the privilege?

So if I buy a dozen unsliced bagels its $10.00. If I buy a dozed sliced it is $10.89 (the NYC sales tax is 8.875% made up of (1) City sales tax rate of 4.5%, (2) New York State sales tax of 4%, and (3) the Metropolitan Commuter Transportation District surcharge of 0.375% - making Jersey look like a good deal).

Tax laws are necessary and even good I daresay (I for one appreciate having roads, police, and the army), but smart and reasonable tax policy is needed. This is an example of the hair on the end of the tail of the dog wagging the whole canine.

Thanks to Steven Loeb in our Tax Department for bringing the absurdity to my attention.

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Will your taxes change if you make a gift of real estate subject to a life estate over a straight gift of real estate? Guest blogger  Stacey Crowell Maiden, Esq., Of Counsel to our Trusts and Estates and Elder Law Practice Group provides an explanation of this common, but non-intuitive planning technique.

In our estate planning and elder law practice, we sometimes incorporate the use of a “Life Estate Deed” to transfer real property.. Under a Life Estate Deed, the “life tenant” retains 100% of the present interest of the property. The future interest (which is defined as the full interest after your death) would be transferred to the “remainder persons.” When retaining a Life Estate in the property, you are not transferring or giving the entire interest in the property away. Instead, the remainder persons are given today the right to own the property after you pass away.

The life tenant is responsible for the payment of real estate taxes on the property. However, the Municipal Tax Office - on receiving a copy of the recorded Life Estate Deed from the County Clerk – will update its records, listing the remainder persons as the owners, which means the tax bills are then sent in the names of the remainder persons. This can be a source of confusion and concern for our clients, particularly as to whether they will lose any tax benefits related to ownership.

Guidance is found in the Internal Revenue Code and Regulations, New Jersey Statutes and the New Jersey Administrative Code to assure our clients that as life tenants, they continue to receive certain tax benefits provided to owners in New Jersey.

For example, life tenants retain the Income Tax Deduction for Real Estate Taxes. As the owner of the property by virtue of the life estate, a life tenant may continue to deduct the real estate taxes he pays on his federal income tax return. (I.R.C. §164(a); Reg. §1.164-1(a).

And, by reserving a Life Estate and paying the real estate taxes, the life tenant is entitled to continue to receive the New Jersey Homestead/New Jersey Saver Rebate (N.J.S.A. 54:4-8.58; 54:4-8.58a; 54:8.59); the Senior Citizen's Deduction (N.J.A.C. 18:14-1.1 and N.J.A.C. 18:14-2.8); and the Veteran's Deduction (N.J.A.C. 18:27-2.10).

Of course, there are other potential taxes (e.g. capital gains taxes) to be concerned with when transferring property pursuant to a Life Estate Deed, but the above tax benefits related to present ownership of the property remain in place for a life tenant who pays the real estate taxes.

Image: Simon Howden / FreeDigitalPhotos.net

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 Derek Jensen of Jensen Law Offices reminds us in his blog that the Estate Tax is not the only federal tax provision expiring on December 31 due to Congressional inaction this year.

The estate tax isn't the only tax provision expiring on Dec. 31. Due to congressional inaction 50 tax provisions will expire. Including the annual AMT patch, the deduction for state and local sales taxes, the $4,000 deduction for college tuition, a provision that allows taxpayers age 70-and-a-half or older to transfer up to $100,000 directly from an IRA to charity, the business R&D credit, and a biodiesel tax credit. Many of these provisions require action every year and they are likely to be extended again, but retroactively this year.

As a tax professional I find in mindboggling that Congress, whose constitutional mandate (Article 1, Section 7)is to make and pass tax laws "All bills for raising revenue shall originate in the House of Representatives; but the Senate may propose or concur with amendments as on other Bills" can't bring themselves to do their jobs.  

I know there is a lot going on in Washington, but these tax provisions all have a 1 year life, and Congress knows that they therefore must act on them every year.  It is not as if the tax code is a small deal - it is only the means by which the federal government makes the money they spend.  It is lazy to say "we'll do it next year and make it retroactive" because what if you don't?  How can a person or business plan how to allocate their dollars when the tax laws that share in those dollars are in limbo?  How can a business plan to invest in new research when they can't budget what it will cost them because they don't know if the Research and Development credits will exist? Why should 23 million more American's have to worry if the AMT may catch them this year (or just be surprised by it) because our elected representatives can't get around to passing the annual patch that resets the income levels?

All of us are working harder, doing more to meet our responsibilities - Congress should be held responsible to to make the time to meet their responsibilities and this nonchalance about doing their jobs should not be ignored (like they are doing to the tax code). 
 

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After a flurry of reports that Congress was going to address the estate tax this week, Derek Jenson posts this week that it is being postponed until at least after Thanksgiving.  Derek comments that this makes the one year extension of the current federal estate tax law (a $3.5 million exemption per person with a 45% rate) virtually a lock - because what else do they have time to do at this point?

Interestingly, Derek comments on how this "band aid" is only going to create more of an issue for congress.  

The 2010 extension is easy. It is a tax increase. What is difficult is raising the exemption and lower the rates for 2011. That will be a tax cut. [snip] It is not difficult to image that a year from now we will still not have a permanent estate tax bill and will be facing another one year extension or a return to the $1.0 million exemption."

Recall that under the current law, while there is no estate tax in 2010, the estate tax returns in 2011 with a $1 million exemption and 55% top rate - so the trade off for one year of no estate tax is potentially agreeing to keep the current level of $3.5 million exemption and 45% permanently (not that anything is ever truly permanent with tax and congress).  

According to the Congressional Quarterly, the cost of keeping the current rates over the next 10 years versus allow the estate tax to go away for 1 year and then come back in at lower levels (ie, if Congress does nothing) is a staggering $233.6 billion over 10 years.  We we are looking at extreme health care costs on top of an already bloated budget - perhaps a do nothing approach may net Congress more dollars in the end.

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It seems that my in box is full of information on better places to live than New Jersey from a cost perspective (personally, I love the shore and NYC and Philly and skiing all being within 2 hours drive). I got a very thoughtful piece from my friends at RegentAtlantic Capital entitled "When You've Paid New Jersey Enough".  In the article, Bill T. Knox, "reviews the key factors that should determine whether someone who has lived in NJ and then establishes a home outside the state will be successful in escaping the state’s income and death taxes."  

Bill looks at New Jersey domicile and residency from the income tax and estate and inheritance tax perspective.  Domicile is a very tricky question - it is where you intend to be without intending to move.  So if you intend to be an Florida resident, but keep your New Jersey home and all your bills coming here, did you really leave New Jersey domicile?  

And why does domicile matter?  Well, New Jersey income tax applies to all income earned by New Jersey "residents", and the New Jersey Estate tax is levied against a New Jersey resident who dies.  Clearly, if there is a question, New Jersey would like to claim that you live here and you should pay here.  So, if your domicile and residency are supposed to be elsewhere, you need to make sure that you have dotted all "i's" and crossed all "t's" to make that happen.

Quick story - A client of mine died January 1, 2009.  She had changed her residency and domicile to North Carolina in the year before her death.  Her estate is approximately $3.5 million.  Had she dies a New Jersey resident she would have owed New Jersey approximately $230,000.  As a North Carolina resident, her estate tax bill is $0.00.  How is that for some effective Estate Planning???

In "When You've Paid New Jersey Enough" Bill provides a quick checklist of key domicile and residence issues.

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 It is no secret that New Jersey is the most expensive state to die in. New Jersey has the lowest estate tax exemption threshold of the country at a mere $675,000. In contrast, Florida has no state-level estate tax, and the creation of an estate tax is specifically banned by its Constitution. in addition, Florida's state revenues are generated primarily from property tax and sales tax. Due to all of these things, Florida is a less expensive State to live and die in New Jersey.  For years we've been recommending to clients who have homes in both New Jersey and Florida to consider changing their residency of Florida.

Bloomberg.com in Florida’s First Population Decline Since 1946 Squeezes Budget reports that Florida just experienced it's first population decline since 1946 -- that's over 50 years of growth -- and the last decline was apparently as a result of military personnel leaving Florida after World War II.  And the predictions are that this trend will continue:

 "Rising property taxes, increased homeowner insurance costs since the 2004-2005 hurricane season and competition for retirees from other states such as Georgia will damp population growth in coming years".

Additionally, "Sales-tax collections, which brought in 27 percent of revenue in 2008-2009 in a state without a personal-income tax, fell 10 percent last year."

From an estate planning perspective then, this raises the question of whether or not Florida will continue to be the "go to" state when recommending residency change from New Jersey as a way to reduce estate taxes.  Florida may need to change its revenue generation model, by raising sales tax, raising property tax, adding income tax, bringing back the intangibles tax, or some other manner that makes it more expensive to be a Florida resident.

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