As a business accounting firm, it’s always some kind of tax season at Scheidel, Sullivan & Lanni CPA, LLC. Here are some frequently asked questions we get from our clients about personal and business tax matters.
Are inheritances taxed in New Jersey?
The short answer for New Jersey residents is “no” regarding estate tax. The estate tax was eliminated by the State of New Jersey in 2017. However, there is still an inheritance tax in New Jersey for certain beneficiaries, and large estates may owe federal estate tax.
- In New Jersey, for spouses and “lineal” relatives, there is neither an estate nor an inheritance tax.
- For others (siblings, nieces/nephews, friends) inheritances are taxed at the state level, taxes are paid by the estate, and the beneficiary inherits the net amount after taxes.
Because of the complexities around this issue, we encourage our clients to do estate planning, a critical component of wealth preservation and control.
Why must I pay estimated taxes quarterly?
Paying quarterly estimated income tax avoids having to pay an entire year’s worth of income tax—with penalties and interest—when you file your tax returns on April 15.
Unlike W2 employees whose employers deduct payroll and FICA taxes from their paychecks, the self-employed and independent contractors, owners of an S corporation, and LLC members (anyone with flow-through income) should pay quarterly estimated taxes throughout the year. The tax amounts are based on projected income for the tax year.
Note: Employees who get a large bonus may owe additional taxes on that amount, since the withholding could be at a lower rate than the employee’s actual tax rate. The same applies to those who exercise stock options. Additionally, retirees should be aware that if they do not have taxes withheld from their investment income (such as interest, dividends, or capital gains), they will make payments on that income.
Why do I still owe the government money?
There are a few factors that affect your tax liability:
- You may have earned more income and jumped to a higher tax bracket, but had money withheld at your previous, lower rate
- You have fewer itemized deductible expenses and therefore, higher taxable income
- Two spouses filing jointly are now in a higher tax bracket, but had filled out their W4 forms indicated withholding at the individual rate, not the combined rate
- You had a good year on the stock market and have (taxable) capital gains
At Sullivan, Scheidel & Lanni CPA, we can help you with tax planning around these factors.
Why did I pay taxes when I sold that investment property?
Investment real estate is tricky in that you depreciate the property on your tax returns over time, which reduces the cost basis (the original value you paid). However, this creates a bigger gain when you sell that investment property at a high price. Therefore, investors must be aware of and be prepared for the tax implications of this investment class.
I’m selling my business. What are tax implications of that transaction?
The business sale is taxed based on the structure of your deal, which could be taxed as ordinary income. Depending on how long you’ve owned the business will affect the tax rate, as the IRS has established guidelines and rates for short-term and long-term capital gains. The type of entity (C corporation, S corporation, partnership) will also affect how capital gains are taxed. Certain items may be deducted from the sales price.
Note: To maximize the value of the business, we advise all business owners to take the time and do the upfront work to get the operation and all the financials in order. If the company’s true value is not properly reflected on the financial statements, you won’t get what it’s worth.
