IRS gives most individual taxpayers until July 15 to file

The Internal Revenue Service has just announced that most Americans will have an additional 90 days to pay taxes due to the unprecedented situation we are facing. This pushes the deadline date from April 15 to July 15, 2020. The extension is available for taxpayers who owe $1 million or less in taxes. During this time period, fees and penalties are waived, too. 

Read more here.

Breaking Up With Your High-Tax State Can Be Hard To Do

Increasing numbers of people are fleeing high tax states for lower-tax environments such as Florida. People have always moved to Florida to escape estate taxes and income taxes, of course. However, the migration has kicked into higher gear of late because of the Trump tax legislation that limits deductions for state and local taxes (SALT) to just $10,000 annually.

Just like rejecting a longtime lover for someone new, breaking off your relationship with your high-tax state can get complicated, and ugly. After all, you have been a dependable source of revenue for your state. Don't be surprised if there is clinging and crying. If the state launches a non-residency audit, you will be required to furnish evidence that you have really and truly established your domicile in Florida, and severed ties with your former state. Without such evidence, your former state's tax authorities can go after you.

That is just what happened to Robert Campaniello, whose case was described in a June 15, 2019 Financial Advisor article. Owner of high-end furniture showrooms in New York, Campaniello claimed that he had moved from New York and was a permanent Florida resident for tax and other purposes. New York State began a non-residency audit to investigate his claim. Campaniello told auditors that he owned a home in Florida, and noted that it was there he kept his Ferrari, a catamaran, and his prized souvenir guitars. In the end, New York didn't buy it. The audit found that Campaniellos's Manhattan showroom was still open and still managed by his wife. His mail was still being delivered to his New York residence. The case concluded in 2015 when New York State won a judgment and collected nearly half a million in taxes from him.


You Don't Need To Be Wealthy To Face Scrutiny

You need not be mega-wealthy to face this kind of scrutiny by your former state. Non-residency audits are becoming more common and more rigorous. As Dan Gazzle, spokesman for the New York State Department of Tax and Finance told Financial Advisor: “Ensuring taxpayers pay their fair share is a top priority, therefore, our nonresident audit program continues to be very active.” Not only active, but aggressive: an audit can delve deep into your affairs, even procuring cell phone records to determine where and when your calls originated. 

If you are thinking of moving to Florida and reaping its lower-tax advantages, you must take any and all steps necessary to demonstrate that you have established a permanent residence in Florida and made a clean break with your old state. That means more than furnishing a Florida address or parking your Ferrari in the driveway. Seemingly small, insignificant details - where your pet sees a veterinarian, for example - can bolster or belie your claim.

Steps To Take To Demonstrate Florida Residency 

Among the other steps you will want to take to prove your Florida residency include:

• Create a will or other estate plan in Florida

• Change your mailing address

• Get a Florida drivers license

• Transfer your banking and brokerage accounts to Florida-based institutions

• Purchase a safe deposit box in a Florida bank

• Join civic, religious organizations based in Florida

• Establish new relationships with Florida medical providers. Transfer your medical records to your new providers.

• Spend at least 183 days of the year here

And don't forget: document everything! That way, you'll be prepared if the auditor comes calling.

How To Check On Your Tax Refund

Are you expecting a tax refund this year? Whether you file your return online or submit the paperwork by mail, you can track your refund online with the Internal Revenue Service's "Where's My Refund" tool.

The tool allows you to track the dates your tax return was received, your refund approved, and  your refund issued. You can start tracking your refund 24 hours after you submit your return electronically. If you mail in your return, the information is available four weeks after you file. The information is updated daily. Here is the direct link to check your refund status: https://sa.www4.irs.gov/irfof/lang/en/irfofgetstatus.jsp 

You will need to have your Social Security number, the amount you are expecting to be refunded, and your filing status.

The IRS states that you will receive your refund faster if you opt for direct deposit over mail.

You can also check your refund status using the IRS mobile app, IRS2go. Find out more about the app.

New 1040 Tax Form: Really Simpler?

In keeping with the administration’s vow to simplify tax filing, the Internal Revenue Service is putting finishing touches on its revised 1040 income tax form. The new form has been touted as postcard-sized, and is to replace the current 1040,1040A and 1040EZ forms. About three-quarters of taxpayers currently use one of those three forms.

So does the new form ease taxpayers' burden? Maybe - depending on who you are. Although not quite as small as a postcard, the new form has only 23 lines, down from the 79 lines of the current one. Because the new tax law roughly doubles the standard deduction, many taxpayers will not bother to itemize. For them, the new form will be simpler.

For others, the new form won't simplify much. For example:

• The 19 million taxpayers who according to the Tax Policy Center will continue to itemize, will still need to complete one or more of six associated tax schedules. 
• The form has space for five forms of income: wages, salaries, tips, etc;  interest; dividends; pensions; IRAs; annuities; and Social Security. If you have other types of income - for example, business income or capital gains income - you will still need to fill out additional schedules. 
• According to a recent article in Inc, some very common tax strategies will also require completion of additional tax schedules - for example, reporting retirement savings contribution credits.

You can read more about the new form in this article in the Wall Street Journal(sign-in required to read).

House Tax Bill Raises Concern Among Advocates for Seniors, The Disabled

Debate on the proposed tax overhaul is heating up. Both chambers of Congress have now produced their own bills which have significant differences.

Advocates for older Americans and the disabled have strongly criticized a key provision in the House's Tax Cuts and Jobs Act. The bill eliminates the itemized medical expense deduction, which currently allows taxpayers who spend more than 10% of their adjusted gross income on medical costs to deduct a portion from their taxes. It is anticipated that older Americans, the chronically ill and the disabled - those who tend to have high medical expenses - would be most impacted. Out-of-pocket costs for long-term care would not be deductible, nor would premiums for long-term care insurance, co-pays, etc.  

Only about 6% of filers - 8.8 million households - itemized medical expenses in 2015, reports the IRS. But of those who did, the AARP notes, 74% were over the age of 50, and half had incomes of $50,000 or less.

House Republicans counter the criticism by noting the small percentage of Americans who take the itemized deduction. They assert that overall, the proposed bill would be helpful to seniors. Republican Rep. George Holding of North Carolina states: "In the context of tax reform, this targeted deduction is no longer vital thanks to the other tax benefits for seniors and all Americans provided in this bill."

Another area of concern for some is the elimination of the Orphan Drug Tax Credit, which allows pharmaceutical and biotech companies to deduct up to 50% of the cost of clinical trials for treatments of rare diseases, such as Lou Gehrig's Disease and Huntington's Disease. Orphan drugs target diseases that affect less than 200,000 Americans.

Many are also worried about the House's plan to do away with the tax deduction for interest on student loans, which was claimed by 12 million filers in 2015. The tax break is available to single taxpayers who earn up to $80,000 per year, and married couples who earn up to $160,000 per year.

You can read the House bill here.

Read a summary of the Senate bill here.

IRS calling? This time, it may be legitimate

Consumer advocates are warning taxpayers about a new program that went into effect in April that permits the Internal Revenue Service to use private debt collection agencies. Targeted taxpayers will be those the agency has already contacted but who remain in arrears. The four companies are: Conserve - Fairport, New York; Pioneer - Horseheads, New York; Performant - Livermore, California; and CBE Group, Iowa.


The IRS tried twice before to use private companies to go after outstanding debts, without success. The last such effort, shut down in 2009, found that private collectors were not as successful as government employees in recovering funds. Nonetheless, legislation passed in 2015 calls for this third attempt.


According to some consumer advocates, the new program presents several dangers, and they warn taxpayers to be vigilant: 

• Because private collection agencies are paid on a commission basis for every dollar they recoup, they have little incentive to inform a delinquent taxpayer about forgiveness programs or other alternatives for which the taxpayer might qualify.  

• Heavy-handed tactics are another concern. In fact, in 2014 Pioneer's parent company was fined $97 million for misrepresentations it made to students when it worked with the Department of Education to collect outstanding student loan debts (read the story here).  

• It will be easier for scam artists to impersonate collection agencies and attempt to defraud taxpayers into paying a debt that doesn't even exist.

To protect yourself and your loved ones, you should keep the following points in mind:

 

• If a private collection agency has been authorized to contact you, the IRS will send you a letter first, informing you about which of the four agencies will be calling. That letter will be followed by a letter from the company. Thus, if you receive a call from a private debt collector demanding payment for back taxes and you have not  received these letters beforehand, chances are the call is a fraud.

• The agency that contacts you must abide by certain rules. You cannot be threatened with arrest by law enforcement for nonpayment. The caller must be courteous and respectful of your rights, per the Fair Debt Collection Practices Act.

• If you have any question as to whether you actually owe any back taxes, call the IRS directly at 800-829-1040. 

 

Click here for more information from the IRS on its private debt collection program.

Florida Homestead Exemption Hike On the 2018 Ballot

Florida voters next year will vote on whether to raise the Florida homestead exemption. The November 2018 ballot will include a constitutional amendment to increase the exemption from $50,000 to $75,000 on homes worth $100,000 or more. If 60% of voters approve, the new rate will take effect January 1, 2019.

Available to Floridians for their primary residences, the homestead exemption reduces the value of the residence for property tax assessment purposes. According to estimates, the hike would save 4.3 million state residents about $644 million. The average homeowner would see a savings of $170 annually.

The measure has its advocates and critics. In all likelihood, homeowners will vote "yes" to putting money in their pockets. Florida municipalities and counties, on the other hand, are concerned about the amendment's impact on critical services. According to various estimates, annual lost revenue for Palm Beach County would be $62.7 million; Broward County, $73.5 million; Martin County, $8 million; and St. Lucie County, $8.2 million.  

At a recent regional meeting covered by WPTV, Indian River County Administrator Jason Brown said assisted living facilities in the western part of the county could be affected by cuts to fire services. And St. Lucie County officials said the new library, scheduled to open later this year, might lack the necessary funds to operate. 

Advocates for the amendment argue that voters deserve a chance to vote on the property tax break, particularly in light of the fact that many people's home values have yet to recover from the 2008-2009 recession. The measure is sure to get plenty of press coverage as we get closer to the 2018 election.

IRS relaxes rule for late retirement plan rollovers

Taxpayers rolling over a distribution from an IRA or other retirement account into another account must complete the rollover within 60 days of taking the distribution, or face paying income tax on those funds. In the past, if you failed to meet the deadline, the only recourse was to apply for a Private Letter Ruling from the Internal Revenue Service. That involved quite a bit of paperwork, a filing fee, and typically, a slow turnaround. Now, the IRS is cutting tardy taxpayers a bit more slack.

Under a new rule, the IRS will permit some people with tardy rollovers to avoid the Private Letter Ruling procedure and, instead, "self-certify." Essentially, self-certification entails requesting a waiver directly from the administrator of the recipient plan. The self-certification procedure is available only to those taxpayers whose rollovers are delayed because of one or more of these mitigating circumstances: 

• The distribution was paid by check, and the check was misplaced or lost and never cashed.
• An error was made by the financial institution making the distribution or the financial institution accepting the deposit.
• The taxpayer rolled over the distribution into an account he/she erroneously thought was an eligible retirement plan.
• The taxpayer's main residence was significantly damaged or destroyed.
• A family member was seriously ill.
• A family member passed away.
• The delay was due to an error by the postal service or other delivery agent.
• The plan making the distribution failed to provide on a timely basis all the information the receiving plan required, despite the taxpayer's attempts to obtain the information.
•  A foreign nation restricted the transfer for various reasons.
• The taxpayer was incarcerated.

Once the mitigating reason for the delay is eliminated, the taxpayer has 30 days to deposit the funds.

If you have exceeded the 60-day rollover deadline,  meet one or more of the above criteria and wish to self-certify to obtain a waiver, use the model letter the IRS provides and submit it to your recipient plan. See it here (scroll to page 5). Read more about the new self-certification procedure here.

IRS announces deductions for long-term care premiums in 2016

Taxpayers who purchase long-term care insurance policies that meet certain criteria may deduct a portion of the premiums from their federal taxes. In 2016, the deduction amount will increase. The deduction is pegged to attained age at the end of the year. Also, for individuals over the age of 65, premiums are deductible only to the extent to which they and all other unreimbursed medical expenses exceed 7.5% of adjusted gross income; for those under 65, to the extent that they exceed 10% of the adjusted gross income. (The rules are slightly different if you are self-employed; check with your accountant.) 

The 2016 deductions are as follows:

• Age 40 or less: $390

• More than 40, not more than 50 years of age:  $730

• More than 50, but not more than 60 years of age: $1,460

• More than 60, but not more tan 70 years of age: $3,900

• Over 70 years of age: $4,870

These tax advantages are available to individuals with qualifying policies. To be considered qualified, the policy:

• If issued after Jan. 1, 1997 must be in compliance with the regulations established by the National Association of Insurance Commissioners, and offer inflation and non-forfeiture protection (whether or not the insured party chooses those options). Additionally, the policy must contain certain 'triggers' under which benefits can be paid. The insured individual may be able to collect benefits only when he/she requires assistance with two of six "activities of daily living" for at least 90 days; or when a physician certifies that there is cognitive impairment to warrant supervision for safety purposes. 

• If purchased before Jan. 1, 1997, the policy is grandfathered in and treated as qualified, so long as it has been approved by the insurance commissioner of the state in which it was sold. Read more about qualified policies here.

For more information on long-term care policies that qualify and related issues, see IRS Publication 502.

Watch out for IRS scams

Tax filing season brings with it a spike in scams designed to steal personal information from taxpayers. As these scams become increasingly sophisticated, so must you! The bad guys are out for your identity and your money.

One scam involves sending a taxpayer a "phishing" email that seems authentic. The email states either that you owe money, or are entitled to a refund and may direct you to an "IRS" website that looks very much like the real thing. But remember, the IRS will not contact you by email, phone text or social media. If you receive an email that purports to be from the IRS, don't open it. Don't click on any links or attachments. Don't provide any information. Instead, alert the IRS by forwarding the message to:  phishing@irs.gov.

 

Phone fraud is another potential problem. In fact, fake IRS phone calls top the list of the agency's "Dirty Dozen" tax scams for 2015. The caller will claim to be from the IRS, and the caller ID information may lead you to believe he's telling the truth. The caller often demands money or will leave an "urgent" message requesting that you return the call. Don't call back, and provide no personal information. Report the call to the Treasury Inspector General for Tax Administration at 800-366-4484 or at its website.

For more information on how to protect your personal information from tax scams, click here. 

Make sure your tax-deductible donations do the most good

Are you thinking about making gifts to a charity as the year comes to a close? Remember, not every "charity" is equally charitable. Even legitimate organizations differ widely in the percentage of dollars devoted to administrative costs and their stated causes. And some charities are just plain rip-offs (check out Charity Watch's "Hall of Shame.") 

If you are going to make a year-end contribution to a charity - out of the goodness of your heart or for tax purposes or both - you will want to know that your money is going where it does the most good. Today that is relatively easy to do if you have an internet connection. Check out these charity-rating sites:

Better Business Bureau

Charity Watch

Charity Navigator

Guide Star 

Happy holidays and happy giving.

Veterans and active duty service members may qualify for special Florida property tax exemptions

Florida offers certain property tax exemptions to veterans and active service members. Are you taking advantage of them? From the Florida Department of Revenue, here are the different types of exemptions that may be available to you:

Disabled Ex-Service member: An ex-service member disabled at least 10% in war or by service-connected events may be entitled to a $5,000 exemption on any property he or she owns.

Service-Connected, Total and Permanent Disability or Confined to a Wheelchair: An honorably discharged veteran who is totally and permanently disabled or requires a wheelchair for mobility resulting from their military service may qualify for total exemption of their homestead. Under some circumstances, the benefit of this exemption can carry over to the surviving spouse.

Discount for Veterans 65 and Older with a Combat-Related Disability: A veteran who is disabled, 65 or older, and owns homestead property may qualify for a property tax discount based on their percentage of disability. To be eligible, you must have been honorably discharged from military service and be partially disabled with a permanent service-connected disability, at least part of which is combat-related.  

Deployed Military Exemption: A member or former member of any branch of the United States military or military reserves, the United States Coast Guard or its reserves, or the Florida National Guard may receive an exemption on this year’s tax bill if he or she: 

• receives a homestead exemption

• was deployed during the last calendar year outside the continental United States, Alaska, and Hawaii in support of a designated operation (each year the Florida legislature designates operations for this exemption), and

• submits an application, Form DR-501M, to the property appraiser.

The percent of the taxable value that is exempt for the current year is determined by the percent of time during the last year when the service member was deployed on a designated operation.

Surviving Spouse of Military Veteran Who Died in the Line of Duty: A surviving spouse of a veteran who died from service-connected causes while on active duty may be granted a total exemption on their home. 

 

Filing and Keeping Your Homestead Exemption: When a person serving in the Armed Forces owns a property and uses it as a homestead, the service member may rent the homestead without abandoning the claim to the homestead exemption. Service members who can't file a homestead exemption claim in person because of a service obligation may file the claim through next of kin or through any other person who has been authorized in writing to file on behalf of the service member. 

For additional information on property exemptions, contact your county Property Appraiser,  or click here. 

New York estate tax structure revamped effective April 1, 2014

Why is a Florida estate planning lawyer writing about New York estate taxes?  Because (1) a fair percentage of my clients hail originally from New York; (2) some of them may end up as New York residents again; and (3) New York, unlike Florida, has its own estate tax. It is one of 19 states (plus the District of Columbia) that does.

Many people do not realize that even if their estate is not subject to federal estate tax, it could be subject to state estate tax if they return to live in a state like New York that imposes its own estate tax. This is the reason our estate planning attorneys always discuss possible future relocation with clients. Most clients say they will never return to the cold, and most don't. But some do. For example, a surviving spouse may decide he/she wants to be closer to family, or the kids up north may want their parents and grandparents near them so they can be of greater assistance. Client relocation is a possibility that must be discussed because of its potential legal and tax implications.

New York State revamps its estate tax structure

So what's up with New York State's estate tax? A lot. Tired of losing residents and revenue to Florida and other states that have no estate tax, New York State has recently overhauled its estate tax guidelines. The changes are designed to incentivize retirees to remain in (or return to) the Empire State. Here are the changes in brief:

Effective April 1, 2014, New York State's estate tax exemption for an individual increased from $1,000,000 to $2,062,500. Over the next five years, the exemption will increase annually until, in 2019, it matches the federal estate tax exemption (currently $5,340,000.)  From that point forward, New York's tax exemption will align with the federal exemption. 

Here is what the New York State exemption will be through 2019:

April 1, 2015: $3,125,000

April 1, 2016: $4,187,500

April 1, 2017 through Dec. 31, 2018: $5,250,000

Jan. 1, 2019: The tax will match the federal exemption, which, indexed to inflation, is projected to be around $5,900,000.

Problems with the overhaul

Now all this may look very appealing to a New Yorker, and to a Florida resident who may be a New Yorker in the future. But dig deeper and you'll see that not all that glitters is gold!

First, New York's top estate tax rate remains unchanged at a very hefty 16%. That is high compared to other states that levy estate tax.

Second, beware the "cliff." Federal estate tax applies only to that portion of an estate that exceeds the exempted amount. But if a New Yorker passes away and leaves a taxable estate that is 5% or greater over the exempt amount, the state will tax the entire value of the estate, not just the amount that exceeds the taxable threshold. The potential disaster this "cliff" poses can be demonstrated with the following example. The exemption amount in 2017 and 2018 will be $5.25M. Let's say a decedent leaves an estate 5% over that amount -- that would be an estate valued at $5,512,500, or $262,500 above the exemption threshold. In our example, the state estate tax would be $430,050 -- creating the absurd situation in which the tax is greater than the dollar amount of the estate that exceeds the threshold. 

Third, New York's revised tax code does not include portability. A surviving spouse may not use any unused portion of the deceased spouse's exemption, as is the case with federal estate tax.

Lastly, from now through Dec. 31, 2018, New York residents will have to contend with the "look-back." For New York estate tax purposes, this means that any gifts made within three years prior to death will be added back into the estate for tax purposes, so long as the decedent was a resident of New York when the gift was made.

And...one must still factor in that Florida has lower property taxes and sales tax, no income tax - and NO SNOW! Even with New York's modified estate tax structure, Florida still looks like a contender for retirees.

IRS increases deductions for long-term care insurance premiums in 2014

Today's seniors can expect to live longer than their counterparts a generation before. But there is no guarantee that all those extra years will be healthy ones. Many seniors worry about being wiped out financially if they ever need long-term nursing care, which is staggeringly expensive. One way to eliminate the worry is to purchase long-term care insurance. It, too, can be expensive, and not always easy to obtain. But the good news is that if you have a qualified policy, Uncle Sam permits you to take a deduction for the premiums when you file your income tax. 

Starting in 2014, taxpayers will be able to increase the amount they deduct on their federal taxes for long-term care premiums. To qualify for the deduction, certain conditions must be met: 

First, the policy must be "qualified." If issued after Jan. 1, 1997, the policy must be in compliance with the regulations established by the National Association of Insurance Commissioners, and offer inflation and nonforfeiture protection (whether or not the insured party chooses those options).  Additionally, the policy must contain certain 'triggers' under which benefits can be paid. The insured individual may be able to collect benefits only when he/she requires assistance with two of six "activities of daily living" for at least 90 days; or when a physician certifies that there is cognitive impairment to warrant supervision for safety purposes. Any policy purchased before Jan. 1, 1997 will be grandfathered in and treated as qualified so long as it has been approved by the insurance commissioner of the state in which it was sold.

Second, premiums, plus unreimbursed medical expenses, may not exceed 10% of gross income for those under age 65; for those over 65, the threshold will remain at 7.5% through the year 2016. (The rules are slightly different if you're self-employed; check with your accountant.)Here are the IRS' deductibility guidelines for 2014. The figures are based on the attained age of the taxpayer before the end of the taxable year:

40 years or younger: $370 (was $360)
41 - 50: $700 (was $680)
51 - 60: $1400(was $1360)
61 - 70: $3720 (was $3640)
71 and older: $4660 (was $4550)