New IRS Audit Rules – Partnerships
New partnership IRS audit rules, effective for audits of partnership tax years beginning on or after January 1, 2018, are a substantial departure from the prior partnership audit rules. The changes are expected to dramatically increase the audit rates for partnerships and will require partners to carefully review, if not revise, their partnership’s operating agreement.
The new rules generally apply to partnership returns filed after 2018, but careful planning today will help mitigate any unfavorable consequence. The IRS may collect any additional tax, interest, and penalty directly from the partnership rather than from the partners (the tax could be collected at the highest individual tax rate).
Particularly, the new term “partnership representative” replaces the prior “tax matters partner.” The partnership representative is critical. They will act at the single point of contact between the IRS and the partnership, and will have full authority to bind the partnership and the partners during an audit. A partnership representative can be chosen by the partnership or assigned by the IRS. As a result, it is important to understand how and when a partnership representative is designated.
A partnership with 100 or fewer partners may elect out of the new partnership audit rules and be subject to the old audit rules. Many factors need to be considered to make this election, including an understanding of the old audit rules as compared to the new audit rules and the corresponding impact on incoming and outgoing partners for the audit years in question. Certain specified procedures are required to elect out of the new partnership. The opt-out election must be made in a certain manner and at a specific time frame to make the election valid.
Our tax professionals here at GCS have the knowledge and detailed understanding of both the new and old partnership audit rules. We can serve to guide you in making the right decision in how your partnership will be audited. Please don’t hesitate to contact us with questions or concerns or if you would like to meet with us to discuss this issue or any of your other financial or tax needs.
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Benefits of IRA Qualified Charitable Distributions
With the passage of the Tax Cuts & Jobs Act (TCJA), many taxpayers will no longer itemize their deductions, and as such, will not be able to take advantage of tax savings through charitable contributions. The qualified charitable distribution (QCD) is an attractive tax planning tool for senior taxpayers looking to meet their individual retirement account (IRA) required minimum distributions while making a tax deductible charitable contribution.
QCDs can benefit those taking the standard deduction if they choose to make their charitable contributions directly through an IRA distribution. Thus QCDs may lead to significant tax savings.
Recognizing that taxpayers may want to explore the option of using QCDs, there are numerous requirements, such as limitations on the QCD amount that may be excluded from gross income in a tax year, the types of IRAs that distributions can be made from, the manner in which the distribution should be made, and the required timing of the distribution.
Other noteworthy considerations include carryover provisions for unused portion of the QCD allowed for a taxpayer for a tax year, whether contemplated Roth conversions still make sense to them in the long run, and the state income tax implications of a QCD.
This tax planning tool may have additional impacts on your tax filings, such as lessening the effect of phase outs and limitations on other benefits. Our experienced professionals and advisors at Gramkow Carnevale Seifert & Co., LLC can be a valuable asset to determine how QCDs may impact your individual tax planning.
Did You Know?
Most of our full-time tax and accounting staff are highly involved members in many accounting associations such as American Institute of Certified Public Accountants (AICPA) and New Jersey Society of Certified Public Accountants (NJSCPA.)
As a follow up to our August 2018 e-mail blast, we want to provide an important update on the status of the New Jersey Amnesty program.
The New Jersey Division of Taxation recently announced the period of the tax amnesty program will be 60 days, beginning on November 15, 2018 and ending on January 15, 2019. Accordingly, please be watchful for any notices you receive from The Division of Taxation and forward to us so we can review to determine liability exposure and what the best course of action is to respond.
Should you have any questions or wish to speak to a team member, please don’t hesitate to call us at 201-599-0008.
New Jersey Sales Tax Audits
Due to the recent Supreme Court ruling the case of Wayfair vs South Dakota, we foresee a large rise in the number of sales tax audits.
In short, the Supreme Court ruling on the case Wayfair vs South Dakota overturned a case from 1992. This new ruling states that any sales created over the internet will be subject to sales tax in each state where the product is sold, even if you or your company does not have a physical presence in that state.
For example, if your company is physically placed in New Jersey, and you sell to a client who is in Pennsylvania, your company is now required to collect sales tax, for each product sold, for the state of Pennsylvania.
While this example pertains to New Jersey, this is applicable to all states that impose state & local sales tax. The exception states that do not impose a sales tax are Alaska, Delaware, Montana, New Hampshire and Oregon. If you sell to any state or locality imposing sales tax, you will be required to charge, collect, remit, report and file sales tax returns.
Receiving an audit notice can raise a lot of questions and uncertainty, but we here at GCS have the knowledge, resources, and experience, in various states, to help assist and guide all of our clients throughout the sales tax audit process to minimize sales tax liabilities and exposure.
Please don’t hesitate to contact us with questions or concerns or if you would like to meet with us to discuss this issue or any of your other financial or tax needs.
Did You Know?
Gramkow, Carnevale, Seifert, & Co., LLC provides tax and accounting services to clients from all over the country and the world.
New Jersey Workers Will Be Entitled to Paid-Sick Leave:
What Employers and Employees Need to Know
The New Jersey Paid-Sick-Leave Act (“the Act”) recently went into effect on October 29, 2018. The Act will require New Jersey employers of all sizes and business entity types to provide their covered employees (part-time and full-time) up to 40 hours of paid sick leave per year. As a result, there are many changes employers need to be aware of, and these changes should be implemented right away.
The Act requires an employer to accrue sick time leave as it is earned or to front load the full 40 hours in the beginning of the year.
If an employer does not front load the 40 hours of sick leave in the beginning of the year, this sick leave will accrue at the rate of one hour for every 30 hours worked. Additionally, employees will have the ability
to carry over a maximum of 40 hours of sick time into the following year.
In order to properly administer paid-sick-leave, both employers and employees must understand
how sick leave can be used. It is important that an employer knows and exercises the various parameters and guidelines of the new law to ensure the proper procedures are followed. For example, the employer must provide all employees with a written copy of their rights.
Employers should understand what rules govern carryover and payout, in what increments can employees use sick leave, what happens to accrued sick leave upon transfer, separation or reinstatement of an employee, and what notice, documentation, and record keeping rules are required. Employers should also know about the impact of local paid-sick-leave laws and how the new law will be enforced. Employers can be held liable for improper use of sick leave if the guidelines are not properly adhered to.
These changes that face businesses and individuals can be a large impact on day to day operations. Our team of experienced professionals and advisors at Gramkow Carnevale Seifert & Co., LLC can be a valuable asset to guide both employers and employees through these changes in the state of New Jersey by helping you understand and implement the New Jersey Paid-Sick-Leave Act.
Did You Know?
Gramkow, Carnevale, Seifert, & Co., LLC (GCS) recently launched a brand new website. The website is a great resource for questions regarding services we provide, contact information, and other pertinent information.
You can visit our new and updated website at: https://www.gcs-cpa.com
Sometimes we take risks and make financial decisions anticipating stability or changes in economic factors impacting the outcome of our decisions. Taxpayers who made a regular-IRA-to-Roth-IRA conversion in 2017 may regret their decision due to factors such as market declines. Fortunately, such taxpayers may recharacterize (unwind) their conversions, but they must act no later than October 15, 2018. We have experienced professionals at Gramkow, Carnevale & Seifert & Co., LLC who understand the opportunities and challenges when converting or recharacterizing contributions to a Roth IRA.
Taxpayers who believe Roth IRAs are a better choice for them than regular IRAs may convert funds from regular IRAs to Roth IRAs within 60 days of the distribution. Additionally, a distribution from a qualified retirement plan can be contributed to a Roth IRA through a direct rollover or received by the distributee and contributed (rolled over) to a Roth IRA within 60 days.
Unlike the usual IRA rollover, however, a switch from regular IRA or qualified plan to Roth IRA is not income-tax-free. Rather, it is subject to tax as if it were distributed from the regular IRA or qualified plan and not recontributed to another IRA. It generally isn’t subject to the 10% premature distribution tax.
Many taxpayers who made a 2017 regular-IRA-to-Roth-IRA conversion may find the move was not to their advantage. An example may be because the Roth IRA account has declined in value because of a stock market slump or because the effective income tax rate on the conversion was higher in 2017 than it would otherwise be in 2018 (as a result of new tax law lower income tax rates).
Taxpayers in this situation, may unwind the 2017 transaction by recharacterizing the regular-IRA-to-Roth-IRA conversion no later than October 15, 2018. This involves transferring the converted amount (plus earnings, or minus losses) from the Roth IRA back to a regular IRA via a trustee-to-trustee transfer.
In addition to a very small window to act upon, there are many complicated factors that need to be considered in making a 2017 recharacterization, including the timing, the age of the taxpayer, considerations of reconverting in 2018 and the time frame for reconverting in 2018, not to mention the reporting aspects of a recharacterization. We have experienced tax professionals and financial planners who understand the multiple aspects of the Roth recharacterization decision and the various planning opportunities that come with it. Please contact us to discuss this issue or any other issues as we look to offer solutions designed to help meet your financial needs.
Did You Know?
Gramkow, Carnevale, Seifert, & Co., LLC has received the Inside Public Accounting’s Best of the Best Firms recognition for seven years.
As we age, some of us may experience significant changes in health resulting in chronic or terminal illness. The life transition from relatively good health to poor health comes with sudden and increased medical costs. Understanding the nature of these medical costs and how they will be paid is a good start but only part of this life transition process. Establishing a “short term financial needs plan” for medical costs can help minimize anxiety about covering health care costs. We have several years of experience advising aging clients on how to properly plan and manage health care costs, bringing clients and their families great peace of mind.
We begin by advising and helping clients establish a care budget. This is a simple budget focusing on the short term (6 to 24 months) following initial diagnosis, identifying the estimated costs of care for serious illness. A care balance sheet is also prepared, identifying all assets and potential sources of tax-free cash that can be used to finance estimated health care costs. Identifying care-related medical expenses is the most important step in the process. We can help you identify and categorize all out of pocket health care costs.
The care budget not only to serves to identify surplus or deficits and sources of cash flow available for anticipated health care costs but also serves to track health care coverage and related changing costs as a result of transitioning from one type of coverage to another. It also records key election dates the client needs to meet.
Being diagnosed with a chronic or terminal illness is a life changing event. We understand when this situation occurs the client and his or her family are often emotionally overwhelmed and as a result have difficulty focusing on the process of managing their health care costs. We have experienced professionals in establishing short term financial needs plans to help clients through this process that will alleviate the fear, uncertainty and anxiety clients and their families face when initially diagnosed with a chronic or terminal illness. Please contact us to discuss this, or any other issue that has occurred.
Did You Know?
You can securely upload and download confidential documents through our secure file transfer portal. This portal can also be used to easily access your tax filings at any time.
If you would like a portal set up for your individual or business needs, please contact GCS at your earliest convenience.
Governor Phil Murphy has signed legislation that requires the Division of Taxation to conduct a tax amnesty during a period that will last no longer than 90 days and end no later than January 15, 2019. The start date of the tax amnesty program has not yet been determined.
A taxpayer who has failed to pay any state tax on or before the day on which the tax is required to be paid may pay to the Division on or before the last day of the period established by the Division, the amount of that tax and one-half of the balance of interest that is due as of November 1, 2018, but without the remaining one-half of the balance of interest that is due as of November 1, 2018 and without any late payment penalty, late filing penalty, cost of collection, delinquency penalty or recovery fee that may otherwise be due. The taxpayer will be required to pay any civil fraud or criminal penalty arising out of an obligation imposed under any state tax law.
The amnesty program applies only to state tax liabilities for tax returns due on or after February 1, 2009 and prior to September 1, 2017. The taxes that qualify under the amnesty program include unassessed amounts as well as amounts under audit or being contested with the Division of Taxation, and all state taxes administered by the Division of Taxation matter (not including unemployment type taxes administered by the Department of Labor).
The amnesty is not available to a taxpayer who has been notified by the Office of Criminal Investigation in the Division of Taxation that he or she is under criminal investigation for a state tax
In summary, all New Jersey businesses with non-compliance issues should consider this amnesty program, as there is a 5% penalty, which is not subject to waiver or abatement, in addition to all other penalties, interest, or costs of collection otherwise authorized by law, upon any state tax liabilities eligible to be satisfied during the period established that are not satisfied during the amnesty period.
This is an excellent opportunity to clear any past due tax liabilities, with no penalty assessment and reduced interest costs. We have experienced professionals dealing with IRS and state amnesty programs who can assess liability exposure for non-compliance, identify options and determine the proper course of action. We understand the importance of ensuring tax returns submitted for amnesty are prepared completely, accurately and filed timely to ensure the full benefits of tax amnesty are realized. Please contact us to discuss this, or any other issue.
While many people take summer vacations, data thieves do not. Phishing emails and telephone scams continue to pop up around the country. The IRS reminds everyone to be vigilant to avoid becoming a victim.
Here are some things for taxpayers to remember so they can keep their personal data safe:
- The IRS does not leave pre-recorded, urgent messages asking for a call back. In one scam, the victim is told if they do not call back, a warrant will be issued for their arrest. Other variations may include the threat of other law-enforcement agency intervention, deportation or revocation of licenses. The IRS will never threaten to immediately bring in local police or other law-enforcement groups to have the taxpayer arrested for not paying.
- Criminals can fake or “spoof” caller ID to appear to be anywhere in the country, including from an IRS office. This prevents taxpayers from being able to verify the true call number. If a taxpayer gets a call from the IRS, they should hang up and call the agency back at a publicly-available phone number.
- If a taxpayer receives an unsolicited email that appears to be from the IRS, they should report it by sending it to [email protected] Some people might also receive an email from a program closely linked to the IRS, such as the Electronic Federal Tax Payment System. Recipients should also send these emails to [email protected]
- The IRS does not initiate contact with taxpayers by email to request personal or financial information. The IRS initiates most contacts through regular mail delivered by the United States Postal Service.
There are special circumstances when the IRS will call or come to a home or business. This includes situations when a taxpayer has an overdue tax bill or when the IRS needs to secure a delinquent tax return or a delinquent employment tax payment.
How are my Social Security benefits calculated?
Your monthly benefit amount is based on your highest 35 years of earnings. Your low earnings years in the beginning of your career are dropped. If you do not have 35 years of earnings, your monthly benefit will be reduced since years without earnings are not counted. You can see what your estimated monthly benefit is by creating an account at The Social Security Administration online at www.SocialSecurity.gov and using the Retirement Estimator tool at www.SocialSecurity.gov/retire/estimator.html.
Will my Social Security benefits by taxed?
The simple answer is yes, Social Security is taxable. However, to determine if you must pay taxes on your Social Security benefits depends on your income level. According to the IRS, a quick way to find out if you will pay taxes on your Social Security income is to take one-half of your Social Security income and add that to all other income, including tax exempt interest. This number is known as your “combined income”. If your combined income is above $25,000 if you are single (or head of household) or $32,000 for married filing jointly, your benefits may be up to a maximum of 85% taxable.
For married couples filing jointly, you will pay taxes on up to 50% of your Social Security income if you have a combined income of $32,000 to $44,000. If you have combined income of more than $44,000, you will pay taxes on up to 85% of you Social Security.
When should I file for my Social Security retirement benefits?
You can start receiving benefits as early as age 62. However, the longer you wait, up to age 70, the higher your monthly benefit will be…for the rest of your life. You may be able to earn up to 32% more in monthly benefits by waiting. You should not delay filing past age 70, as there is no increase in benefits after age 70. Your longevity and health are a few of the very important factors to consider when deciding when to file for benefits and whether you should file early or delay filing. Once you have decided to apply, you may do so up to four months before you want your benefits to begin.
What is Medicare and when should I apply for Medicare?
Medicare Part A is for hospitalization insurance and is free for most people. Medicare Part B is for medical insurance and requires a monthly premium. Consider applying for Medicare at age 65 even if you are not applying for monthly Social Security benefits. Because Medicare Part A is free, it pays to enroll as soon as you’re eligible at age 65. Signing up for Medicare Part B may depend on if you have health insurance through your employer and if you are still working. Your company’s group health insurance plan may serve as your primary health insurance. Be aware that signing up for Medicare late may result in an increase in your Part B premium if you do not have group health coverage through your employer. If you are still working and are employed by a company with 20 or more employees and have health insurance through that company, you can delay applying for Medicare Part B without facing a penalty. You should speak with your employer’s health benefits administrator so that you understand how your current coverage works with Medicare.
We can help
For many people, Social Security is a core component of their income in retirement. We can assist you in understanding this process and in developing a retirement plan that seeks to maximize your benefits.
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