Age Related Tax Milestones

As I grow older, I am reminded of the Steve Miller song, Fly Like An Eagle where he sings “time keeps on slipping, slipping, slipping into the future…”.  This blog covers some important age-related tax milestones that I witness every tax season and that you should keep in mind as you get older.

Ages 0–23

The so-called “Kiddie Tax” rules can potentially apply to your child’s (or grandchild’s) investment income until the year he or she reaches age 24. Specifically, a child’s investment income in excess of the applicable annual threshold is taxed at the parent’s marginal tax rate.

Hour glass image for tax lawyer blog Greg Spadea

Note: For 2018 and 2019, the unfavorable income tax rates for trusts and estates were used to calculate the Kiddie Tax. Recent legislation changed this for 2020 by once again linking the child’s tax rate to the parent’s marginal tax rate. However, you may elect to apply this change to your 2018 and 2019 tax years. If we feel an election would be beneficial for 2018, we may recommend amending your return.

For 2020 and 2021, the investment income threshold is $2,200. A child’s investment income below the threshold is usually taxed at benign rates (typically 0% for long-term capital gains and dividends and 0%, 10%, or 12% for ordinary investment income and short-term gains). Note that between ages 19 and 23, the Kiddie Tax is only an issue if the child is a full-time student. For the year the child turns age 24 and for all subsequent years, the Kiddie Tax ceases to be an issue.

Age 18 or 21

A custodial account set up for a minor child comes under the child’s control when he or she reaches the age of majority under applicable state law which is 21 in Pennsylvania.  If there’s a significant amount of money in the custodial account, this issue can be a big deal. Depending on the child’s maturity level and dependability, you may or may not want to take steps to ensure that the money in the custodial account is used for expenditures you approve of such as college tuition.

Age 30

If you set up a Coverdell Education Savings Account (CESA) for a child (or grandchild), it must be liquidated within 30 days after he or she turns 30 years old. To the extent earnings included in a distribution are not used for qualified higher education expenses, they are subject to federal income tax plus a 10% penalty tax. Alternatively, the CESA account balance can be rolled over tax-free into another CESA set up for a younger family member.

Age 50

If you are age 50 or older as of the end of the year, you can make an additional catch-up contribution to your Section 401(k) plan (up to $6,500 for 2020), Section 403(b) plan (up to $6,500 for 2020), Section 457 plan (up to $6,500 for 2020), or SIMPLE-IRA (up to $3,000 for 2020), assuming the plan permits catch-up contributions. You also can make an additional catch-up contribution (up to $1,000 for 2019 or 2020) to your traditional or Roth IRA. The deadline for making IRA catch-up contributions for the 2019 tax year is 4/15/20.

Age 55

If you permanently leave your job for any reason, you can receive distributions from the former employer’s qualified retirement plan without being socked with the 10% early distribution penalty tax. This is an exception to the general rule that the taxable portion of qualified retirement plan distributions received before age 59½ are subject to the 10% penalty tax. Note that this exception applies only if you have attained age 55 on or before your separation from service.

Age 59½

You can receive distributions from all types of tax-favored retirement plans and accounts including IRAs, Section 401k accounts, pensions and tax-deferred annuities without being hit with the 10% early distribution penalty tax. Before age 59½, the penalty tax will apply to the taxable portion of distributions unless an exception is available.

Age 62

You can choose to start receiving Social Security retirement benefits. However, your benefits will be lower than if you wait until reaching full retirement age, which is age 66 for those born between 1943 and 1954. Also, if you work before reaching full retirement age and your earnings exceed $18,950, your 2021 Social Security retirement benefits will be further reduced.

Age 66

You can start receiving full Social Security retirement benefits at age 66 if you were born between 1943–1954. You will not lose any benefits if you work in years after the year you reach the full retirement age of 66, regardless of how much income you have in those years. However, if you will reach age 66 in 2021, your benefits may be reduced if your income from working exceeds $50,520.

Note: If you were born after 1954, your full retirement age goes up by two months for each year before leveling out at age 67 for those born in 1960 or later.

Warning: Under current law, up to 85% of your Social Security benefits may be subject to federal income tax, depending on your provisional income level. Provisional income equals your gross income from other sources plus tax-exempt interest income and 50% of your Social Security benefits. Contact us if you have questions or want more information.

Age 70

You can choose to postpone receiving Social Security retirement benefits until you reach age 70. If you make this choice, your benefits will be higher than if you start earlier.

An often-overlooked issue that you must factor into the breakeven age is when you would come out ahead by postponing benefits. For example, if your normal retirement age is 66 and you wait until age 70 to begin receiving benefits, you forego benefits for four years. It would take 12½ years to reach the breakeven point. Are you sure you will still be around and able to enjoy the higher benefit at age 82½?  Fortunately, I can prepare a report to help you decide when to take social security based on your current earnings, other retirement income and your health.

Age 72

At this age, you must begin taking annual Required Minimum Distributions (RMDs) from tax-favored retirement accounts such as traditional IRAs, SIMPLE IRAs, SEP accounts, or 401k accounts and pay the resulting income taxes. However, you do not need to take any RMDs from Roth IRAs set up in your name. The initial RMD is for the year you turn 72 if you had not reached age 70½ by December 31, 2019.  You can postpone taking the initial RMD until April 1 of the year after you reach the magic age.  If you choose that option, however, you must take two RMDs in that same year: one by the April 1 deadline (the RMD for the previous year) plus another by December 31 (the RMD for the current year). For each subsequent year, you must take another RMD by December 31. There’s one more exception: If you are still working after reaching age of 72, and you do not own over 5% of the employer, you can postpone taking any RMDs from the employer’s plan until after you have actually retired.

Thanks to a change included in the Setting Every Community Up for Retirement Enhancement Act (the SECURE Act), the age after which you must begin taking RMDs is increased from 70½ to 72. This favorable change only applies to individuals who attain age 70½ after December 31, 2019.  So, if you turned 70½ in 2019 or earlier, you are unaffected. If you turn 70½ in 2020 or later, you will not need to begin taking RMDs until after attaining age 72.

Conclusion

Remember that almost all adults should do at least some estate planning. In uncomplicated situations, nothing more than a simple will and updated beneficiary designations may be required. If you have a larger estate, taking steps to confront realities about your heirs and to reduce exposure to the federal estate tax and income tax and any Pennsylvania inheritance tax may be advisable. Please call Gregory J. Spadea at 610-521-0604, if you think your estate plan needs updating.

Making Federal Estimated Tax Payments

A picture of a tax return form

I often get phone calls from clients asking how to calculate estimated federal and state income tax payments. The payment for the first quarter estimate is due on April 15th.
In general, estimated taxes must be paid on any income which is not subject to withholding, including taxable income from self-employment, interest, dividends, alimony, gambling winnings, unemployment compensation, social security, rent, and gains from the sale of assets. You may also have to pay estimated tax if the amount of income tax being withheld from your salary, social security, pension or other income is not enough to cover your tax due. Estimated tax is used to pay income tax and self-employment tax, as well as other taxes reported on your personal income tax return. If you do not pay enough tax, either through withholding or estimated tax, or a combination of both, you may have to pay a penalty. You may be charged a penalty even if you are due a refund when you file your return. Estimated tax payments are made in four quarterly installments and can be based on a regular tax method or an annualized income installment method.

If you choose not to use the “Regular installment method”, the annualized installment method allows you to compute your estimated tax based on actual income earned in each of four specific periods. As a result, tax on income which is seasonally earned will not be paid until the period in which it is earned. For example, if a significant percentage of your income is earned in the last quarter of the year, then utilizing the annualized income installment method will allow you to defer the payment of tax on this income to the final quarter as opposed to paying the tax on this amount in equal installments throughout the year.

In general, under the regular installment method, the required annual payment which is paid quarterly through estimated taxes (if no tax is withheld) is the smaller of 1) 90% of the current year’s total expected tax or 2) 100% of the tax shown on the prior year return. Note that if your last year’s Adjusted Gross Income was over $150,000 ($75,000 for married filing separately); the safe harbor is 110%. Adjusted Gross Income refers to all taxable income less certain deductions such as your SEP/IRA/Other Retirement Plan contributions, alimony payments, deductible health insurance premiums paid for self-employed individuals, moving expense deductions, deductible tuition, student loan interest and fees and self-employment tax deductions.

Timing of Payments, Penalty for Underpayment

The year is divided into four payment periods for estimated tax purposes. Each period has a specific payment due date. Note that if you do not pay enough tax by the due date for each period, you may be charged a penalty through the date any underpayment remains outstanding even if you are due a refund upon filing your income tax return. The penalty is equal to the interest rate charged on tax deficiencies (3% per year as of January 20, 2015) on the amount of the installment underpayment from the date the installment is due until the earlier of the date the underpayment is made up for April 15th of the next year. Thus, generally the penalty for underpayment of an estimate is equivalent to paying the IRS non-deductible interest.

The specific due dates for estimated tax payments are as follows:

Period Due Date
January 1 – March 31 April 15
April 1 – May 31 June 15
June 1 – August 31 September 15
September 1 – December 31 January 15 of following year

Here are tips worth considering about estimated taxes and how to pay them.

  1. As a general rule, you must pay estimated taxes in 2015 if both of these statements apply: 1) You expect to owe at least $1,000 in tax after subtracting your tax withholding and tax credits, and 2) You expect your withholding and credits to be less than the smaller of 90% of your 2015 taxes or 100% of the tax on your 2014 return. There are special rules for farmers, fishermen, certain household employers and certain higher income taxpayers.
  2. For Sole Proprietors, LLC Members, Partners and S Corporation shareholders, you generally have to make estimated tax payments if you expect to owe $1,000 or more in tax when you file your return.
  3. To figure your estimated tax, include your expected gross income, taxable income, taxes, deductions and credits for the year. You can use the worksheet in Form 1040ES, Estimated Tax for Individuals for this, or just email me your year to date Profit and Loss and I will help you.

The easiest way to pay estimated taxes is electronically through the Electronic Federal Tax Payment System or EFTPS. You can also pay estimated taxes by check or money order using 1040ES – Estimated Tax Payment Voucher or by credit or debit card, but I do not advise using your credit card due to the expensive service charge. If you have any questions please email or call Gregory J. Spadea at 610-521-0604 of Spadea & Associates, LLC in Ridley park, Pennsylvania

Achieving a Better Life Experience Act (ABLE) for 2015

Close up of female accountant making calculations

The Tax Increase Prevention Act of 2014 includes the new “Achieving a Better Life Experience Act (ABLE).” ABLE establishes a new type of tax-advantaged account for disabled individuals, allowing them to save money for future needs while remaining eligible for government benefit programs like Medicaid. Here is a quick summary of the most important tax changes-starting with those that affect individuals.

Beginning in 2015, the Act allows states to establish tax-exempt Achieving a Better Life Experience (ABLE) accounts to assist persons with disabilities in building an account to pay for qualified disability expenses. An ABLE account can be set up for an individual (1) who is entitled to benefits under the Social Security disability insurance program or the Supplemental Security Income (SSI) program due to blindness or disability occurring before the individual reached age 26 or (2) for whom an annual disability certification has been filed with IRS for the tax year.

Annual contributions are limited to the annual gift tax exclusion amount for that tax year which is $14,000 for 2015. Distributions are tax-free to the extent they don’t exceed the beneficiary’s qualified disability expenses for the year. Qualified disability expenses include housing, transportation, education, job training, health, financial management and legal fees.

Distributions that exceed qualified disability expenses are included in taxable income and are subject to a 10% penalty tax. However, distributions can be rolled over tax-free within 60 days to another ABLE account for the benefit of the beneficiary or an eligible family member. Similarly, an ABLE account’s beneficiary can be changed, as long as the new beneficiary is an eligible family member.

Except for Supplemental Security Income (SSI), ABLE accounts are disregarded for federal means-tested programs.

If you have any questions or would like help setting up an ABLE account feel free to contact Gregory J. Spadea online or at 610-521-0604, of Spadea & Associates, LLC in Ridley Park, Pennsylvania.

2015 Retirement Plan Contribution Limits

Jar with label Retirement Plan

The Internal Revenue Service announced cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for Tax Year 2015. In general, many of the pension plan limitations will change for 2015 because the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment. Here are the highlights:

  • The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $17,500 to $18,000.
  • The catch-up contribution limit for employees age 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $5,500 to $6,000.
  • The limit on annual contributions to an Individual Retirement Arrangement (IRA) remains unchanged at $5,500. The additional catch-up contribution limit amount for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.
  • Contribution limits for SIMPLE retirement accounts is increased from $12,000 to $12,500. The additional catch-up contribution limit amount for individuals aged 50 and over is increased from $2,500 to $3,000.
  • The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $61,000 and $71,000, up from $60,000 and $70,000 in 2014. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $98,000 to $118,000, up from $96,000 to $116,000 in 2014. For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $183,000 and $193,000, up from $181,000 and $191,000 in 2014. For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000. Keep in mind there is no income limit for taxpayers who are not covered by a qualified retirement plan.
  • The AGI phase-out range for taxpayers making contributions to a Roth IRA is $183,000 to $193,000 for married couples filing jointly, up from $181,000 to $191,000 in 2014. For singles and heads of household, the income phase-out range is $116,000 to $131,000, up from $114,000 to $129,000. For a married individual filing a separate return, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
  • The deductible contribution for Simplified Employee Pension Plans (SEPs) is $53,000, up from $52,000 in 2014.
  • The AGI limit for the saver’s credit, which also known as the retirement savings contribution credit, is $61,000 for married couples filing jointly, up from $60,000 in 2014; $45,750 for heads of household, up from $45,000 in 2014; and $30,500 for married individuals filing separately and for singles, up from $30,000 in 2014.

Spadea & Associates, LLC

Contact us online or at (610) 521-0604 to schedule a free consulation. At the law offices of Spadea & Associates, LLC, in Ridley Park, Pennsylvania, we represent individuals and businesses throughout southeastern Pennsylvania, including Delaware County, Montgomery County and Camden County. We also work with clients in Philadelphia and Burlington Counties.

IRS Clarifies One-Per-Year Limit on IRA Rollovers in 2015

Retirement plan documents and pen

The Internal Revenue Service recently issued guidance clarifying the impact a 2014 individual retirement arrangement (IRA) rollover has on the one-per-year limit imposed by the Internal Revenue Code on tax-free rollovers between IRAs.

The clarification relates to a change in the way the statutory one-per-year limit applies to rollovers between IRAs. The change in the application of the one-per-year limit reflects an interpretation by the U.S. Tax Court in a January 2014 decision applying the limit to preclude an individual from making more than one tax-free rollover in any one-year period, even if the rollovers involve different IRAs.

Before 2015, the one-per-year limit applies only on an IRA-by-IRA basis (that is, only to rollovers involving the same IRAs). Beginning in 2015, the limit will apply by aggregating all an individual’s IRAs, effectively treating them as if they were one IRA for purposes of applying the limit.

To allow transition time, the IRS made it clear that the new interpretation will apply beginning Jan. 1, 2015. A distribution from an IRA received during 2014 and properly rolled over within 60 days to another IRA, will have no impact on any distributions and rollovers during 2015 involving any other IRAs owned by the same individual. In other words, IRA owners will be able to make a fresh start in 2015 when applying the one-per-year rollover limit to multiple IRAs.

Although an eligible IRA distribution received on or after Jan. 1, 2015 and properly rolled over to another IRA will still get tax-free treatment, subsequent distributions from any of the individual’s IRAs (including traditional and Roth IRAs) received within one year after that distribution will not get tax-free rollover treatment. As the guidance makes clear, a rollover between an individual’s Roth IRAs will preclude a separate tax-free rollover within the 1-year period between the individual’s traditional IRAs, and vice versa.

Keep in mind Roth conversions which are rollovers from traditional IRAs to Roth IRAs, rollovers between qualified plans and IRAs, and trustee-to-trustee transfers which are direct transfers of assets from one IRA trustee to another are not subject to the one-per-year limit and are disregarded in applying the limit to other rollovers.

Therefore IRA owners should request trustee to trustee direct transfers or request a check made payable to the receiving IRA trustee and deliver it to the receiving trustee themselves within 60 days of the check date.

If you have any questions, please contact Gregory J. Spadea of Spadea & Associates, LLC at 610-521-0604.

12 Tips to Help Landords Audit Proof Their Tax Return

Tax return paper

The IRS does not audit too many returns due to inadequate staffing and poor management. However, to truly audit proof your return, I would advise you and all my landlord clients to:

  1. Make the election under Treasury Regulation 1.469-9(g) to aggregate all real estate activities as one activity for passive loss rules if you have more than one rental property. This makes meeting the 750 hour rule for all you rental properties much easier than having to meet it for each individual rental property.
  2. Keep a log on Microsoft Outlook or Google Calendars of the work you do as a Landlord to meet the 750 hour test such as:
    1. working or improving the property;
    2. researching and bidding on properties;
    3. finding and screening tenants;
    4. collecting rent;
    5. performing maintenance.
  3. Never use round numbers on your return because it looks like you are estimating your expenses.
  4. If you pay a contractor or any unincorporated person more than $600 during the year you must issue them a 1099. Therefore you should have them fill in a W-9, before you pay them so you will have their information and can prepare a 1099.
  5. Reconcile the mortgage interest and real estate taxes reported on your 1098 to the amount deducted on your return to ensure the numbers match.
  6. Do not deduct capital improvements under repairs but instead depreciate them or use Internal Revenue Code Section 179 to expense them in the tax year they are placed in service.
  7. Use Quickbooks if you have multiple properties to track rental income and expenses for each property. Deposit all your rental income into a separate bank account.
  8. Never deposit rental income into your personal account and never pay personal expenses from your rental account. Transfer money from your rental account to your personal account and then pay personal expenses from your personal account.
  9. Have a separate credit card that you use only for your rental properties and pay the monthly bill from your rental bank account. At the end of the year the credit card company will give you a summary of all your expenses making your record keeping that much easier.
  10. Make sure all your deposits into your rental bank accounts reconcile to the amount of rental income reported on your tax return.
  11. Keep your leases current and make sure the monthly rent that you deposit is the amount listed on the lease.
  12. Keep security deposits in a separate trust account and only disburse those funds when the tenant moves out.

If you have any questions about audit proofing your return or need help preparing your tax return call Gregory J. Spadea at 610-521-0604 or contact him online, of Spadea & Associates, LLC in Ridley Park, Pennsylvania.

Preparing for the IRS Trust Fund Recovery Penalty Interview

Stop, pay your taxes!

If you fail to pay over the federal employment tax you withhold from your employees’ salaries the IRS will eventually come knocking on your door. This problem generally occurs when a business runs short of cash to pay both operating expenses and payroll. There may be enough cash to pay vendors and pay net payroll, but not enough to pay the federal government the employer and employee withholding taxes. Employer withholding taxes are 7.65% of gross payroll which consists of 6.2% social security tax and 1.45% medicare tax. The employee withholding consists of federal income tax and state income withheld in addition to the 6.2% social security tax and 1.45% medicare tax.

When the quarterly 941 federal employment tax return is filed with the IRS, the Government gives the employee credit for the tax withheld listed on the quarterly 941 returns whether the employer pays over the employer and employee withholdings or not. That is why the tax withholdings are called trust fund taxes because the employer is holding the money in trust for the federal government. The funds do not belong to the employer and if the employer uses the money for something else he is in essence stealing from the federal government.

If you fail to pay over the employer tax withholding every month or quarter a Revenue Officer will show up at your business unexpectedly and want to interview you. You should hire a tax attorney before speaking with the Revenue Officer. I have handled many trust fund recovery interviews and have been able to reduce the proposed assessments dramatically if I was involved before the IRS Form 4180 interview took place. IRS Form 4180 is the form the Revenue Officer completes during the interview. The Revenue Officer will try to determine if you are the responsible party by asking:

  1. Did you make deposits or sign the business checks;
  2. Did you determine what bills were paid;
  3. Did you have ability to hire and fire employees;
  4. Did you sign the federal employment and income tax returns;
  5. Did you sign loans on behalf of the business;
  6. Were you involved in the day to day operations of the business;
  7. Did you make or authorize payment of federal tax deposits.

If the Revenue Officer determines that you are the responsible party he will issue Form 2751 which is a Proposed Assessment of the Trust Fund Penalty. I will help you determine If you do not agree with the proposed liability you can submit an appeal request within 60 days of the issuance of the notice. If the case is not resolved in IRS Appeals you can file a complaint in federal district court.

If a Revenue Officer does call or visit your business, please call Gregory J. Spadea of Spadea & Associates, LLC at 610-521-0604, in Ridley Park, Pennsylvania.

When Does an Estate Fiduciary Income Tax Return Need to be Filed

The estate must file a 1041 fiduciary income tax return if the estate has income or property sales over $600 during the tax year. So if the executor receives a 1099 under the Estate Tax Identification Number for over $600 of interest or dividend income, or real estate is sold in a subsequent year after death, a fiduciary income tax return will have to be filed. The federal estate fiduciary 1041 income tax return is due 3½ months after the close of the tax year.

Normally, estate fiduciary returns result in “excess deductions on termination”, which can be divided equally among all the beneficiaries, and used by them as itemized deductions on their personal federal income tax returns to increase their income tax refund.

There is no income tax on inheritances except to the extent that such items represent tax deferred items such as pension plans, annuities, IRA’s, and accrued E bonds or to the extent that they represent income earned after death, there is no inheritance tax on such post-death income. Income tax on such tax deferred items is due by the beneficiaries in the year they receive the income. A final federal income tax return for your loved one must be filed, assuming he met the filing threshold which for the 2014 tax year is $11,700, excluding social security for a decedent over the age of 65. In addition, if federal income tax was withheld, you would file to get the federal income tax refund regardless of the income earned.

There is never any Pennsylvania income tax due on inherited property including tax deferred property such as pension plans, IRA’s or annuities.

If there are U.S. Savings Bonds, the significant factors are: (a) the turnover date; and (b) income tax on accrued interest. The turnover date means that since bonds increase in value every six months, there is a loss of up to five months interest if cashing is not made in one of the two months in each year in which value increases. There are three choices with respect to reporting accrued interest on Savings Bonds: (1) Report it on the decedent’s final 1040 return; if he owes no tax, even with the interest included, this is the clear choice; (2) Report it on the estate’s fiduciary 1041 return, if this is done, ensure you have sufficient estate deductions to offset against the bond interest; or (3) Transferring the bonds without cashing, which makes sense if the beneficiary is in a low tax bracket.

If you were named as a beneficiary of an Individual Retirement Account (IRA), then you should consider the possibility of electing to stretch the pay-out over your own life expectancy if the plan administrator permits it. If not then you can take distributions over 5 years or elect to withdraw the entire balance. However, you must pay federal income tax on any distributions you receive in the year received.

Real estate, like stock, takes a stepped up basis at death, so that original cost to the decedent is irrelevant for income tax purposes. If you decide to sell a house and do not need the aid of a real estate agent to find a buyer, we can handle all the paperwork from the agreement of sale to closing for an additional fee. Keep in mind if you do not sell the property within fifteen months after the date of death we must value the property using the common level ratio or based on an appraisal.

Contact Gregory J. Spadea of Spadea & Associates, LLC at 610-521-0604 if you need help administering an estate or find yourself being appointed as an Executor.

Wrongful Death Proceeds Are Not Subject to Pennsylvania Inheritance Tax or Federal Income Tax

The Pennsylvania Wrongful Death statute allows the personal representative of an estate to bring an action for the benefit of a decedent’s spouse, children or parents to recover damages for the death of the decedent caused by the wrongful act, neglect, unlawful violence of another. The statute entitles a plaintiff to recover damages for pain and suffering, loss of earning power, medical and hospital bills, funeral expenses and certain estate administration expenses.

Wrongful death proceeds are not taxable for Pennsylvania Inheritance purposes or for federal income tax purposes. On the other hand survival action proceeds are subject to Pennsylvania inheritance tax. Since Pennsylvania taxes survival actions but not wrongful death actions, you, through your attorney want to maximize the wrongful death recovery amount. The court tends to allocate the proceeds of wrongful death actions and survival actions based upon the facts of the case and the evidence presented by your attorney.

Under the Pennsylvania Probate, Estate and Fiduciary code the Pennsylvania Department of Revenue is an interested party in any orphan’s court proceeding. Therefore your attorney must get written consent from the Pennsylvania Department of Revenue regarding the proposed allocation since its interests will be adversely affected by the amount allocated to the wrongful death action.

Survival Actions are valued at the decedent’s date of death for Pennsylvania Inheritance tax purposes. Any unpaid Inheritance tax is due within thirty days after the estate receives the proceeds. If there is any tax due beyond thirty days the Pennsylvania Department of Revenue begins charging interest on the unpaid balance which is currently 6%.

Contact Gregory J. Spadea

If you have a question about a wrongful death action or survival action please contact Spadea & Associates, LLC online or at 610-521-0604, located in Ridley Park, Pennsylvania.

What Business Expenses Are Deductible?

Coffee cup and tax forms

If you are a self-employed sole proprietor or operate an LLC taxed as an S-corporation, any expense that your business incurs that is ordinary and necessary is deductible under Section 162 of the Internal Revenue Code. Therefore, list the total spent on each of the expense categories listed below:

  • Accounting, legal and professional fees;
  • Advertising;
  • Car expense – indicate total annual miles driven, then break out total annual business miles plus parking and tolls including business log with date, miles driven, business purpose and destination or
    total annual miles driven, actual fuel invoices, auto insurance, repairs and total miles driven and total annual business miles plus parking & tolls;
  • Fixed Assets – If you bought a vehicle, computer, equipment, office furniture or placed it in service during the tax year, even if you already owned it. Also provide a copy of the purchase invoice so the total cost can be expensed it under IRC Sec. 179;
  • W-3 – Salaries that your company paid to others. List officer and shareholder salary separately;
  • Employer share of employment taxes like FICA and FUTA;
  • Commissions or fees paid to other contractors. Have them fill in form W-9 if they were not incorporated so a 1099 can be issued by February 1;
  • If you already issued them a 1099, please provide the 1096 showing total independent contractors paid.
  • Professional Liability Insurance, Workmans Compensation Insurance and Health insurance;
  • Office Supplies;
  • Materials or Purchase of inventory for resale;
  • Travel, Hotel, Airfare and Car Rental;
  • Meals – keep track of date, place, person entertained and business purpose. If you do not have a digital calendar (such as Outlook or Google Calendar) then you need a receipt for everything If you have a digital calendar then you only need receipt if you pay more than $75.00;
  • Telephone including local, long distance, fax, land lines and mobile;
  • DSL, cable and internet charges;
  • Postage including shipping costs like Fed Ex and UPS;
  • Continuing education and business seminars and conferences;
  • Interest expense paid on business loans and provide year end balances;
  • Rent for office space or equipment;
  • Utilities like electricity, fuel oil, water or gas.
  • Prior year PA franchise (Capital Stock) tax from Page 2 of the PA RCT-101;
  • Prior Year Local Income Tax paid;
  • Total State sales tax paid if you included it in gross sales revenue.

Never pay any personal expenses from your business bank account. Instead take draws from your business account and transfer money to your personal account and pay the personal bills directly from your personal account. Contact Spadea & Associates, LLC at 610-521-0604, if you have any questions or need your tax returns prepared.

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