Household Employees

household employeeHow do you determine if an individual who is hired to do household work is considered a household employee or an independent contractor? Per the IRS guidelines, an individual who works around your home is considered a household employee if you can control the type of work they do and how they do it. This applies to babysitters, cooks, maids, nannies, caregivers, gardeners, etc. unless the worker is customarily engaged in an independently established trade or business.

Once you’re able to identify you have a household employee, the employee will need to fill out Forms W-4 and I-9 so the correct taxes can be deducted from their paychecks. Keep in mind a household employee can elect out of having income taxes withheld from their pay. These two forms do not need to be submitted to the IRS. They are kept for the employer’s records.
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Nondeductible Employee Parking Expenses

Employee Parking SignEmployee parking expenses – how much can your business deduct?  

The Tax Cuts and Jobs Act (TCJA) resulted in many tax law changes. One of them was the new rule for determining the deductible portion of employee parking expenses.

Under the new Section 274(a)(4), expenses paid by employers after Dec. 31, 2017, to provide employee parking are generally no longer deductible. Also, new Section 512(a)(7), requires tax-exempt organizations to increase their unrelated business taxable income (UBTI) by the amount of employee parking expenses that are nondeductible.
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The New Jersey “Exit Tax”: a tax, or an inconvenience?

New Jersey Exit TaxI was giving a talk a few years ago to a group preparing to retire and they told me about a tax I had never heard of; the New Jersey “Exit Tax”.  The concept of a tax imposed just because of a change of domicile was new to me.  It turns out this is not a tax at all, but it is an inconvenience.

When a property is sold in New Jersey, a GIT/REP (Gross Income Tax Required Estimated Payment) Form is required to be recorded with the deed.  Resident taxpayers file a form GIT/REP-3 which claims exemption from withholding at the time of sale.  The myth of the Exit Tax arises when the former home is sold by a taxpayer who is leaving or has left New Jersey.  For most non-resident taxpayers, when the former home is sold either form GIT/REP-1 or GIT/REP-2 is required to be filed with the deed AND state income tax is required to be paid.  That required tax is either 10.75% of the net gain on the sale or 2% of the sales price, whichever is higher.  The state enacted this requirement in 2004 to insure that the taxes due on the sale of property by nonresidents could be collected. 
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The Bottom (Tax) Line for 2018

taxThere are reports all over the news that some taxpayers are disappointed with the size of their federal tax refunds. Since we have a pay as you go tax system, each year we estimate the taxes we are going to owe on our income and either pay estimated taxes or have withheld the appropriate amount of taxes so that when we file our returns, we’ve come close to the tax liability. If we overestimate what will be owed, we get a refund; if we underestimate we get a bill for the remaining taxes due and possibly interest and penalty on the deficiency.
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A Word to the Wise Issuer of 1099s

1099Every year some of our clients go through a mad rush getting the information needed to file 1099s timely and correctly. How does one stop this madness? A Form W-9 should be obtained from the vendor BEFORE any payments are issued. W-9s can be more easily obtained while the vendor is awaiting approval, when the vendor has more incentive to cooperate than after payment has been made.
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Get Ready for Taxes: Safekeeping tax records helps for future filing, amended returns, audits

Get ready for taxesGet Ready for Taxes!

WASHINGTON — With the tax filing season quickly approaching, the Internal Revenue Service wants taxpayers to understand how long to keep tax returns and other documents.

This is the seventh in a series of reminders to help taxpayers Get Ready for the upcoming tax filing season. The IRS has recently updated its
Get Ready page with steps to take now for the 2019 filing season.

The IRS generally recommends keeping copies of tax returns and supporting documents at least three years. Employment tax records should be kept at least four years after the date that the tax becomes due or paid, whichever is later. Tax records should be kept at least seven years if a return claims a loss from worthless securities or a bad debt deduction. Copies of previously-filed tax returns are helpful in preparing current-year tax returns and making computations if a return needs to be amended.
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Nonprofit Organizations: Charity Registration Filing Requirements with State of New Jersey

Nonprofit organizations are subject to numerous federal and state tax filing requirements, including annual tax returns. Most nonprofit organizations are required to file an annual federal tax return (Form 990, 990-EZ, 990-PF, or 990-N); however, state filing requirements are different and vary from state to state. The State of New Jersey (NJ) requires a nonprofit organization to file an annual tax return (initial registration and renewal registration) if it has 501(c)3 tax exempt status, is domiciled in NJ, or solicits NJ residents for a charitable cause.
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Qualified Opportunity Funds: A property investment opportunity?

The 2018 Tax Cuts and Jobs Act added something new to the tax code called Opportunity Zones. An Opportunity Zone is an economically-distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment. Localities qualify as Opportunity Zones if they have been nominated for that designation by the state and that nomination has been certified by the Secretary of the U.S. Treasury through their authority to the IRS. Opportunity Zones have now been designated covering parts of all 50 states, the District of Columbia and five U.S. territories.

Opportunity Zones are being used to spur economic development and job creation in distressed communities and in return they are providing tax benefits to investors. A Qualified Opportunity Fund (QOF) is formed and used for investing in eligible property that is located in a Qualified Opportunity Zone. A partnership or corporation can be used as an entity type.

Investors can defer tax on any prior gains invested in a QOF until the earlier of the date on which the investment in a QOF is sold or exchanged, or December 31, 2026. To defer/exclude prior capital gain, within 180 days you have to invest the gain amount in a QOF.

  • If the QOF investment is held for longer than 5 years, 10% of the deferred gain is excluded and goes away forever.
  • If the QOF investment is held for more than 7 years, the 10% becomes 15% and now that 15% deferred gain is excluded and goes away forever.
  • If the QOF investment is held for 10 years, any deferred gain recognized on the sale of your interest in the QOF is excluded forever, as long as the sale takes place before the end of 2047.

A list of Opportunity zones can be found here.
If you would like to discuss this topic further, please feel free to call us.

This article was contributed by Michael J. Reynolds, CPA, CEPA

Photo by Pierrick Barfety on Unsplash

Cannabis Business Income Taxes

cannabis taxes

Generally income tax returns are constructed to report business income, and then subtract cost of sales (the cost of producing or purchasing the product being sold) and the expenses of carrying on the business (things like employee wages, rent, and office supplies). There is an overriding provision for businesses that sell cannabis, however. Even though cannabis is legal in certain states, Section 280E of the federal income tax code states that no deduction is allowed for an amount paid or incurred in carrying on a business if the business consists of trafficking in controlled substances. Since marijuana is on the list of controlled substances, no deductions can be taken for the costs of carrying on the business of marijuana sales. Because of this, income tax represents a significant cost for these businesses.
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