Then, the good news for many filers is the nearly doubled standard deduction.  Most tax policy wonks estimate more than half of all Schedule A filers will now happily take the standard deduction for federal purposes.

$24,000         Married/Joint

$12,000         Single and Married/Separate

$18,000         Head of Household

Formerly, you had a deduction, and an exemption.

Your itemized deduction included state income taxes, home mortgage interest and real estate taxes (for up to 2 homes) plus charity, medical (within limitations,) and certain business expenses (within limitations,) among other things.  State and local taxes (SALT) now have a limitation of $10,000.  This applies to your state income taxes, any sales tax, personal property taxes, and real estate taxes.  Limiting this to $10K hurts a lot of people.  However, the powers-that-be felt the new limit contributed to a leveling of the playing field.  We shall see.  I do know a lot of DIY people did not understand Schedule A, and mistakes were very common.

Also changed – you can no longer take a deduction for your investment fees, your tax prep, or your employee business expenses.  Granted, most regular folks never got this deduction because even if they filled out the forms, the amounts did not go over the threshold.  But it was apparently fun trying.

Some people will still itemize!  I expect seniors will still have heavy medical expenses, and some people will still be extremely charitable.  They talked about limiting charity, but they did not do it.  (Yet.)  Some people are reorganizing how they give so as to improve their tax situation.  Example:  Give a whopping amount every second (or third) year so as to itemize, but then slack off to the standard deduction in the off years.

As for that exemption – well, it’s just gone, too.  No more multiplying by all the people you managed to cram into your tax return.  Instead, there is an increased $2000 deduction for each child under age 17, and they’ve added a $500 “Other Dependent Credit” for miscellaneous other dependent relatives.

The forms were restructured.

All people now file on the same Form 1040.  No 1040-A.  No 1040-EZ.

There is rumor of a new form for seniors (1040-SR,) but nobody really knows why.  If both rich and poor non-seniors can file on the same 1040, why can’t rich and poor seniors file on the same 1040.  Maybe 1040-SR will have larger type?  Or bigger spaces to write in?

What happened to the postcard?  Think about it – do you really want your SSN sent by postcard through the mail?  Ted Cruz may be a helluva guy, but this was not a good idea.

Instead, we have 2 half-pages, which are thankfully being printed on 1 side of 1 piece of paper.

The top half is the demographics, in this order:

Your filing status

Your name and SSN

Your spouse’s name and SSN

Your address

Your dependents with SSN, etc

Your signature (and mine)

The second half of the page is a quick recap of your income, and how it’s taxed.

The most basic income information (totals for wages, interest, dividends, IRAs and pensions, and Social Security benefits) comes first.  The rest of the information has been organized into 6 sections, which are called Schedules 1, Schedule 2, Schedule 3, Schedule 4, Schedule 5, and Schedule 6.  (Clever.)  Pretty much all of the forms and schedules we used to file have been coordinated into these 6 schedules, and their totals flow to the second half of the 1040 page.

But some information appears on its own line, with no help from a newly numbered Schedule.  This includes your deduction (standard or itemized,) the new QBID, any withholding totals, and various refundable credits, plus the math.  I think they could have done a better job.

It is interesting to note that they managed to highlight the refund section by putting the word “Refund” in large, bold type, offset to the left, while they downplayed any amount you might owe by using a smaller font and tucking this information at the very bottom.

And did you notice the very first line, up at the top, was your filing status?  Now we know what they’re really interested in.

Tax Reform – Like it or lump it – it’s the law. 

Late December 2017, Congress gave the American people the most far-reaching tax code changes since income taxes were first shoved down our throats created.  They changed forms, rules, and thresholds.  Some cherished provisions were wiped away, and new twists were created.  Some changes are “permanent” while others are “temporary.”  In my opinion, now that congress has a taste for tax-law tinkering, nothing in tax law will ever be permanent, and I fully expect each new administration – state and federal – to take a swipe at it.  Be that as it may, our government is still issuing guidance on various provisions.

And so we begin a series on Tax Reform.  Not everything…just the HIGHLIGHTS that impact my people, and just the broad strokes because if you really want all the details, you may as well read all 400 pages of the Tax Cuts and Jobs Act of 2017, and then move on to the hundreds of additional pages of guidance issued (and still being issued) by the Internal Revenue Service.

Most people just want to know what it means in practice, and so that is our focus.

My own layman’s guide, born of my own experience and observations – Part 5

One of the biggest expenses is the funeral.  Unfortunately, all of the funeral decisions (and funeral spending) happen while the grief is very new and raw.  The assets probably haven’t even been tallied yet, or an estate bank account opened.  It is easy to lose sight of the need to spend wisely and to track expenses.  Fortunately, an honorable funeral parlor will provide a detailed invoice.

Funeral expenses can be broken down into 4 areas:  funeral parlor, viewing and/or service, cemetery, and what has commonly become known as the “funeral lunch.”

My own layman’s guide, born of my own experience and observations – Part 4

Expenses are easy. They happen under your control. You get to write them down as they happen.

The hard part is spending the money in accordance with the will and the law. There will be all kinds of reasons to break protocol, so to speak. There’s always an heir with a sob story. Somebody might need a loan. Somebody might propose perfectly rational non-stated items to spend on, or a perfectly rational alternative distribution schedule. Don’t do it! Stick to the script. The script was written by the deceased, in accordance with the laws of the State of New Jersey: as executor, your job is to follow through.

My own layman’s guide, born of my own experience and observations – Part 3

Everything that the deceased owned is an ASSET.

Some assets are easy to identify:  house, vacation house, rental property, furnishings inside the various houses, vehicle, antiques, gold bars, silver coins, “fine” jewelry/watches, “fine” artwork, “fine” china, etc.

Some assets are financial:  cash, bank account, annuity, 401K, IRA, mutual fund, bonds, etc.

Some assets are valuable, and need to be listed individually:  everything above.

Some assets only have sentimental value:  old worn slippers, costume jewelry, photos, framed jigsaw puzzles, ancient lawnmower, broken recliner, chipped dishes and glassware, stacks of magazines, drawers of letters, unfinished afghans, etc.

My own layman’s guide, born of my own experience and observations – Part 2

Terminology. Jargon.  Legalese.  Ordinary words with “special” meaning.  If you are working with an estate, it will help to know the vocabulary.

Estate – While you are alive, you, personally own all of your “stuff.”  The minute you pass away, all of your “stuff” immediately belongs to your estate.  In other words, upon your death, the immediate, (albeit temporary) owner of your “stuff” … is your estate.  In this context, “stuff” includes tangible assets, financial assets, real estate, debts, etc.

Will – Legal document that basically tells the world how to dispose of your “stuff.”

Something every adult ought to have.  Yes:  every adult.  And, yes, while it’s probably more likely that a 99-year-old great granny will pass away than an 18-year-old high school honor student, both need wills.

It is not mandatory that a will be written by a lawyer, but genuine legal advice is always a good idea.

If you insist on doing it yourself, get it witnessed.  A document written on the back of an envelope can have all the wherewiths and heretofors imaginable, but if it is not properly witnessed, it probably won’t be acceptable in NJ.  Most banks have notary services for their clients.

Heir – Person legally entitled to your stuff, upon your death.  If you have a will, you get to determine who it is.  If you do not have a will, NJ (and most other states) will defer to your next of kin.

Next of kin – Your closest living blood relative.  Especially important if you do not have a will.  In this order:  spouse, children, parents, siblings, grandchildren, grandparents, nieces/nephews, aunts/uncles, etc.  Within any group, priority is given by age.

Disinherited Person – Very sad, but best explained in context.  Let’s say I have an alcoholic brother who lives on the streets.  My mother might decide my alcoholic brother should get nothing because she is fairly confident he will just drink it away, while I might use the money wisely.  In her will, it would be a good idea for her to specifically recognize my brother (her son,) and that he gets nothing.  No reasons are necessary.  Check with your attorney!  See also, Contest.

Executor/Executrix – The lucky person who is in charge of taking care of your estate.  When you write a will, you get to pick this person.  This person is expected to follow the instructions of your will, pay your last bills, liquidate your assets, and distribute your “stuff.”

Probate – This is a process to establish the validity of a will.

Surrogate’s Office – In NJ, this is where you go to establish the validity of a will.  Every county has a Surrogate.  The office is usually at the county office complex.  Take a copy of the will.  Take a checkbook.  (Yes, there are fees.)  Take tissues.

Death Certificate – Legal document stating that a person has died.  It probably includes much additional information, and can be very long, and on special paper.  It frequently has a raised seal.  A death certificate is sometimes required in order to liquidate certain assets.  Generally, you can get them from your county office, but it is easier to just order them through your funeral director.  Yes, there is a fee.

Short Certificate – This is a legal document showing the decedent’s name, date of death, and the name of the person authorized to handle the affairs of the estate.  The Surrogate’s office will provide as many of these as you like…for yet another small fee.  It is easier to order more than you think you need than to go back for one more.

Testate – If a person dies with a valid will in place, it is said that the person died testate.

Intestate  – If a person dies without a will, it is said that the person died intestate.

Administrator/Administratrix – If you don’t have a will, NJ will appoint someone to this position.  This person does everything the executor/executrix would have done.  With a small estate, or few heirs, this might be handled through the Surrogate’s office.  With a large estate, or a contentious estate, it might be accomplished by a court proceeding, in which case, (in my opinion,) there ought to be lawyers.

Bond – Essentially, this is an insurance policy on the assets of the estate.  It could cost thousands of dollars, and it has to be renewed every 12 months until the estate is closed.  It can get very complicated.  From what I have seen, a good will states that no bond is necessary.  When there is no will, the Surrogate’s office will tell you how much of a bond you need to acquire.  The price of the bond can depend on the size of the estate as well as the credit rating of the administrator/administratrix.

Contest – This is the process by which a person challenges the handling of the estate and/or the distribution of assets.  Let’s say my mother did not specifically mention my supposed alcoholic brother and did not specifically give him nothing.  In a moment of sobriety, he might pull himself together and find a lawyer to fight the will.  A battle of attorneys will begin, and it will be costly.

Taxes – Income tax is not to be confused with the so-called death taxes.

Income tax is on income produced by the assets of the estate.  An example would be interest on a million dollar savings account, or gain from the sale of the vacation home.  As long as the estate remains open, it is appropriate to file income tax for the estate.  Form 1041 is due on the traditional Tax Day, April 15, adjusted as necessary for weekends and holidays.

The so-called death taxes are on the underlying income-producing assets, that is, the aforementioned actual million dollars in the savings account, or the actual vacation home.  The so-called death taxes are only filed once.  In NJ, the forms are due 8 months after the date of death, and in this case, the IRS follows the state, and so Federal Form 706 is also due 8 months after the date of death for NJ estates.

My own layman’s guide, born of my own experience and observations – Part 1

Everybody knows NJ has long been one of the most onerous states to die in, but on October 14, 2016, this began to change.*

First of all, only 18 states (plus DC) impose death taxes. Secondly, NJ is one of only two states with two layers of death taxes. (Maryland is the other.) Finally, until this year, NJ’s threshold for estate tax was only $675,000.

Now, for NJ residents dying between January 1, 2017 and December 31, 2017, the estate tax threshold has been raised to $2,000,000. Then, beginning January 1, 2018, it will be eliminated entirely. That’s right: Zero.

But before you get too excited, don’t forget: there are still 2 types of death taxes!