As we move through the last quarter of 2018 and approach the end of the tax year, many families begin to gather necessary information for tax filings.  For adoptive parents, the process of claiming their adopted child as a dependent on their annual income tax returns can be somewhat confusing when the adoption occurs later in a tax year and certain information and documentation cannot be obtained prior to tax filing deadlines.

When children are adopted, their legal status as dependents and their change of name are completed the day of their adoption finalization hearing.  Typically immediately following the adoption finalization hearing, the judge overseeing the hearing will execute an Adoption Decree and shortly thereafter, the County court office which is responsible for processing adoption paperwork will issue a Certificate of Adoption.  Those documents evidence an adoptive child’s new name and identify their legal parents.  That information should be sufficient to claim a child dependency exemption for an adopted child.  However, additional details are required in order to actually take an appropriate child dependency exemption for an adopted child.  Continue Reading Child Dependency Exemptions for Adopted Children

If you’re thinking about starting a business in Pennsylvania, an important part of the financial side of your business plan is to evaluate the impact of taxes on your new business. Your lawyer and your accountant are key members of your business team that can help you evaluate what type of entity to form, how that entity should be taxed, and the taxes applicable to your business.

Part three of this series discusses taxes associated with ownership of real estate and employment taxes. Part one discussed sales and use taxes and others that may apply based on the nature of the goods you sell or the services you provide. Part two discussed taxes that may apply depending on the way your business is organized.

This post is not intended to be a substitute for legal or tax advice from your lawyer or accountant – you should talk to them in order to obtain advice to address your specific situation. Need a lawyer or an accountant? We might be able to help you with that! Continue Reading Pennsylvania Business Taxes – Property and Employment Taxes

If you’re thinking about starting a business in Pennsylvania, an important part of the financial side of your business plan is to evaluate the impact of taxes on your new business. Your lawyer and your accountant are key members of your business team that can help you evaluate what type of entity to form, how that entity should be taxed, and the taxes applicable to your business.

Part two of this series is a high level overview of the common taxes that you may be subject to depending on the way your business is organized. Part one discussed sales and use taxes and others that may apply based on the nature of the goods you sell or the services you provide.

This post is not intended to be a substitute for legal or tax advice from your lawyer or accountant – you should talk to them in order to obtain advice to address your specific situation. Need a lawyer or an accountant? We might be able to help you with that! Continue Reading Pennsylvania Business Taxes – Income and Franchise Taxes

If you’re thinking about starting a business in Pennsylvania, an important part of the financial side of your business plan is to evaluate the impact of taxes on your new business. Your lawyer and your accountant are key members of your business team that can help you evaluate what type of entity to form, how that entity should be taxed, and the taxes applicable to your business.

Part one of this series is a high level overview of the common taxes that you may be subject to depending on the nature of the goods or services your business provides.

This post is not intended to be a substitute for legal or tax advice from your lawyer or accountant – you should talk to them in order to obtain advice to address your specific situation. Need a lawyer or an accountant? We might be able to help you with that! Continue Reading Pennsylvania Business Taxes – Sales and Use Tax

In the summer of 2017, property tax assessments and assessment appeals were a big topic of discussion.  That is because 2017 marked the countywide reassessment for all properties.  The County Tax Assessment Appeal Board heard tens of thousands of assessment appeals.  Some of the appeals resulted in substantial savings for the property owners.

This blog article is a reminder that even if you did not appeal your property tax assessment in 2017, you can still appeal that assessment in 2018.  Appeals must be filed on or before August 1, 2018.

            Here are a few of the topics that this blog covered in 2017:

If you did not appeal your assessment in 2017, but you think that your assessment is wrong, you have another chance to reduce your property taxes.  If you wonder whether you should appeal, we would be happy to help.

Aaron Marines is an attorney at Russell, Krafft & Gruber, LLP, in Lancaster, Pennsylvania. He received his law degree from Widener University and practices in a variety of areas including Commercial and Residential Real Estate, Land Use, Land Planning and Zoning matters.

Kathleen Krafft Miller is an attorney at Russell, Krafft & Gruber, LLP, in Lancaster, Pennsylvania. She received her law degree from Widener University and regularly advises homeowners and individuals on legal matters ranging from tax assessment appeals to domestic relations matters and estate planning.

We have written a few articles about the changes to the Tax Code.  The change that many professionals are trying to figure out is the 20% deduction for individuals using a pass-through business entity such as a partnership, LLC, “S” corporation or sole proprietorship.  Code Section 199A is not just a minor change in already settled law.  It is a brand new concept.  Even the AICPA has requested – twice – that the IRS and Department of the Treasury provide guidance on the pass-through deduction.

There are a couple of key concepts that are building blocks to understanding Section 199A.  Some of these are:

  • The business must be a “qualified business.” A qualified business is anything that is not a “specified service trade or business.”  This means that service businesses such as accounting, actuaries, brokers, consultants and lawyers are not qualified businesses and cannot take advantage of the deduction.  Engineers and architects are qualified businesses, and the owners may use the deduction.

Of course, this exclusion has an exception.  If a business would otherwise be disqualified, but the taxpayer has a taxable income less than $207,500.00 for an individual ($415,000.00 for taxpayers filing a joint return), then the taxpayer may be eligible for the deduction.  In this case the deduction is phased out depending on how close the income is to that threshold amount.

  • The deductible amount requires a lot of calculation. The deduction that a taxpayer can take is the lesser of (A) 20% of the taxpayer’s business income or (B) the greater of either:  (i) 50% of the W-2 wages paid by the business; or (ii) the sum of 25% of the W-2 wages paid by the business plus 2.5% of the unadjusted basis of qualified property of the business.

But even this confusing definition has different qualifiers.  For example, qualified business income excludes net capital gain.  This means that the higher the ratio of net capital gain to taxable income, the lower the pass-through deduction.  The deduction favors companies with employees because 50% of the W-2 wages paid could be deductible.  On the other hand, if a company has few employees, but creates income through its depreciable assets (such as landlords), they can deduct up to 2.5% of the unadjusted basis of the property. Continue Reading Questions About the Tax Deduction for Pass-Through Income

In a ruling issued yesterday, the United States Supreme Court held that states can require internet merchants to collect sales tax, even if they do not have a physical presence in that state. This overturned the previous rule from Quill Corp. v. North Dakota, which required collection and remittance of state sales tax when a retailer has a physical presence in the state. If sales tax was not collected through the transaction, the burden fell to consumers to report and remit use tax for out of state purchases.

Here’s a link to the full text of the opinion: South Dakota v. Wayfair, Inc., et al. In this case, South Dakota enacted a law that required all merchants to collect a 4.5% sales tax if they had more than 200 individual transactions in the state or have more than $100,000 in annual sales in the state.

As of now, the Court’s decision only paves the way for states to collect sales tax from merchants. Therefore, merchants should pay attention to actions by Congress and state legislatures on this issue to determine what their ongoing compliance obligations will be. As states begin to implement the Court’s ruling and require collection of sales tax, in the coming months consumers may notice an increasing number of retailers collecting sales tax for online purchases.

Matt Landis is an attorney at Russell, Krafft & Gruber, LLP, in Lancaster, Pennsylvania. He received his law degree from Widener University Commonwealth School of Law and works regularly with business owners and entrepreneurs.

We have spent a month trying to study The Tax Cuts and Jobs Act, reading analyses of the new tax laws, and talking to accountants, bankers and business owners about what the laws really mean. The most important thing that I have learned is that there are dozens of provisions that may be important to you.  Some of these changes overlap – you lose a deduction for one item, but gain on your standardized deduction.  Your top five things to know are going to be different from someone else’s top five, depending on their income, occupation, marital status and other factors.  It is nearly impossible to write a top five or even a top ten list.  The advice that I am giving to everyone I know is to pay attention to all of their finances, and ask lots of questions. Continue Reading The Top Five Things to Know About the New Tax Laws

We have written a lot of articles about the countywide property tax reassessment covering the basics of residential and commercial assessment appeals and what the new assessed values will mean to property owners.  Now that most of the appeals have been processed, the county and each school district and municipality knows the total assessed value of property.  They will all set their tax millage rates before the end of the year.  All of this coming together will allow you to calculate your total property tax for 2018.

I had the opportunity to work with a few commercial property owners who decided to appeal their assessments.  In these cases, we were able to get the total assessed value of the properties cut almost in half.  This is going to save these particular landowners around $20,000 per year in property taxes.  Every case is different, and I cannot guarantee that anyone would be successful in a property tax appeal.  There were, however, major similarities in the properties that received big adjustments in their assessed value.  These were:

  1. There was something unusual about the property that the county did not take into consideration; and
  1. The property owners had a good appraisal report to support their appeal.

With both of these things present, a commercial property owner has a good chance at getting their assessment reduced.

So what happens if you decided not to pursue a property tax appeal this summer?  You are able to appeal your assessment every year.  There is a short window of time between when taxes are sent out and the tax appeal deadline of August 1.  This does not mean you have to wait until next summer to think about a tax assessment appeal.  If you believe that the assessment of your property is incorrect, we can help to evaluate and pursue an appeal.

Aaron Marines is an attorney at Russell, Krafft & Gruber, LLP, in Lancaster, Pennsylvania. He received his law degree from Widener University and practices in a variety of areas including Commercial and Residential Real Estate, Land Use, Land Planning and Zoning matters.

The Pennsylvania Supreme Court and General Assembly have created new rules on the amount of net loss carryover (NLC) a corporation can deduct.  This is an interesting instance where the Pennsylvania General Assembly has drafted a law trying to predict the Pennsylvania Supreme Court’s decision in the Nextel Communications case.  The General Assembly correctly predicted the outcome of the case, and so the new NLC provisions will become part of the new law.

The question is how much of a corporation’s loss may be carried over from prior years as a deduction against taxable income.  At the time of the case, the Pennsylvania Revenue Code provided that a corporation could carry over losses as deductions equal to the greater of 12.5%  of the corporation’s taxable income or $3 million (now those limits are $5 million or 30% of net income).  This produced a result where corporations with less than $3 million in net income could deduct all of their losses up to that $3 million cap.  Corporations with net income over $3 million could only deduct 12.5% of their net operating loss. The effect is that many corporations with income under $3 million paid no corporate taxes, while bigger corporations paid quite a bit.  The Supreme Court’s decision stated that 98.8% of Pennsylvania corporations did not pay Pennsylvania corporate income tax.  The Court decided that this was unconstitutional, as a violation of the Uniformity Clause that requires all taxes on the same class of subjects to be uniform.  Continue Reading New Pending Rules for Corporate Net Loss Carryover Deductions in Pennsylvania