Articles Tagged with taxes

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A partnership is an unincorporated association of two or more people who act as co-owners of a business for profit.  Under New Jersey business law, a partnership may be created even when there is no written partnership agreement between the parties (this is known as “defacto partnership.”  However, just like any other business venture, a partnership is required to register their business with the State of New Jersey Secretary of State and obtain an employer identification number for tax purposes.

While a partnership agreement under New Jersey partnership law is not necessary, in the event that there is no partnership agreement, the default rules for partnerships will govern a partnership.  Every partnership which has either income or loss from sources within the State of New Jersey, or in which any partner resides in New Jersey must file tax forms with the State of New Jersey.  Beginning on January 1, 2015, the New Jersey Division of Taxation discontinued the use of tax Form PART-100 (which was previously used to report the gross income tax filing fee and the corporation business tax) and created two new partnership tax forms (Forms NJ-1065 and NJ-CBT-1065.)

For tax purposes, each partner received profits and losses just as though it were personal income, but set forth on a Schedule K-1.  (This is different from a corporation which is separately and additionally subjected to taxes on the business’s earnings.)  A partnership with more than 2 owners must pay a filing fee per owner. The fee is currently $150 per partner.  The fee is applicable to any owner notwithstanding the fact that the owner may only be a partner for part of the year.

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Both the federal and many state governments in the United States, including New Jersey, assess an estate tax upon transfer of a deceased person’s assets. Thus, while it is often begrudgingly referred to as a “death tax,” it is actually a type of transfer tax which is imposed upon the transfer of the property in the taxable estate of every decedent (the deceased) who was a citizen or resident of the United States.

The “taxable estate” can be calculated by subtracting permitted deductions from the gross estate. The “gross estate” includes the value of all property that the decedent had an interest in at the time of her death. The gross estate may also include any interest in the estate as dower or curtesy (an amount promised by one spouse to another in the event of death), items that the decedent transferred in the three years prior to death which were not sold for value or excluded as gifts, certain property that the decedent transferred but retained a life estate in, the value of property in which the decedent had a reversionary interest in excess of five percent of the property value, annuities, some jointly owned property, powers of appointment, and some life insurance policies, among other things.

Some common deductions from the gross estate, which are used to calculate the total “taxable estate,” may include funeral expenses, estate administration expenses, claims against the estate, some unpaid mortgages, certain charitable contributions, property or bequests left to the surviving spouse, interest in a qualified family-owned business, and state estate or inheritance taxes.
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stock-photo-12986813-tax-form-1040.jpgNew Jersey business owners should be aware that there are strict regulations which allows the Internal Revenue Service (“IRS”) to collect employment taxes from a business or its owners and potentially senior employees, who are not owners, if a business fails to pay employment withholding tax to the IRS.

Federal employment tax require employers to withhold money, for Social Security and Medicare, and pay it to the IRS on a quarterly basis (also known as a “941 payment”). These payments are known as “trust fund taxes” because the withholding amounts are held in “trust” by the employer for the IRS.

Failure to pay employment taxes is therefore viewed as theft because the owner is using money that belongs to the employee. The IRS therefore has strict regulations which allow it to recover trust fund taxes directly from owners and senior employees if the business fails to pay the tax.

In a typical case the IRS will assess personal liability against individuals it alleges were responsible to pay this tax on behalf of the business. The IRS will also assess penalties and interest. The penalty (also known as a “jeopardy assessment”) is equal to the amount of the unpaid trust fund tax. Responsible individuals will personally be required to pay the tax, penalty, and interest.
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Thumbnail image for 1387291_decorative_house_in_sunlight.jpgUnder New Jersey law, a taxpayer feeling aggrieved can appeal a property tax assessment. Obviously, the owner can qualify as a “taxpayer feeling aggrieved.” However, it is not well known that others can also qualify under the statute. Tenants, mortgagees, tax sale certificate holders and even non-owner spouses of a marital residence can, under certain under certain circumstances, qualify as aggrieved taxpayers and thus are permitted to file an appeal of a property tax assessment.

The word “taxpayer” has been interpreted by New Jersey courts to include not only the owner of record of a property but also tenants, mortgagees and holders of tax sale certificates under certain circumstances. The courts have often based their findings upon the belief that the “taxpayer feeling aggrieved” means anyone with a legitimate interest in the property and who pays the property taxes, and is thus adversely affected by an incorrect assessment.

If a lease requires a tenant to pay all taxes for a full tax year, the Tax Court has held that the tenant qualifies as an aggrieved taxpayer. However, the Tax Court required that because the appeal of the assessment could result in an increased assessment, the owner of the property must also be a party to the action. The Tax Court noted that the lease was silent on the issue of whether the tenant was permitted to file a tax assessment appeal.
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