COVID 19 - Economic Stimulus Payments

Dear Client,


In these difficult times I am writing to share information on the well-publicized Economic Stimulus Payment that is about to get going:


Economic Stimulus Payments

What we know and the next steps


Single tax filers with adjusted gross income up to $75,000 will receive the full payment of $1,200; married couples filing jointly with adjusted gross income up to $150,000 will receive the full payment of $2,400. In both cases, an additional $500 will be received for a qualifying child (under 17 years of age). For tax filers whose income exceeds the thresholds, the payment amount is reduced by $5 for each $100 above the threshold. With that being said, single filers with no qualifying children will not receive a payment if their income is over $99,000 and joint filers with no qualifying children will not receive a payment if their income is over $198,000.


What About College Students?

If a college student is between the ages of 17 and 23, inclusive, and claimed as a dependent on a parent’s tax return, then the student will not receive a $1,200 stimulus payment and the parent(s) will not receive the additional $500 payment. If the college student is 16 or younger, then the parent(s) will receive the additional $500 payment as long as they provide more than half of the student’s total support for the year.


There have been many questions as to how non-filers will receive their payments, and also many questions as to how filers will receive their payments. In order to address these questions and concerns, the IRS partnered with the File Free Alliance to develop an easy-to-use tool that will help taxpayers who do not have a filing requirement enter basic information so they can receive their payments as soon as possible.


Who Should Use this Tool?

Taxpayers who did not file a tax return for 2018 or 2019, and who do not receive Social Security or other non-taxable payments including survivors, disability (SDDI), or survivor benefits and Railroad Retirement benefits.

Taxpayers who did not file a tax return for 2018 or 2019 because they are under the income limits and thus were not required to file.


What Information Will You Need?

  • Full name, current mailing address and an email address.
  • Date of birth and valid Social Security number.
  • Bank account number, type and routing number, if you have one.
  • Identity Protection Personal Identification Number (IP PIN) you received from the IRS earlier this year, if you have one.
  • Driver’s license or state-issued ID, if you have one.
  • For each qualifying child: name, Social Security number or Adoption Taxpayer Identification Number and their relationship to you or your spouse.


Where Can I Find the Tool?

Online HERE.


When Can I Expect My Economic Impact Payment?

Automatic payments are to begin being disbursed this week for eligible taxpayers who filed tax returns for either 2018 or 2019 and chose direct deposit of their refunds.

Eligible taxpayers who receive Social Security and other non-taxable payments will automatically receive a payment in the “near future.”’


How Do I Check the Status of My Economic Impact Payment?

The IRS is building a tool that is expected to be available for use later this week. The tool will allow taxpayers to check the status of their payment including the date their payment is scheduled to be deposited into their bank account or mailed to them. If the Economic Impact Payment has not yet been scheduled for delivery, the “Get My Payment” tool will allow taxpayers to provide their bank account information so they can receive their payment more quickly.


There is no qualifying income requirement, but there is a phase-out for payments

There is NO qualifying income requirement. Individuals with $0 of income are eligible for the payment provided they are not the dependent of another taxpayer and have a work-eligible SSN. Eligible taxpayers who filed tax returns for either 2019 or 2018 will automatically receive an economic impact payment of up to $1,200 for individuals or $2,400 for married couples and up to $500 for each qualifying child.


Tax filers with adjusted gross income up to $75,000 for individuals and up to $150,000 for married couples filing joint returns will receive the full payment. For filers with income above those amounts, the payment amount is reduced by $5 for each $100 above the $75,000/$150,000 thresholds. Single filers with income exceeding $99,000 and $198,000 for joint filers with no children are not eligible.


Taxpayers with a lower 2020 AGI will receive a credit

The payment is actually an advance on a tax credit claimed on the 2020 tax return. If a taxpayer’s income is lower in 2020 than in 2019, any additional credit for which they are eligible will be refunded or will reduce the tax liability when the 2020 tax return is filed. As it stands, if your 2020 income is higher than the thresholds and you receive the payment, you will not need to pay back any part of the payment.


Taxpayers who owe back taxes will still receive the payment

While the IRS has not officially provided guidance on this, the Senate Finance Committee stated that the bill turns off nearly all administrative offsets that ordinarily may reduce tax refunds for individuals who have past tax debts, or who are behind on other payments to federal or state governments, including student loan payments. The only administrative offset that will be enforced applies to those who have past child support obligations that the states have reported to the Treasury Department. 


IRS, today has Launched “Get My Payment” Web App

The U.S. Department of the Treasury and IRS has launched the “Get My Payment” web application today. The free app — which will be found at — will allow taxpayers who filed their tax return in 2018 or 2019 but did not provide their banking information on their return to submit direct deposit information. Once they do, they will get their Economic Impact Payments in their bank accounts quickly, instead of waiting for a check to arrive in the mail. “Get My Payment” will also allow taxpayers to track the status of their payment.


“Get My Payment” is an online app that will display on any desktop, phone or tablet. It does not need to be downloaded from an app store.


For taxpayers to track the status of their payment, they will need to enter basic information in the “Get My Payment” app:

  • Social Security Number
  • Date of birth
  • Mailing address

Taxpayers who want to add their bank account information to speed receipt of their payment will also need to provide the following additional information:

  • Their Adjusted Gross Income from their most recent tax return submitted, either 2019 (Form 1040, Page 1, Line 8b) for 2018 (Form 1040, Page 1, Line 7)
  • The refund (2019: Form 1040, Page 2, Line 20) (For 2018: Form 1040, Page 1, Line 19) or amount owed (2019: Form 1040, Page 2, Line 23) (For 2018: Form 1040, Page 1, Line 22)from their latest filed tax return
  • Bank account type, account and routing numbers

Treasury and the IRS encourage taxpayers to collect this information now, through their tax preparers or other means, so they can submit this information in the app as soon as it is launched and get their money fast.


Taxpayers who did not file a tax return in 2018 or 2019 can use “Non-Filers: Enter Payment Info Here” to submit basic personal information to quickly and securely receive their Economic Impact Payments.



There are no phone calls, no need to do anything but count the amount when it comes in the mail or is directly deposited sometime this month. If you do get a call, text or email from someone asking for your Social Security, checking account or credit card number, hang up. They’re trying to steal your money. Some victims, thinking they’re registering to receive assistance, are fooled into clicking on fake links that installed software on their computers that could access their bank and credit card accounts.


Another scam involves official-looking emails that pretend to be from the U.S. Small Business Association (SBA) or other government agencies. These include links claiming to take you to an application page for a grant or other assistance. Don’t click on them.


The current climate has given thieves a new twist on the old grandparent scam, as well. If someone calls or sends a message from an unknown number or email address claiming to be a relative or friend sick with COVID-19 and desperate for money, don’t panic. Reach out to your friend or relative directly and keep in mind that scam artists typically ask for payment via wire transfer or a gift card.


There are also thieves posing as employees of the U.S. Department of Health and Human Services (HHS) or another U.S. government department who say you must complete a mandatory online form in order to be tested for COVID-19. The scam is designed to steal personal, financial and/or medical information. DON’T FALL FOR IT .


You also want to be very careful before you donate to anyone trying to raise money to help those supposedly in need. ANYONE who asks you for money in cash, through a gift card or via a money wire transfer is a thief.


The same goes for those pitching new travel insurance that covers COVID-19 circumstances. Know who and what you’re dealing with before doing anything. In fact, go here first: NJ Division of Consumer Affairs Guidance .


“New Jersey residents need the financial relief that’s coming to them,” said Attorney General Grewal. “We want you to be able to spot a scam, so that the check you’re expecting from the government doesn’t turn into a blank check from you to a thief.”


"We are asking residents to rely only on information from trusted sources, and refrain from opening attachments or click on links from unknown sources," said Paul R. Rodríguez, acting director of the state Division of Consumer Affairs.


Grewal and U.S. Attorney Craig Carpenito late last month announced the creation of a federal-state COVID-19 Fraud Task Force to investigate and prosecute those who exploit the pandemic by defrauding others. Consumers who believe that they have been victimized by a COVID-related fraud should call the National Center for Disaster Fraud’s National Hotline at (866) 720-5721.



In closing, I hope all of you are doing as well as could be hoped for in these trying times. This is a constantly evolving situation and the websites provided will give you the most up to date information. Please contact me if there are any questions on the above VIA my email Be well and hope to see everyone next year!      



Very truly yours,

at the office of
Michael W. Gutwetter
Certified Public Accountant

11 Financial Words All Parents Should Teach Their Kids

If there's one subject that has the ability to impact kids throughout their entire lives, it’s personal finance. Unfortunately, it’s a subject that no one wants to teach them.

“The practicality of teaching [finance to kids] is so important…it’s the one topic that they’ll actually use for the rest of their lives, everyday. But it’s the one topic that isn’t really taught,” says Gregg Murset, chief executive of My Job Chart, an online tool that  teaches kids about responsibility, managing money and helping charities.

Because most schools aren’t teaching finance, the responsibility falls to parents. But many parents are reluctant to broach the subject, often because they don’t feel qualified or they think talking about money will make their children worry. In a recent study 72% of parents reported at least some reluctance talking to their kids about finance. But that doesn’t mean they don’t want their kids learning it -- 91% believe it’s appropriate for kids to learn about financial matters in school and 75% said there should be a personal finance requirement to graduate.

Teachers agree -- in a separate study 89% said students should take a finance course or pass a competency test for high school graduation -- but only 29% of teachers are actually teaching it. There's been some progress getting more public schools to make courses mandatory, but it's far from being a standard part of school curriculum, which means the onus is on parents to ensure their kids have, at the very least, a basic financial understanding.

The following is a list of terms that experts say every kid should learn. It includes the age at which kids can generally being to understand the concept as well as an age-appropriate explanation that parents can use. (Even if your kids are into their teenage years, it's never too late! Go through the list to make sure they have a good understanding of each term.)

1. Saving(s): Age 4+

Saving is one of the best topics to introduce at a young age. It’s easy for kids to grasp and can have a huge impact on those who embrace it early. “Saving means not using all of your money right away, but instead putting it aside for later,” says Stacy Francis, president and chief executive of Francis Financial.

There are plenty of examples parents can use to illustrate, here's one: Start by giving your child two small pieces of candy during the day. Let them eat one right away and save the other until after dinner. Then each day for a week, give them two pieces  but have them save one in a special place. When the week is over, they'll be excited to have a bag full of candy. Explain that saving money works the same way -- when you regularly put a little bit aside, in time it will add up to something big.

2. Budget: Age 8

A budget is plan that you make to keep track of your money and where it is going. One great way that a lot of parents teach kids how to budget is with "give, save, spend jars.” Whenever the child earns money they divide it between the jars. The “save” jar is money that's intended for a longer-term goal; money in the “spend” jar can be used any time for smaller purchases; the “give” jar is money that will go to a charity of their choosing. The give jar, in particular, is great for getting kids to think about helping others while allowing them the freedom to choose where to donate their money.

Niv Persaud, founder of Transition Planning & Guidance says it’s also a good idea to get kids involved in the family budget, or “spending plan” as she calls it. “Involve your kids in developing a spending plan for an upcoming vacation. Let them see how you budget and save for these memorable trips. Start with small tasks and as your kids grow, expand their role. Once you’ve selected a destination, ask them to calculate how much you need to save for travel, food, lodging and entertainment. When you’re on vacation, ask them to keep track of spending.”

3. Loan: Age 8

A loan is something that is borrowed, often money, which has to be paid back with interest (See #5 below). Most kids get the basic concept of a loan because chances are, at one time or another, they’ve lent something to a friend or sibling and expected to get it back.

Start by explaining some of the reasons people take out loans. For instance, because it costs a lot of money to buy a house most people borrow money (take out a mortgage) to pay for it. Even kids know that $300,000 is a lot of money, so when they hear that’s the average price of a house they can understand why most people borrow money to cover it. Car loans and student loans are also good ones to discuss – especially the latter for  kids who will be taking out student loans to pay for college.

While taking out a loan isn’t a bad thing, parents need to stress that when you do take on a loan, it's your responsibility to pay it back.

4. Debt: Age 8

Loans and debt can be explained together. Like a loan, a debt is money that you owe someone that needs to be paid back. Once again, a mortgage can be a good way to illustrate how debt works. (Other types of debt, such as credit card debt, can be introduced a bit later on -- See #6)

Murset says parents should  discuss their own mortgage with their kids by explaining that they borrowed money – took on debt – to buy their house and that they need to pay it back a little bit each month. He adds,  it’s critical to show the kids the mortgage statement so they can see how much is paid each month and the interest. That way they can see the cost associated with debt and that it never goes away until it’s paid off.  Murset says, "kids need to understand that once you have a debt, it doesn’t go away until you’ve taken care of it.”

5. Interest: Age 8-10

Interest has two sides: it's either something you pay when someone lends you money or something that you earn when you lend money to someone else. Elizabeth Grahsl, Vice President of Prosperity Bank says, you would earn interest if, for example, “your sister runs out of her allowance but needs money this weekend. You could lend her $20 but charge her $2 in interest, which she will have to pay you back next week.”  You can also make it into a game to illustrate how it works: Ask to borrow a few dollars from your child's piggy bank and then set up a schedule to pay it back over the next month with interest.

Grahsl adds, “explain to older kids how you pay the bank interest on your car loan or mortgage each month. Also point out that the bank pays you interest on deposits you gave them."

When kids are older and can calculate simple percentages, have them do some math to see how interest adds up. Show them a credit card agreement that charges 15% interest and have them figure out how much extra money you would have to pay to carry a balance of $5,000 or $10,000 on your credit card, versus if you paid it off right away.

6. Credit/Credit Card: Age 8-10

Credit lets you buy something without having to pay for it right away. For example, if you use a credit card to buy a new bike that costs $200, the money doesn't come out of your bank account. Instead the credit card company pays for the bike. Then they send you a bill and you have to pay them back the $200. If you don't pay them back right away, they will charge you extra money (interest).  The longer it takes you to pay back, the more money you will owe in the end. While credit cards are necessary to have -- you can't buy a sandwich on a plane without one -- kids need to understand that they should only be used to buy things that  they can afford to pay off right away.

If you're at the store with your child and they forget their money but they  absolutely have to have that special toy, let them borrow the money, say $10. Tell them, however, that they have to pay you back right away when you get home. If they don't, start adding on interest and continue to until they've paid you back.

Parents should also explain how a debit card is different as it takes money directly from your checking account. Murset suggests referring to debit cards as "money suckers."  “When you’re at the store and you slide the debit card, explain that the card is sucking the money right out of your account at that very moment.”

7. TaxesAge 10-12

Chances are most kids know the word but few understand what taxes are. Here’s the explanation: Taxes are payments that go to the government for the work that it does, such as improving schools and fixing roads. They're taken right from your paycheck and the amount you pay depends on how much money you make.

Jeff Nauta, Principal with Henrickson Nauta Wealth Advisors says, “A great way to teach kids about taxes is to apply a tax to their allowance.” So rather than giving them their full allowance each week, take away a percentage and put it in a family jar to be used toward a household expense.

You can also explain to older kids that doing certain things, which have a positive impact such as donating money to charity or installing solar panels on your house, can lower your taxes.

8. Investment – Age 10-12

An investment is something that you spend money on, which you believe will earn you even more money (a profit) down the line. John Fowler, a wealth manager with McElhenny Sheffield Capital Management, says he’s teaching his 6-year-old daughter about investing by having her take money out of her piggy bank each week to put into an "investment account"  (also known as “the box in daddy's filing cabinet).

Fowler says the idea is that if she leaves $10 in the box, she’ll make an extra $1. “It took a couple of months of forcing her to put the money in the box in the filing cabinet. I set an alert on my phone to go off every week and I would add one quarter a week for every $10 she would "invest." By keeping the time frame we use to review her gains relatively short, weekly, it kept the concept front of mind and it became fun for her.”

Kids should know, however, that although people invest in things that they hope will make them more money, it doesn't always happen that way. That's why it's never a good idea to put all of your money in a risky investment, because if you do and the investment fails, you could loose it all.

9. Stock – Age 12+

A stock is a piece of a company. When you own a stock of a company, you own a small piece of its business. Every stock has a price and that price can go up or down, depending on what's happening at the company.

Stock movements are best illustrated to kids with an example of a company they know. For instance, say you bought one share of Apple AAPL +0% stock for $5 . If the company sold a ton of iPhones, which is good for the company, it could make the stock price go up to $8, meaning you would have earned $3 on your investment. On the other hand, if Apple didn’t sell a lot of iPhones and the stock fell to $2, you would have lost $3. Most people don’t own a single piece of a stock (a share), but tens, hundreds or thousands of shares. And most people also own stock of several different companies. The "stock market" is where people buy and sell (trade) their stocks. There is an actual place where stocks are traded but it can also be done over the Internet.

Learning about stocks can be particularly fun as kids get older. There are a lot of online games and apps they can use to create virtual stock portfolios, which can show them how stock prices move and how much money they would have made or lost if they been dealing with real money.

10. 401(K): 14+

As kids enter the teenage years, it’s a good time to begin preparing them for some of the things they will likely encounter once they enter the workforce, one of which is a 401(k) plan. Francis explains a 401(k) as “a savings account for retirement savings offered by your employer. The money that you put into a 401(k) is taken out directly from your paycheck, and is intended solely for retirement. You can’t withdraw it until age 59½.”

Francis adds, “You don’t pay taxes now on money you put into your 401k…This is a great deal because the money that would have been taken out in taxes is instead allowed to grow and compound your entire working career. Only when you withdraw it in retirement do you pay taxes.”

The money that’s put into a 401(k) gets put into different investments. The ideas is that the investments will increase over time, so the money in the 401(k) will grow as well.

11. Credit Score: Age 15+

Once you plan to give your child use of a credit card, you must explain what a credit score is, Persaud of Transition Planning & Guidance says. Here’s how she describes it: There are three credit bureaus, which calculate your “credit score” or how you use your money. The goal is to have a high credit score – more “likes” by the credit bureaus. The way to receive more likes (a high score)  is to have a long history of paying your bills on time. When you don't pay your bills on time or you have too much debt, your score gets lowered.

It’s important to emphasize that a good credit score will help in the future if you want to borrow money to buy a house or a car. Meanwhile a bad credit score can make it difficult for you to borrow money.

Article Provided By Jennifer Ryan Woods, Contributor with


What Tax Breaks Can Senior Home Sellers Receive This Year?

The following article has been provided by Julian Block from

When older couples sell their primary residences, what tax breaks are they entitled to?

I have a client I’ll call Irene. She became a widow last month when her husband Henry died.

Like most married couples, they held title to their home in joint ownership with the right of survivorship.

In plainer language, this means that co-owner Henry’s death results in his loss of all ownership in their dwelling. Surviving co-owner Irene automatically acquires all ownership in it.

Irene is uncertain what to do with her highly appreciated home. One option is to quickly sell it and move to where her daughter lives. But I agree with the daughter that Irene should go slowly when it comes to major decisions like home sales. Other options are to wait several years and then sell or just stay put, in which case the residence eventually winds up with her heirs.

Irene wants to know the tax consequences of selling or staying. I start by explaining the tax breaks for individuals who sell their principal residences.

The law authorizes “exclusions” that allow home sellers to sidestep income taxes on most of their profits when they unload their principal residences. The profit exclusions are as much as $500,000 for couples filing joint returns and as much as $250,000 for single persons. Sellers are liable for taxes on gains greater than $500,000 or $250,000.

If Irene sells, can she exclude $500,000 or $250,000? The answer depends on the sale date and whether she remarries. Though she’s no longer married, recently widowed Irene still qualifies for the higher amount—as long as she sells within two years of Henry’s death. It’s the lower amount if she sells after the two-year deadline.

What if Irene remarries? If new husband Harry then lives in the place as his principal residence for at least two years out of the five-year period that precedes the sale date, the profit exclusion will once again be $500,000.

Usually, a seller also has to own the place for those two years. That requirement doesn’t apply to Harry. That means his name doesn’t have to be on the title.

Moreover, the IRS says that Irene and Harry needn’t be married for all of the two years that precede the sale date. What do they need to do before the sale occurs? Just marry. This holds true even if their wedding precedes the sale by just one day.

Even if Irene doesn’t remarry—and even if she doesn’t sell within two years of Henry’s death—her taxable gain may be smaller than she fears. Suppose, as is likely, that Irene’s long-term capital gain profit from her home’s sale exceeds her exclusion ceiling and she’s liable for taxes on the gain.  

For most sales, the capital gain’s tax rate usually is 15 percent, increasing to 20 percent for lots of high-income sellers. It goes as high as 23.8 percent for those who are in the top income tax bracket of 37 percent and subject to the Medicare surtax of as much as 3.8 percent on income from certain kinds of investments, including profits from home sales.

On top of Uncle Sam’s take, state income taxes may also be owed. I caution Irene that she might not be able to deduct all of those taxes.

The Tax Cuts and Jobs Act that Congress approved and President Trump signed in 2017 imposed a $10,000 ceiling on write-offs for state and local income and property taxes. Another snag: Irene forfeits any write-off for state income taxes if she’s subject to the alternative minimum tax.

While my recitation of federal and state tax rates dismays her, she positively beams when I pivot to tax laws that authorize exceptional condolence gifts for Irene and other bereaved individuals who sell inherited homes, stocks and other assets that have appreciated in value.

In tax lingo, the basis (the starting point for measuring gain or loss) of inherited assets “steps up” from their original basis (the cost upon purchase, in most instances) to their date-of-death value. It’s as if the inheritors had bought the assets that day.

On Henry’s death, a step-up in basis for their home benefits Irene when she sells her dwelling. What happens if she never sells? On Irene’s death, there’s a second step-up in basis that benefits her heirs.

The first step-up is only for Henry’s half interest. There’s a step-up of his adjusted basis (typically, half the original purchase price and half the cost of any subsequent home improvements) to what that half-interest is worth when he dies. If the couple lived in a community property state, the step–up is for the entire basis.

On Irene’s death, there’s a step-up of her adjusted basis (previously boosted by the step-up for Henry’s half interest) to what the entire home is worth when she dies. When the heirs sell the home, they’re liable for capital gains taxes only on post-inheritance appreciation.

The bottom line for Irene and her heirs: Whereas a sale by Irene of a home that has appreciated immensely can trigger sizable federal and state taxes, a sale by the heirs dramatically shrinks or even erases those taxes.

An Estate Planning Checklist

What to check (and double-check).

From our friends at Rosenzweig Financial Services


Create a will if you do not yet have one. A valid will may save your heirs from some expensive headaches linked to probate and ambiguity. A solid will drafted with the guidance of an estate planning attorney will likely cost you a bit more than a "will-in-a-box," but may prove worth the expense.


Complement your will with related documents. Depending on your estate planning needs, this could include a trust (or multiple trusts), durable financial and medical powers of attorney, a living will, and other items.


Review your beneficiary designations. Who are the beneficiaries of your retirement plans and/or insurance policies? If you aren't sure, it is probably a good idea to go back and check the documentation to verify (or change) who you have designated as beneficiary.


Create asset and debt lists. You should provide your heirs with an asset and debt "map" they can follow, so that they will be aware of the little details of your wealth.


Think about consolidating your "stray" retirement and/or bank accounts. This could make one of your lists a little shorter. Consolidation means fewer account statements, less paperwork for your heirs, and fewer administrative fees to bear.


Let your heirs know about the causes and charities that mean the most to you. Write down the associations you belong to and the organizations you support.


Select a reliable executor. That person should have copies of your will, power of attorney documents, health care proxy or living will, and any trusts you create. In fact, any of your loved ones referenced in these documents should also receive copies of them.


Talk to the professionals. Do-it-yourself estate planning is not recommended, especially if your estate is complex enough to trigger financial, legal, and/or emotional issues among your heirs upon your passing.



Talking to Clients About Year-End Tax Planning

Deferring your income and accelerating expenses 

If you don’t expect to be in a higher tax bracket next year, deferring income into the following tax year and accelerating expenses into the current tax year is a tried-and-true technique. If you’re an independent contractor or other self-employed individual, you may opt to hold off on sending invoices until late December to push the associated income into 2020. However, all taxpayers, regardless of employment status, can defer income by taking capital gains after January 1. However, keep in mind that waiting to sell increases the risk that your investment’s value will decrease. Moreover, taxpayers who are eligible for the qualified business income (QBI) deduction for pass-through entities — sole proprietors, partnerships, limited liability companies and S corporations — could end up reducing the size of that deduction if they decrease their income. You may also opt to maximize the QBI deduction, which is scheduled to end after 2025. 

Bunching your deductions 

The TCJA substantially boosted the standard deduction for 2019 to be $24,400 for married couples and $12,200 for single filers. With many of the previously popular itemized deductions eliminated or limited, you may find it challenging to claim more in itemized deductions than the standard deduction. Timing, or “bunching,” those deductions may make it easier. Bunching basically means delaying or accelerating deductions into a tax year to exceed the standard deduction and claim itemized deductions. By bunching in one year and taking the standard deduction in an adjacent year, the total deductions over a two year period could be increased. You could, for example, bunch your charitable contributions if it means you can get a tax break for one tax year. If you normally make your donations at the end of the year, you can bunch donations in alternative years — say, donate in January and December of 2020 and January and December of 2022. 

  • Bunching Your Donor-Advised Fund (DAF): You can make multiple contributions to it in a single year, accelerating the deduction. Thereafter, you can decide when the funds are distributed to the charity. If, for instance, your objective is to give annually in equal increments, doing so will allow your chosen charities to receive a reliable stream of yearly donations (something that’s critical to their financial stability), and you can deduct the total amount in a single tax year. If you donate appreciated assets that you’ve held for more than one year to a DAF or a nonprofit, you’ll avoid long-term capital gains taxes that you’d have to pay if you sold the property and (subject to certain restrictions) also obtain a deduction for the assets’ fair market value. This tactic pays off even more if you’re subject to the 3.8% net investment income tax or the top long-term capital gains tax rate (20% for 2019). If you want to divest yourself of assets on which you have a loss, instead of donating the asset, sell it to take advantage of the loss and then donate the proceeds. 
  • Bunching Qualified Medical Expenses Deducting: It’s all about timing. The TCJA lowered the threshold for deducting unreimbursed medical expenses to 7.5% of adjusted gross income (AGI) for 2017 and 2018, but it bounces back to 10% of AGI for 2019. Bunching qualified medical expenses into one year could make you eligible for the deduction. 
  • Bunching Property Tax Payments: Assuming local law permits you to pay in advance, this approach might bring your total state and local tax deduction over the $10,000 limit, which means that you’d effectively forfeit the deduction on the excess. As with income deferral and expense acceleration, you need to consider your tax bracket status when timing deductions. Itemized deductions are worth more when you’re in a higher tax bracket. If you expect to land in a higher bracket in 2020, you’ll save more by timing your deductions for that year. 

Give to charitable organizations 

When considering the amount of your charitable donation, remember that if you receive any benefit from making the donation, you must reduce the amount of your deduction by the fair market value of goods and services received.Several changes to itemized deductions were made under the TCJA. One important change was the reduction of the state and local tax deduction to $10,000 and removing 2% miscellaneous itemized deductions. However, the charitable deduction is still available with some new enhancements. For the 2019 tax year, gifts or donations of cash to a public charity are deductible up to 60% of your adjusted gross income. Thus a married couple with an adjusted gross income of $200,000 may deduct up to $120,000 of cash contributions to an eligible charitable organization. You can also donate property to charitable organizations. With the donation of appreciated property, the fair market value of the property exceeds the cost basis and you have a choice to utilize either amount when claiming the deduction. When using the fair market value of the property, the maximum amount of the deduction is 30% of your Adjusted Gross Income. If you choose to utilize the cost or basis of the donated property, the maximum deduction increases to 50% of your AGI. This is true for donations of appreciated property to private operating foundations as well (donations to non-operating foundations are limited to 30% when using basis and 20% when using fair market value). Remember, certain automobile and travel expenses and other non-reimbursed expenses on behalf of certain charities may also be deductible.

Loss harvesting against capital gains 

2019 has been a turbulent year for some investments. Therefore, your portfolio may be ripe for loss harvesting, which is selling underperforming investments before year end to realize losses you can use to offset taxable gains you also realized this year, on a dollar-for-dollar basis. If your losses exceed your gains, you generally can apply up to $3,000 of the excess to offset ordinary income. Any unused losses, however, may be carried forward indefinitely throughout your lifetime, providing the opportunity for you to use the losses in a subsequent year. 

Maximizing your retirement contributions 

As always, as an individual taxpayer you should consider making their maximum allowable contributions for the year to their IRAs, 401(k) plans, deferred annuities and other tax-advantaged retirement accounts. For 2019, you can contribute up to $19,000 to 401(k)s and $6,000 for IRAs. Those age 50 or older are eligible to make an additional catch-up contribution of $1,000 to an IRA and, so long as the plan allows, $6,000 for 401(k)s and other employer-sponsored plans. 

Consider investing in a Qualified Opportunity Zone 

Although the capital gains rates are attractive, some taxpayers prefer to defer paying ANY tax to a later time. TCJA added a new way to defer the tax on capital gains for up to seven years by investing in a qualified Opportunity Zone. To take advantage of this tax deferral, you must invest the gain from the sale of a capital asset into an Opportunity Zone within six months after the date of sale. For partnerships, the clock starts at the end of the partnership’s tax year. (Special timing rules apply to capital gains arising from the sale of trade or business property). Investing in an Opportunity Zone provides several tax benefits, including: - Tax on the initial capital gain is deferred until December 2026 (unless you sell the investment earlier);  - If the proceeds are invested in the fund for five years, 10% of the initial gain is not taxed;  - If the proceeds remain invested for an additional two years, another 5% of the gain is not taxed;  - In order to achieve the full 15% exemption, the investment must be made before December 31, 2019 (unless Congress extends that date);  - If you hold the Opportunity Zone investment for a full 10 years, any appreciation on the original investment is exempt from tax. The rules governing the tax treatment and benefits of Opportunity Zone investments are still in flux – at this point the IRS has issued only proposed regulations – but the advantages are quite real. 

Sell capital assets 

There are currently preferential tax rates applied to gains on the sale of capital assets. For the current tax year, net long-term capital gains are subject to tax at either 0%, 15% or 20% depending on your filing status and taxable income; net short-term gains are taxed as ordinary income. There is also a 3.8% net investment income tax that is applied to gains on the sale of capital assets. If you have net short-term short term and long-term loss carryovers, you can deduct up to $3,000 per year on your return ($1,500 married filing separate). As it is unclear how long the capital gains rates will stay at this level, it is still prudent to consider selling your capital assets, such as stocks and bonds, to take advantage of the lower tax rates, assuming you can redeploy the gains to achieve the same or better yield. 

Accounting for 2019 TCJA changes 

Most — but not all — provisions of the TCJA took effect in 2018. The repeal of the individual mandate penalty for those without qualified health insurance, for example, isn’t effective until this year. In addition, the TCJA eliminates the deduction for alimony payments for couples divorced in 2019 or later, and alimony recipients are no longer required to include the payments in their taxable income.  


Article provided by CPA Practice Advisor 

[This article first appeared on Friedman LLP's Tax Matters.]

401(k) Contribution Limit Increased to $19,500 for 2020

Employees in 401(k) plans will be able to contribute up to $19,500in 2020. The IRS announced this and other changes in Notice 2019-59 on This guidance provides cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2020.

Highlights of changes for 2020

The 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 $19,000 to $19,500.

The catch-up contribution limit for employees aged 50 and over who participate in these plans is increased from $6,000 to $6,500.

The limitation regarding SIMPLE retirement accounts for 2020 is increased to $13,500, up from $13,000 for 2019.

The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs and to claim the Saver’s Credit all increased for 2020.

Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or his or her spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. (If neither the taxpayer nor his or her spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.) Here are the phase-out ranges for 2020:

  • For single taxpayers covered by a workplace retirement plan, the phase-out range is $65,000 to $75,000, up from $64,000 to $74,000.
  • For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $104,000 to $124,000, up from $103,000 to $123,000.
  • 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 $196,000 and $206,000, up from $193,000 and $203,000.
  • 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.

The income phase-out range for taxpayers making contributions to a Roth IRA is $124,000 to $139,000 for singles and heads of household, up from $122,000 to $137,000. For married couples filing jointly, the income phase-out range is $196,000 to $206,000, up from $193,000 to $203,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

The income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers is $65,000 for married couples filing jointly, up from $64,000; $48,750 for heads of household, up from $48,000; and $32,500 for singles and married individuals filing separately, up from $32,000.

Key limit remains unchanged

The limit on annual contributions to an IRA remains unchanged at $6,000. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.

Details on these and other retirement-related cost-of-living adjustments for 2020 are in Notice 2019-59, available on

Article provided by CPA Practice Advisor

IRS increases tax deductions for 2020

The Internal Revenue Service issued its annual inflation adjustments for dozens of tax items and tax schedules Wednesday, saying the standard deduction for married taxpayers who file joint tax returns will increase $400 to $24,800 in tax year 2020, while for single taxpayers and married individuals who file separately, the standard deduction will go up $200 to $12,400. For heads of households, the standard deduction will be $18,650 for tax year 2020, up $300.

Revenue Procedure 2019-44 spells out the details about these annual adjustments. Some tax law changes in the revenue procedure were added by the Taxpayer First Act of 2019, which increased the failure to file penalty to $330 for returns due after the end of 2019. The new penalty will be adjusted for inflation beginning with tax year 2021. Tax year 2020 adjustments typically are used on tax returns filed in 2021.

The tax items for tax year 2020 that promise to hold the most interest to the majority taxpayers and tax professionals include the following dollar amounts:

  • The personal exemption for tax year 2020 remains at 0, as it was for 2019. This elimination of the personal exemption was a provision in the Tax Cuts and Jobs Act.
  • Marginal rates: For tax year 2020, the top tax rate will stay at 37 percent for individual single taxpayers whose incomes exceed $518,400 ($622,050 for married couples filing jointly).

The other rates are:

  • 35 percent for incomes over $207,350 ($414,700 for married couples filing jointly);
  • 32 percent for incomes over $163,300 ($326,600 for married couples filing jointly);
  • 24 percent for incomes over $85,525 ($171,050 for married couples filing jointly);
  • 22 percent for incomes over $40,125 ($80,250 for married couples filing jointly);
  • 12 percent for incomes over $9,875 ($19,750 for married couples filing jointly).

The lowest rate is 10 percent for incomes of single individuals with incomes of $9,875 or less ($19,750 for married couples filing jointly).

  • For 2020, like this year and last year, there’s no limitation on itemized deductions because that limitation was eliminated by the Tax Cuts and Jobs Act.
  • The Alternative Minimum Tax exemption amount for tax year 2020 is $72,900 and starts to phase out at $518,400 ($113,400 for married couples filing jointly for whom the exemption begins to phase out at $1,036,800). The 2019 exemption amount was $71,700 and began to phase out at $510,300 ($111,700, for married couples filing jointly for whom the exemption began to phase out at $1,020,600).
  • The tax year 2020 maximum Earned Income Credit amount will be $6,660 for qualifying taxpayers who have three or more qualifying children. That’s an increase from a total of $6,557 for tax year 2019. The revenue procedure contains a table providing maximum credit amounts for other categories, income thresholds and phase-outs.
  • For tax year 2020, the monthly limitation for the qualified transportation fringe benefit is $270, as is the monthly limitation for qualified parking, up from $265 for tax year 2019.
  • For the taxable years beginning in 2020, the dollar limitation for employee salary reductions for contributions to health flexible spending arrangements is $2,750, up $50 from the limit for 2019.
  • For tax year 2020, participants who have self-only coverage in a Medical Savings Account, the plan must have an annual deductible that is not less than $2,350, the same as for tax year 2019; but not more than $3,550, an increase of $50 from tax year 2019. For self-only coverage, the maximum out-of-pocket expense amount is $4,750, up $100 from 2019. For tax year 2020, participants with family coverage, the floor for the annual deductible is $4,750, up from $4,650 in 2019; however, the deductible cannot be more than $7,100, up $100 from the limit for tax year 2019. For family coverage, the out-of-pocket expense limit is $8,650 for tax year 2020, an increase of $100 from tax year 2019.
  • For tax year 2020, the adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit is $118,000, up from $116,000 for tax year 2019.
  • For tax year 2020, the foreign earned income exclusion is $107,600, an increase from $105,900 for tax year 2019.
  • Estates of decedents who die during 2020 have a basic exclusion amount of $11,580,000, up from a total of $11,400,000 for estates of decedents who died in 2019.
  • The annual exclusion for gifts is $15,000 for calendar year 2020, as it was for calendar year 2019.
  • The maximum credit allowed for adoptions for tax year 2020 is the amount of qualified adoption expenses up to $14,300, up from $14,080 for 2019.

Article provided by Michael Cohn of

What are the Audit Flags for the IRS?

How the IRS decides which 1040s to audit. Many filers mistakenly believe that the IRS is less likely to audit returns that are submitted late in the filing season, rather than early. Not true.

All returns, whether filed early or late, go through the IRS’s ever-vigilant computers that scan them for arithmetic errors and single out returns for audit on the basis of a top-secret scoring system. The agency then scrutinizes high scorers, as well as some Form 1040s chosen purely at random, to determine which ones to actually examine. One important element in the selection process is how the amounts you claim for, say, charitable contributions and medical expenses as itemized deductions on Schedule A of Form 1040 compare with the totals taken by other individuals with comparable income levels.

Avoidance is perfectly legal, whereas, evasion is a criminal offense that carries a jail sentence of as much as to five years, plus a nondeductible fine of as much as $100,000. (Internal Revenue Code Section 7201)Is there a difference between tax avoidance and tax evasion? There is, and the difference isn’t academic.

A drastically under-funded and under-staffed IRS lacks the resources to undertake criminal prosecutions against most evaders. That doesn’t mean the IRS is a paper tiger and that evaders can rest easy. The can look forward to more tax tribulations.

The IRS routinely launches civil actions against cheats and requires them to pay sizable, nondeductible civil penalties for fraud. Those penalties are in addition to back taxes and interest charges. 

Here are some words to the wise from a book, “Criminal Tax FraudRepresenting the Taxpayer Before Trial,” published by the Practicing Law Institute: “It is surprising how many ‘witnesses’ or ‘observers’ a taxpayer can create in the process of understating his taxes. A man's mistress can observe that he always pays cash when with her. An estranged wife might have a very good idea of who is being entertained on the ‘business trip’ to Miami. Any bookkeeper told not to record certain payments may be your bookkeeper for life. And it is very difficult to fire an insurance broker who has been giving you kickbacks for years.”

Those admonitions on how to avoid a stay in the slammer should have been heeded by the late Leona Helmsley. She was overheard by her housekeeper to say, "We don't pay taxes. Only the little people pay taxes." The housekeeper's testimony about the Queen of Mean's indiscreet remark helped Uncle Sam convict the premier New York hotelier and send her to Club Fed on April 15, 1992, to serve a four-year sentence for tax evasion. Unsurprisingly, the media-savvy feds selected the 1040 filing deadline as the date to announce her sentencing.

Senators Max Bacus of Montana and Russell Long of Louisiana on tax reform. Mr. Bacus at the Senate Finance Committee hearings on enactment of the Tax Reform Act of 1986:”The last time this committee met to review the tax code from top to bottom, Eisenhower was president, Joe DiMaggio was married to Marilyn Monroe, and there were no major league baseball teams west of Kansas City.”

Inevitably, there are largely silent winners and vocal losers; reform, said Mr. Long, means “Don't tax you, don't tax me. Tax that fellow behind the tree.” 

Article provided by Julian Block of


Being an Executor

What if you are an Executor or Administrator of an estate?

You are most likely looking to obtain waivers to release the decedent’s assets, such as NJ bank accounts, NJ stock, and NJ real estate. There are several steps to follow, and a few things you need to know before this can happen.

What are the different types of waivers?

A self-executing waiver (do-it-yourself) and the 0-1 waiver (issued by the Division of Taxation) are the different types of waivers. New Jersey banks are prohibited from closing a decedent’s bank accounts without one of these forms:

  • Form L-8 Self-Executing Waiver Affidavit can only be used when there is no Inheritance or Estate Taxes due : L-8s are to be filled out by you, as the estate representative. Then they can be sent or brought directly to the bank, transfer agent, or other financial institutions holding the funds. Many banks have these forms on hand, but they can also be obtained on our website. You do not file anything with the Inheritance and Estate Tax Branch if you qualify to use this form.  
  • Form 0-1 is a “waiver” that can only be issued by the Division of Taxation: To get this form, you must file a return with the Division. Real Estate transfers always require Form 0-1. Note: 0-1 is not a form that you will be able to find on our website. This form can only be issued by the Division of Taxation.

Are there any Inheritance or Estate Taxes Due?

Your next job as Executor/Administrator is to figure out if any Inheritance or Estate taxes will be due. This will determine what forms or returns you will need to file.

Besides the Federal estate tax, there are two separate State taxes related to a person’s death: the Inheritance Tax and the Estate Tax. You may owe one, but not the other. You will never pay more than the higher of the two taxes:

  • Inheritance Tax mainly depends on the relationship between the deceased person and the beneficiary. Estate proceeds payable to: o Surviving spouses, parents, children, grandchildren, etc. are exempt from Inheritance Tax. These are Class A beneficiaries. Brothers and sisters and children-in-law are subject to tax after built-in exemptions. These are Class C beneficiaries. Nieces, nephews, aunts, uncles, friends, and non-relatives are subject to Inheritance Tax. These are Class D beneficiaries. Charitable institutions are exempt from Inheritance Tax. These are Class E beneficiaries.

If it turns out that Inheritance Tax may be due, the Inheritance Tax Resident Return (Form IT-R) needs to be filed. Any tax must be paid within eight months after the date of death or you will incur a 10% annual interest charge on unpaid tax.

Sometimes, a return needs to be filed even if there might not be any tax due. If there are any Class C, D, or E beneficiaries, you will need to file a full return. 

  • Estate Tax depends on the size of the decedent’s gross estate and the decedent’s date of death. You will have to file an Estate Tax return if the estate value is higher than the exemption level for that year: 
  • Year of Death/Exemption Level/Return Required: 2016 or earlier $675,000 including adjusted taxable gifts IT-Estate; 2017 $2 million IT-Estate 2017; 2018 or after All exempt No Estate Tax return

If you determine that all of the beneficiaries and the estate are exempt from tax, you may use the following form to obtain a real estate waiver:

  • Form L-9: Resident Decedent Affidavit Requesting Real Property Tax Waiver. This Form needs to be filed with the Inheritance & Estate Tax Branch to receive a Form 0-1 Waiver for real estate.

Non-Resident Decedents (someone who died as a legal resident of another state or a foreign country): People who did not live in New Jersey, but owned certain types of property in New Jersey (usually real estate) may need to pay NJ Non-Resident Inheritance Tax. There is no Estate Tax on non-resident decedents.

Other Important information for executors/administrators to know:

  • Banks and financial institutions may release up to 50% of the entire amount of funds on hand before a waiver is received. These funds may only go to the executor or administrator or joint owner of the account(s).
  • Banks also must pay (without a waiver) any checks for Inheritance/Estate Taxes written to New Jersey Inheritance and Estate Tax from a decedent’s account (if there are sufficient funds in the account, of course.)
  • When filing any return for Inheritance Tax, the fair market value of decedent’s assets should be reported as of the date of death, not as of the filing date.

How long does processing take?

Once you have filed a return with the Division, please plan for processing to take at least several months. If a return must be audited, it may take several months longer. About 40 to 50% of returns require additional attention in the form of an audit. Returns are processed and audited in the order they are received.

Inheritance and Estate Tax payments are usually posted within two weeks from the time they are received, but the processing of a return and issuing of waivers will take longer.

Full details regarding the above information are available on the State of New Jersey Division of Taxation's website:

Social Security Benefits after Marriage, Death, or Divorce

Making Social Security decisions is relatively simple for seniors filing single tax returns. Assuming modest or no earned income, retirement benefits can begin as early as age 62. For each year of waiting to start, annual benefits increase by approximately 7%–8%. (After full retirement age, now 66 or 67 depending on year of birth, the presence of earned income will not affect Social Security benefits.)

By age 70, however, the waiting game must stop; seniors who begin then receive the maximum benefit. Regardless of the starting date, Social Security payments generally increase each year, to keep up with inflation, and they last for the recipient’s lifetime.

Paired Planning

Social Security decisions become more complex for married couples, especially if one spouse has earned much more than the other and is entitled to far greater benefits. Each spouse has a choice: take benefits on one’s own earnings record or on the spouse’s record.

Suppose Al is entitled to $2,000 per month in benefits at full retirement age in 2020. His wife Beth is the same age, and her retirement benefit is $1,200 per month. The basic spousal benefit is half of the other spouse’s benefit, so Beth would be better off taking her own $1,200 benefit rather than a $1,000 spousal benefit (50% of Al’s $2,000 benefit). If Beth’s own benefit would be lower, such as $720 per month, she would be better off with a $1,000 monthly spousal benefit.

Staggered Starts

The plan described above might work if both spouses are the same age and both want to start Social Security benefits at full retirement age. This is often not the case, however, so couples have to make choices.

One strategy would be for the lower-earning spouse (i.e., Beth) to start at 62, the earliest date possible, while Al delays until age 70 to receive a maximum benefit. Assuming that Al has not yet started retirement benefits, Beth will not be able to claim a spousal benefit, so she will be limited to her own retirement benefit.

Moreover, starting at age 62, Beth’s benefit would be only 75% of her age 66 benefit, or $540 per month, instead of $720. She would collect $6,480 per year from Social Security, plus any future cost-of-living adjustments (COLA), a total that will help the couple pay their bills until Al turns 70. At that point, Al’s monthly Social Security payment will be $2,640 per month (a 32% boost for waiting four years before starting), plus any COLAs in the interim.

Between their benefits, Al and Beth could receive $3,180 per month ($38,160 per year) from Social Security, plus COLAs. This would go on as long as they both live and be partially tax sheltered under current law, providing some assurance that they will not run out of money if they live to advanced ages.

Note that Al’s waiting until age 70 will not increase Beth’s monthly check. If Beth starts at her full retirement age, she will receive $1,000 per month, which is half of the $2,000 per month Al will receive by starting at full retirement age. Waiting longer will not boost Beth’s spousal benefit to half of Al’s increasing benefit. Therefore, Beth should not wait beyond her full retirement age to begin collecting a spousal benefit.

Another possibility is for Beth to start at age 62, collecting a reduced benefit based on her own work history, as illustrated above. When Al starts to collect his own benefit at age 70, Beth can compare her own reduced Social Security ($540 per month) to a spousal benefit based on Al’s work history ($1,000 per month) and claim the spousal benefit if it is greater.

Depending on how the numbers work out, it can make sense for one spouse to start with her own benefit and later switch to a spousal benefit. For this type of switch to work, Beth must claim her own benefit when Al has not yet started his Social Security benefits, then claim a spousal benefit when Al files for retirement benefits.

A limited window exists for people who reached age 62 before January 2, 2016. They can restrict a Social Security application to their spouse’s benefit and delay filing for their own retirement as late as age 70 so their own benefit can grow.

Survivor’s Step-Up

Continuing this example, Al is receiving $2,640 per month, plus COLAs, after age 70, while Beth’s Social Security payments are an inflation-adjusted $540. If Beth dies first, Al will continue to receive lifelong payments of $2,640 per month, plus COLAs.

Conversely, suppose Al is the first spouse to die. Will Beth receive only $540 per month? No. The surviving spouse will always receive the greater of the two Social Security benefits, so Beth will receive an inflation-adjusted $2,640 per month for the rest of her life.

Therefore, having one spouse—especially the one with higher lifetime earnings—delay Social Security as long as possible serves two purposes: the couple will have more income after age 70, and the survivor will enjoy a larger “pension” from Uncle Sam.

In order for Beth to receive Al’s full monthly payment as a survivor’s benefit, she must have reached full retirement age. Younger widows and widowers can collect as early as age 60 (50 if disabled), but starting before full retirement age would result in smaller monthly checks.

Other requirements may apply to Social Security survivor’s benefits. To receive them, a widow or widower generally must have been married to the deceased individual for at least nine months before death; a deathbed wedding will not generate a lifetime payout from Social Security. Exceptions to the nine-month rule include death by auto accident or other disasters in that time frame.

Supporting the Survivor

Based on the above, comprehensive planning might call for encouraging the higher-earning spouse to delay as long as possible. Not only will the couple have more income during a long retirement, but the surviving spouse will have more—possibly much more—monthly income. Waiting to start Social Security may wind up effectively providing some “life insurance” or “longevity insurance,” in the form of higher lifelong cash flow, for the lower-earning spouse.

Such insurance may be especially valuable to survivors. After a two-year transition period, widows/widowers who do not remarry will file as single taxpayers. Assuming taxable income remains approximately the same, with the loss of one Social Security check offset by a single person’s lower standard deduction, the survivor likely will be in a higher tax bracket, and thus owe much more in tax.

For example, Carl and Diane have $75,000 in taxable income this year. Filing a joint return, this couple is in a 12% tax bracket. If Carl dies a few years from now, and his income does not substantially change in that time, Diane will be in a 22% bracket. Her tax bill will likely be higher, so the larger Social Security benefit would be welcome.

Split Heirs

After a divorce, both spouses naturally will be entitled to Social Security retirement benefits, based on their own work history. In addition, spousal retirement and survivor’s benefits may apply.

For example, Ed and Fiona were married but are now divorced. Ed’s work history entitles him to larger Social Security benefits than Fiona would receive on her own. To qualify for retirement benefits on Ed’s work history while Ed is still alive, Fiona must be unmarried, be at least age 62, and have been married to Ed for at least 10 years.

Here, the rules for spousal retirement benefits are generally the same for Fiona after a divorce as they were when the couple was married. Fiona will not receive more than half of Ed’s retirement benefit, and any benefits Ed earns after full retirement age will not help Fiona. Filing before full retirement age will produce a smaller benefit. Therefore, Fiona should take her own retirement benefit if it is larger than the spousal benefit she would receive on her own work record.

Divorced spouses do, however, have one advantage. Even if Ed has not applied for Social Security benefits, Fiona may still be able to receive retirement benefits on his work history. To do so, Fiona must meet all the above qualifications and have been divorced for at least two years.

In this example, Fiona may receive survivor’s benefits from Social Security if Ed is the first spouse to die. As is the case with a still-married couple, Fiona could receive the equivalent of Ed’s retirement benefit after he dies. Often, that means a larger monthly payment for a divorced ex-spouse. Again, the marriage must have lasted at least 10 years for Fiona to receive a survivor’s benefit. Remarriage will not affect this benefit if that wedding occurs after Fiona turns 60, but Fiona can receive only one benefit—the largest—even if she is entitled to multiple benefits from multiple sources. Other rules for surviving ex-spouses may apply if Fiona is disabled or if she is caring for Ed’s young (under age 16) child.

Suppose that Ed gets remarried to Gloria and dies in a car crash a year later. Gloria would receive a widow’s benefit, as described above, but what would happen to Fiona’s Social Security survivor’s benefit? In brief, nothing. Survivor’s benefits paid to the surviving spouse will not reduce the amount paid to a surviving ex-spouse, so Gloria and Fiona could both receive lifelong payouts of Ed’s monthly retirement benefit amount, if all qualifications are met. There is no limit to the number of ex-spouses who can receive benefits on one person’s Social Security record, as long as the former marriages all last 10 years or more.

Keep in mind that Social Security rules can be complex. This article covers the basics, but it is always a wise move to ask Social Security about specific taxpayer circumstances


Article provided by Sidney Kess, JD, LLM, CPA of the CPA Journal