New Status for Therese Connell

Therese Connell

Therese Connell, one of the firm’s Partners and Director of its Estate and Trust department, marks 25 years with the firm this year. She has decided to move to part-time status at Capaldi Reynolds & Pelosi effective August 31, 2018.

Therese has served in her current role since 1999, where she has been integral in managing firm software and internal processes. She joined the Firm in 1993, after working in another local accounting firm. Therese graduated from Immaculata College with a degree in Home Economics.

During her tenure with the firm, she developed the estate and trust work of the Firm into one of its key divisions. Therese is a mentor to a number of the Firm’s professionals and a trusted advisor to many of the Firm’s clients and business partners. She also plays a critical role in helping the Firm develop and maintain its information technology systems as well as relationships with tax and information systems vendors.

“In the 25 years of her tenure with Capaldi Reynolds & Pelosi, Tese has attained the status as one of the area’s premier experts in her field. Her incredible knowledge base, dedication to excellence, and service philosophy have really made an impact,” said Donna Buzby, one of the Managing Partners of Capaldi Reynolds & Pelosi. “Tese is an inspiration to everyone here, and I hope she continues to work with us for many years.”

Quickbooks Quick Tip

Quickbooks TipsHave you ever posted to incorrect accounts or classes for a few months in Quickbooks?  One way to resolve the problem is to go back to each transaction and change it manually.  This is both tedious and time consuming. Fortunately, Quickbooks has an accountant’s tool called “Reclassify Transactions.” 
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Non-Grantor Trust: A Tool for Estate, Asset Protection and Income Tax Planning

estate asset protection

While there are many forms and types of trust, this article highlights some of the various beneficial structures that encompass the use of non-grantor trusts.  The use of non-grantor trusts to achieve estate, asset protection and income tax planning should be customized to address specific facts, assets and needs.

Trusts are a centuries old vehicle originating from England used to allow an individual to transfer assets for the benefit of one or more beneficiaries.  The settlor or grantor of the trust transfers the assets to a trustee to be held in trust.  The trustee is tasked with managing, preserving and growing the assets based on the intent and instructions of the grantor set out in the trust.
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Frank Pelosi To Retire From Capaldi Reynolds & Pelosi

Frank Pelosi

Capaldi Reynolds & Pelosi today announced that Frank Pelosi, one of the Firm’s Managing Partners and Director of Litigation Support, has decided to retire effective August 31, 2018.

Frank has served in his current role at the Firm since 2000, where he helped oversee its most critical operations and management processes.  He joined the Firm in 1971 after graduating from Mount Saint Mary’s College with a degree in Business Administration.  He received his MBA from Monmouth University in 1980.
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Nexus for Sales and Use Tax

On June 21 of this year, the Supreme Court reached a decision in the South Dakota v. Wayfair case which could have a far-reaching impact on clients with sales and operations in multiple states. Prior to the ruling, case law dating back 26 years to the National Bellas Hess Inc. v. Department of Revenue of Illinois and Quill Corp. v. North Dakota, established the rules for “substantial nexus” used to determine whether or not a business had an obligation to collect and pay sales and use tax to a state taxing authority. The rule, as originally set forth and upheld, called for a seller to have a physical presence (meaning either a physical structure such as a building or warehouse, or a human presence like a sales representative) in order to establish nexus within that state. Under this guideline, a seller with substantial sales, yet no physical presence, in a given state was not required to remit sales tax on goods sold, creating a substantial missed revenue opportunity for state taxing authorities.

Under the South Dakota v. Wayfair ruling, it was argued that the original guidelines held under the previous Supreme Court rulings had caused “South Dakota to lose between $48 and $58 million annually.” In response to this tremendous shortfall, South Dakota, which has no state income tax and derives a large portion of its tax revenue from sales and use tax levies, enacted its own legislation requiring sellers with South Dakota annual  sales in excess of $100,000 or 200 separate transactions to collect and remit South Dakota sales tax. The law, which contradicts the established provisions of Bellas and Quill, was met with resistance from retailers, especially online retailers such as Wayfair, a furniture and home goods retailer that derives substantially all of its sales from online sources, with no physical presence (and therefore no “physical nexus”) in the state. Ultimately, the case was tried and appealed all the way to the Supreme Court, which ruled 5 to 4 in favor of South Dakota, arguing that a physical presence, as defined under past case law, is no longer a meaningful measure of whether a seller has established nexus within a given state. Thus the South Dakota legislation redefining nexus based on a volume of sales was upheld as enforceable.

This decision will have far-reaching consequences for businesses with multi-state sales that extend well beyond South Dakota. Now that the previous federal definition of “physical nexus” has been nullified, state taxing authorities will have more flexibility in establishing nexus provisions for doing business within their respective jurisdictions.  This will require businesses to review their multi-state sales for potential areas of exposure to sales tax obligations previously believed to be nonexistent. Businesses with substantial multistate sales, especially those with substantial online sales, may look to utilize automated sales tracking software that can help to alleviate some of the administrative burden for tracking potential obligations.

Finally, the provisions set under South Dakota v. Wayfair could expose businesses to state corporate and income tax filing requirements as well, as many states also have corporate return requirements set under minimum gross receipts thresholds. Businesses which review their records and determine a potential area of exposure caused by lack of compliance with these state provisions may also want to consider applying for a voluntary disclosure agreement (VDA) in order to limit the potential exposure within a given state to a specified period, thus avoiding the unlimited statute of limitations for states to look back and levy past-due taxes, penalties, and interest.

For anyone seeking to learn more about this topic and how it may affect you and your business, please contact:

Anthony Panetta



Determining Social Security Benefits

Social Security is a valuable resource for older and disabled workers as well as the worker’s survivors and dependents. It provides 90% of the cash flow for one-third of retirees. It delivers 28% of the cash flow for high income retirees. A mistake in claiming these benefits can be permanent and costly to the worker and his/her family. This is the second in a series of articles on Social Security. The objective of the series is to help you make better decisions regarding claiming benefits. To make good decisions we need to identify, determine, and appreciate certain terms and concepts. The theme of this installment is the procedure used to calculate Social Security benefits and a brief discussion of average benefits. Estimating your benefits is the essential first step in the SS decision-making process. Fortunately, there are number of free and commercial online calculators that will generate rough estimates of your benefits. To obtain the proper results from the calculators and to maximize your return from the taxes paid, you should understand how the benefits are determined. The Social Security Administration provides valuable assistance with the SSA’s annual statement of benefits, over-the-phone estimates (800/772-1213), in-person estimates at a local SSA office and several free online calculators. The best starting point for SS planning is to establish an account using the website, SSA.GOV/myaccount. The SSA’s statement is an indispensable tool providing a summary of a worker’s historical earnings and estimates of projected benefits. The SSA statement provides you with the information to facilitate the use of the planning calculators. The benefit formula is a bit mind-numbing; this article will focus on the pertinent facts that you need to know to make better decisions.

Progressive or Regressive?

Is our Social Security program progressive or regressive? This is a curious question. A progressive tax structure is one in which the rate increases as the payer’s income increases. It favors lower income individuals. Taxpayers who earn higher incomes pay a greater proportion of their income as tax. A regressive tax is one whose rate decreases as the payer’s income increases. With a regressive rate structure higher income taxpayers pay a smaller average percentage of their total income in tax than lower income individuals. In 2018, workers in the United States pay 6.2% in Social Security taxes on active income (wages and business income, non-investment income) earned up to $128,400. The wage ceiling is adjusted annually for inflation. Employers pay in at the same rate and on the same base. Self-employed individuals pay both their share and the employer’s portion or 12.4% in total. Therefore, a worker earning $128,400 pays $7,961 in SS taxes. Medicare taxes are also paid by employees, employers, and self-employed individuals, but this is a subject for another article. A worker who makes $249,000 in 2018 pays $7,961, which is an average rate of 3.2% or one-half the rate of workers who earn less than the base wage. This example illustrates why many economists describe Social Security as a regressive tax structure. This article will focus on retirement benefits, and we will see if Social Security benefits are progressive.

The Social Security Benefit Formula

The Social Security Administration calculates a worker’s benefits using a multipart formula. Your covered lifetime earnings record is very important. As noted earlier, it is first a good idea to establish an account using the SSA site. You should check the reported earnings periodically during your working career to confirm that it is correct. Errors are sometimes made and these errors can significantly distort your benefits. Mistakes made in your recent history are easier to fix than those made many years ago.

A key term in the benefit calculation process is AIME, Average Indexed Monthly Earnings. The annual income used is the lower of what the worker earned for the year or the maximum Social Security base wage for that year. The annual income is indexed to reflect the rise in average wages each year. Indexing levels the value of earnings from earlier in your career so they are comparable to those earned later. For example, $10,000 earned in 1983 may be worth the purchasing power of $40,000 in 2018 dollars. Earnings through age 60 are indexed, and post-60 wages are not indexed. Post-60 earnings do count in the calculation; they just are not indexed. The Social Security Administration selects and sums the 35 highest inflation-adjusted yearly earnings. The sum is divided by 420 (35 years times 12 months per year). The result is the AIME, which is used to calculate the Primary Insurance Amount (PIA). The PIA is the monthly benefit that a worker will receive at Full Retirement Age (FRA). The benefit formula is progressive (low earners receive a greater proportion of the pre-retirement income) with three tiers. The first $895 of AIME is multiplied by 90%, the next chunk up to $5,397 is at 32%, and the amount over $5,397 up to the annual maximum is multiplied by 15%. For 2018 the maximum PIA is $2,788. The bend points in the formula are adjusted each year based upon the growth in the economy-wide average earnings.

For example, three friends, Abe, Bob, and Clay were all born in the 1956 and their respective AIMEs were $2,800, $5,600, and $11,200. The PIA for Abe would be $1,415 [$895 times 90% + ($2,800 – 895) times 32%]. His PIA is 50.5% of his AIME. The PIA for Bob is $2,277 [$895 times 90% + ($5,397 – $895) times 32% + ($5,600 – $5,397) times 15%]. Bob’s PIA is 40.7% of his AIME. Bob’s AIME is 100% higher than Abe’s AIME and his PIA is only 60.9% higher. Clay’s PIA is limited to $2,788, the 2018 maximum benefit at age 66. Clay’s PIA is 27.3% of his AIME. Clay’s AIME is twice that of Bob yet his PIA is only 22.5% higher. The example illustrates the progressive nature of Social Security benefits. Recipients with lower AIMEs collect a higher percentage of benefits. However, workers with higher earnings generally collect higher benefits. The bend points used for the benefits computation are those in effect at your age 62.

If you are age 55 and doing retirement planning, what do you do?  First, you need to review the accuracy of your earnings record. Second you need to make realistic assumptions regarding your future earnings. The index factors for earning from now until age 60 along with the bend points at your age 62 require estimation. If you use the projections provided by the SSA using their website, remember estimates have been employed. Also, the retirement benefits reported on the SSA statement for age 62, FRA and age 70 are in today’s dollars. If you are currently age 55, your benefits at FRA will most likely be higher due to cost of living adjustments.

As reported in the last article, FRA for those individuals born in 1937 and prior was 65 and gradually increased to 66 for those born in 1943. For those individuals born after 1954 the FRA creeps up year by year in 2 month intervals until those born in 1960 have a FRA of 67. The early retirement penalty also increases as the FRA lengthens. The early retirement penalty decreases to 0% gradually (but not linearly) as the recipient’s age gets closer to full retirement age.

Average Monthly Benefits

The average monthly benefit for retired workers in 2018 is $1,404. This appears to be quite low in comparison to average earnings of $45,000+. The primary reason for the low average is the vast majority of workers start to collect Social Security at age 62 or 63. Retiring in 2018 before FRA means realizing an early retirement penalty of 25% if retired at 62 or 20% if retired at age 63.


Reviewing your earnings statement can be informative. Spouses who have flexibility to legitimately allocate their income, such as couples in their own business, can use the progressive nature of bend points in the PIA formula to maximize the benefits for the couple. Obtaining a good estimate of your benefits is critical. Some online calculators are easy to use, others can be very time-consuming, and some require a fee. The calculators can generate varying results. Understanding the formula should help you evaluate the results. Your SSA statement is the most authoritative source and easiest to obtain. The SSA says that it provides information and not advice. Regardless of the source for your benefits estimate, you need to confirm that the historical earnings are correct and future earnings estimates are realistic. Is the estimate quoted in today’s or future dollars?  Are the payments gross or net of withholding for taxes and Medicare Part B? Planning for a safe and secure retirement is important. You may want to consult with an adviser who is experienced on the topic.

By Francis C. Thomas, CPA/PFS


Entertainment Tax Deduction

The Tax Cuts & Jobs Act (TJCA) repealed the deduction for business entertainment beginning in 2018.  This includes expenditures for taking clients to sporting events and shows, and paying for season tickets for various sporting events.   Generally, any dues for social clubs such as country clubs or athletic clubs will also be non-deductible.

Most business-related meals will be 50% deductible.  If no business is discussed, the meal is not deductible for tax purposes and should be classified as entertainment.

Deductions will be permissible for sponsorship payments, net of the fair market value of any meals and entertainment, as well as for payments for professional dues and meetings such as civic organizations, trade associations and professional organizations.

Proper classification of the above-cited expenditures will be important for proper tax reporting.  Accordingly, it is essential to have your company’s internal accounting set up appropriately.  Please contact us if you would like assistance in identifying and classifying these expenses to treat them correctly on your tax return.

By Terri L. Marakos, CPA

CRP Staff: Actively serving the community

Capaldi Reynolds & Pelosi staff actively serving the communityThe staff of Capaldi, Reynolds & Pelosi (CRP) is often found crunching numbers and burning the midnight oil, especially during the 1st quarter of the year. Sometimes, however, they do come up for air and when they do, they get involved in some very worthwhile ventures in the community. Several members serve on boards of civic organizations, participate in local events, and even offer presentations to various groups. Here are some of our activities outside the office.
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New Jersey Health Insurance MandateNew Jersey Health Insurance Mandate to be effective in 2019: In response to the repeal of the Affordable Care Act’s (ACA) federal health insurance mandate that will become effective in 2019, legislation was signed on May 30, 2018 by New Jersey Gov. Phil Murphy whereby New Jersey will impose a similar mandate effective in taxable years beginning January 1, 2019.   The New Jersey law requires all state residents to have health insurance or pay a penalty.  The penalty will be calculated based upon the current federal formula, which is 2.5% of income or $695 per adult taxpayer and $347 per child, whichever is greater.  A family’s maximum penalty is $2,085.   The penalty is designed to increase each year that someone is not covered, but cannot exceed the price of a lower-cost bronze-level plan on New Jersey’s ACA marketplace.  The cost of such a plan averaged just under $3,300 in 2017.

New Jersey is the second state to enact a health insurance mandate.  In 2006, Massachusetts was the first state to adopt an individual mandate.  Other states are currently developing similar legislation.

By Terri L. Marakos, CPA

Quickbooks Online? How to avoid common mistakes:

Quickbooks Online

  1. Get educated and get familiar! Sign up for a live seminar. Intuit/Quickbooks also offers free online webinars. You can go to to sign up for free classes. In addition, there are resources and video tutorials that will demonstrate different tasks in Quickbooks. These can be found at:
  2. Get consulted! Always contact your tax professionals before converting your desktop version of Quickbooks to the online version. Once converted, there is no turning back. Your tax advisors and accountants can help keep you on the right track.
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