As we welcome in a new year and many changes, we need to remain diligent of new tax scams pertaining to identity theft and refund fraud.  This is one reason NY State is now requiring your driver’s license number to file your State return.

The IRS recently issued a summary of the most prevalent scams and to help you identify a scam, listed are some reminders of what the IRS will never do.  https://www.irs.gov/uac/irs-warns-taxpayers-of-numerous-tax-scams-nationwide-and-provides-summary-of-most-recent-schemes?_ga=1.99571224.767202215.1399553123&utm_source=Email&utm_medium=Internal&utm_campaign=

You are your first “Line of Defense” against crooks and scammers who are evolving and getting smarter.  Remember it is best to be suspicious and if you receive a phone call from an impersonating IRS representative, Hang Up Immediately. DO NOT give any information.  If you are in doubt about the validity of a call, e-mail, or letter from the IRS please contact us prior to responding.  We will help you to determine if it is a scam and can advise of the appropriate actions to take, if any are necessary.

Please know that The IRS Will Never:

• Call to demand immediate payment using a specific payment method such as a prepaid debit card, gift card or wire transfer or initiate contact by e-mail or text message. Generally, the IRS will first mail you a bill if you owe any taxes.
• Threaten to immediately bring in local police or other law-enforcement groups to have you arrested for not paying.
• Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe.
• Ask for credit or debit card numbers over the phone.

We are here for you, please NEVER hesitate to contact us.  Lighthouse Financial Advisors does not want you to worry about the IRS; we want you to enjoy the journey (especially if it includes 70 degree days in January).

Governor Christie struck a deal with Democratic leaders of the New Jersey legislature on October 14 that will raised the gas tax but has corresponding sales, estate and income tax cuts to be phased in over the years.  Below is a synopsis:

• Increase the gas tax by $0.23 per gallon (effective November 1, 2016);
• Finance an eight-year $16 billion transportation program;
• Decrease the New Jersey sales tax from 7% to 6.875% on January 1, 2017 and ultimately to 6.625% on January 1, 2018;
• Increase the NJ Estate Tax exemption from $675,000 to $2 million for decedents dying on or after January 1, 2017 with a complete elimination of the estate tax for any decedent dying on or after January 1, 2018;
• Increase the Earned Income Tax Credit from 30% of the federal limit to 35%;
• Increase the gross income tax exclusion for retirement and pension income; and
• Create a new income tax deduction for veterans.

Details on Estate Tax Phase-Out

Governor Christie sacrificed the second lowest state gas taxes in the United States to shed New Jersey from its reputation as one of the most expensive places to die in the United States.

However, the new legislation does not mention the New Jersey Inheritance Tax, which is imposed on the beneficiaries of a New Jersey estate based on the amount each beneficiary receives and the relationship to the decedent.  Therefore, the current law remains in force, meaning that while transfers to spouses, parents, children, and grandchildren will remain inheritance tax-free, any transfer to someone other than a so-called Class A beneficiary will be subject to the Inheritance Tax (e.g. sibling, aunt/uncle, niece/nephew, friend, etc.).  Further, whereas nonresidents were exempt from the New Jersey Estate tax, any nonresident who owns real estate or tangible property located in New Jersey would be subject to the Inheritance Tax.

Retirement Income Exclusion

Under the new legislation, the personal income tax pension and retirement income exclusion will increase over the next four years to $100,000 in 2020, as follows:

However, the exclusions are eliminated completely for any taxpayer whose gross income exceeds $100,000, including the pension/retirement income.  For example, under the new law, a married taxpayer who received $90,000 in retirement benefits and $15,000 of other income would not enjoy any benefit from the new law.  

How Does it Impact You? 

For many, the new legislation is great news!  It means a lower likelihood that retirees/grandparents will move away from their adult children in order to avoid the New Jersey estate tax and will result in lower New Jersey income taxes.  However, the new gas tax increase will likely create an overall higher cost of living for the vast majority of the residents of New Jersey.

As always, it is necessary to review your current estate plan and discuss with us whether any revisions should be made in light of the elimination of the estate tax.  Plans that were based on the current New Jersey estate tax exemption of $675,000 may not accomplish your objectives and could result in unintended adverse consequences.

There are many ways to share your wealth. Following IRS rules can even give you a nice reduction in your annual tax bill. Tax planning allows you to give more to your favorite charity and maximize tax deductions.

1. Cash/Check donations – always remember to keep good records of your donations and get receipts. Canceled checks are best backed up by a letter from the organization.

2. Non-Cash donations – (clothing, household items, etc.) – again remember to keep good records of your donations and get receipts when possible. Your deduction is typically 25-30% of the Fair Market Value of the items donated.

3. Charitable Giving accounts (Donor Advised Funds) – DAF’s allow you to donate securities & receive a current year tax deduction for the current market value. The funds are invested & available to make grants to any qualified charity (501(c) (3) organization. Charitable Giving account offers benefits such as:
   • One consolidated tax receipt.
   • Save taxes on appreciated securities.
   • Receive a tax deduction when taxable income is high.

4. RMD (Required Minimum Distribution) at age 70 ½ and beyond from your IRA account. You can fulfil your RMD & be generous at the same time by having a check sent directly from your IRA account to a qualified 501(c)(3) organization. The benefits of this type of donation are:
   • RMD’s are added to your gross income. Donating directly to a charity counts toward annual RMD & doesn’t increase Adjusted Gross Income resulting in lower taxes.
   • Doing this could reduce the amount of taxable Social Security. RMD’s are added to your AGI which could possibly make some of your Social Security income taxable.
   • Reducing your cost of Medicare Parts B & D –Medicare premiums are based on your AGI.
   • Tax deduction if your standard deduction is higher than itemized deductions
   • Overcoming the 50% limit on charitable contributions
   • Shrink your Net Investment Income Tax – (3.8% NIIT on investment income when your AGI is greater than $200,000 ($250,000 for joint returns). RMD’s might move your AGI above these amounts.

You can review 501(c)(3) Charitable Organizations @ http://www.charitynavigator.org/.

Here you can find star ratings, tax status, contact info, financial information, etc.

A little tax planning can stretch the amount you give to charity and reduce your tax bill. Tax planning is a year round event. Not something to think about once a year when your taxes are prepared.

Today, as a society we tend to view financial success in rather cut and dry ways.  A few things we tend to get hung up on when we try to achieve financial success include: a big house, fancy cars, flashy jewelry, or the highest paying job.  Are these the things that are really going to make you happy in the long run?  Before you decide whether or not you are financially successful, take a step back.  Define your own personal version of success.  Then see what you can do to achieve it.  You may be surprised to realize that you are more successful than you think.

Listed below are ten factors we at Lighthouse Financial Advisors feel can help you achieve the ultimate goal of financial freedom.

1. Health: Your health and the health of your loved ones are the most important part of success.  With disease, illness, and uncontrollable health concerns out there, simply living a healthy, long life is a huge success in itself.
2. Invest in YOU: Spending your time on individual passion projects can lead to true financial success.  When you make the commitment to invest in yourself, the return on investment will begin to multiply exponentially over time.
3. How Much You Save: Saving money is worth the effort.  It gives you peace of mind, it gives you options, and the more you save, the easier it becomes to accumulate additional savings.
   • Always have an Emergency Reserve!! We recommend at least 3 to 6 months of expenses saved somewhere that’s both easy to access and safe.
4. Take Full Advantage of Retirement Plans: Retirement plans are a valuable benefit that impacts the present and future lives of employees.  You can receive significant tax savings for funding your “Tax-Deferred” retirement accounts.
5. Minimize Taxes Paid: Paying taxes is unavoidable, but we feel that ample opportunities do exist to help achieve a lower tax bill.  At LFA minimizing taxes paid is always a top priority.
6. Diversification of Assets: Diversification is a technique that reduces risk by allocating investments among various financial instruments, industries and other categories.  It is an important component of reaching long-term financial goals while minimizing your risk.
7. Healthy Relationships: Learning how to approach, attain, and maximize the different types of relationships in your life is crucial to success.  Having and maintaining healthy, happy relationships will bolster your quality of life and give you renewed meaning.
8. Live Within Your Means: One of the first steps to find out if you’re living within your means is to create a budget.  Once you’ve a clear understanding of your current budget, your challenge is to find places where you can spend less and earn more in order to achieve your financial goals.
9. Avoid Bad Habits & Horrible Mistakes: Everyone makes mistakes in their lives.  There are a lot of financial habits that can lead an individual into debt.  We want to assist in helping you avoid the pitfalls looming out there in the financial world.
10. Investment Rate of Return: Consistent investing over a long period of time can be an effective strategy to accumulate wealth.  Even the smallest deposits can add up over time.