Who Do You Trust?
Who will be in charge of your assets after you’re gone? This is an important decision that comes with planning your estate. No one can tell who to trust but here are some guidance tips to help you break down the process of choosing a successor trustee.
Consider if the person you have in mind to choose is financially responsible, stable, capable and trustworthy.
2. Consider a Co-Personal Trustee
Maybe you want two people as trustees which is fine but when choosing make sure these two can work together. Having more than one person gives checks and balance. Not to mention having a co-trustee serves as a back up in the even the first one dies.
If you have several beneficiaries who don’t get along you may consider a personal representative who is independent of all parties. Where there is little chance of a contest many people choose a family member.
4. They Don’t Have To Live Near
People sometimes get scared if there trustee needs to live near them or in the same state. Well that isn’t the case. Whomever you choose can live in another state to fill that role.
5. Someone with Time
Handling an estate or trust takes up a lot of time and work. So who ever you’re considering make sure they are capable of handling all the work that comes along.
Source: Elder Law News Photo: Pexels
Taxable Donations or Not
Crowdfunding has grown in the last 20 years raising billions of dollars from hundreds of projects being launched on a daily basis. Crowdfunding is the practice of soliciting financial contributions from a large number of people over the internet. These contributions can be used for a verity of projects. By doing this individuals and organizations can gain access to funds outside of the traditional sources like banks.
Lets say you were involved in a terrible crash and needed to raise money to cover expenses so your sister opens a GoFundMe account online. You raise enough money thinking its a tax free gift. You don’t report the income on your tax return. Later on the IRS says you owe money in taxes, consisting of back taxes, penalties and interest.
So is the money you receive from a GoFundMe fundraising campaign taxable income or tax free as a gift? Money raised in a GoFundMe account for the benefit of someone in need isn’t deductible as a charitable contribution. That shouldn’t effect whether the funds raised are taxable to the recipient. For another example think of a parent, parents aren’t a tax exempt charity. Yet there is no question that cash gifts from a parent to a child are tax free to the child. A GoFundMe account meets the definition of gifts under the Internal Revenue Code and would not be taxable to the recipient. But that doesn’t mean every donation qualifies as a gift. This is seen differently depending on what the donations are for. Money raised to support a profit motive, such as business are taxable to the recipient. But donations made to support disadvantaged individual would be considered a tax-free gift.
Source: The Tax Book Photo: Pexels
Tax Info for Students
Don’t be surprised when your employer withholds taxes from your paychecks. That’s how you pay your taxes when you’re an employee. If you’re self employed you may have to pay estimated taxes directly to the IRS on certain dates during the year. This is how a you pay as you go tax system works
New employees need to fill out a W-4 form. An employee’s withholding allowance certificate is used to figure out how much federal income tax to withhold from your pay. The IRS withholding calculator tool on IRS.gov can help you fill out the form.
Remember tip income is taxable. If you get tips, you must keep a daily log as you can report them . You must report $20 or more in cash tips in any one month to your employer. You must report all of your yearly tips on your tax return. A deduction may help lower your tax return.
Money you earn doing work for others is taxable. Some work you do can count as self employment, like babysitting or mowing the lawn. Keep accurate records of expenses related to work. You may be able to deduct those costs from your income on your tax return. A deduction may help lower your taxes.
If you’re in ROTC, your active duty pay, such as pay you get for summer camp, is taxable. A subsistence allowance you get while in advanced training isn’t taxable.
You may not earn enough from a summer job to owe income tax. But your employer usually must withhold social security and medicare taxes from your pay. If you’re self employed you must pay them yourself. They count toward your coverage under the social security system.
If you’re a newspaper carrier or distributor, special rules apply. If you meet certain conditions you’re considered self employed. If you don’t meet those conditions and are under the age of 18 you are usually exempt from social security and medicare taxes.
You may not earn enough money from your summer job to be required to file a tax return. Even if that’s true you may still want to file. For example, if your employer withheld income tax from your pay you’ll have to file a return to get your taxes refunded.
Source: IRS.gov Photo:Pexels
Contributing to a Roth IRA
Who is Eligible?
You must have eligible income/ compensation to contribute to a Roth IRA. The current maximum contributions is the same as traditional IRA, $5,500 OR $6,500 if you are at least 50 years old by December 31, 2016. 154am
Are There Other Contributions Limits?
Yes. If your MAGI is over a certain amount for your filing status, your ability to contribute to your Roth IRA will be reduced. Your retirement distribution expert can help you determine your allowable contribution.
Can I Still Contribute to my Roth even though i’m over 70?
Yes if you are meeting other qualifications. Unlike traditional IRA’s, eligible contributions may be made to your Roth IRA regardless of your age.
May I Still Contribute to My Roth IRA as an Active Participant in My Workplace Plan?
Yes. Being an active participant in your workplace retirement plan doesn’t impact your ability to contribute to your Roth IRA.
Are My Roth Contributions Deductible?
No. Roth IRA contributions are never deductible on your tax return.
May I make Contributions to the Roth IRA I Inherited From My Sister?
No. Non- spouse beneficiaries are not permitted to make contributions to an inherited Roth IRA.
Source: Tax Tips America’s Tax Solution Photo: Pexel
IRA Scenarios With Answers
Lets say you’re around 73 years old and still work full time, could you still contribute to your IRA?
No you cannot. Contributions can’t be made to an IRA beginning the year you turn 70. There is no exception.
What if you participated in a work place 401(k) could you contribute to an IRA then?
Yes you could! the deductibility of your IRA contribution may be affected depending on your filing status and earned income for the year. Now lets say you aren’t eligible to contribute to a Roth IRA because of your income. Is it preventing you from converting your traditional IRA to Roth IRA? No it isn’t, Anyone can convert a traditional IRA to a Roth IRA regardless of their income level in the year of conversion. What if last December you pulled out your IRA so really you didn’t have an IRA balance on December 31,2015 to calculate your RMD. Does this exempt an RMD for 2015? No it doesn’t exempt, for purposes of RMD calculations all IRA assets “in transit” must be considered.
How are distributions received from an IRA taxed?
Inherited IRA will be taxed at your ordinary income tax rate for the year in which you received it. Lastly what is the deadline for making a 2015 IRA contribution? It will be April 15, 2016, its the same deadline for filing your tax return without extensions.
That’s all for IRA scenarios thanks to America’s Tax Solutions.
Source: America’s Tax Solutions Photo: Pexels
Charitable contributions are donations or a gift to or for the use by a qualified organization. It is voluntary and made without getting or expecting to get anything of equal value.
Qualified organizations are nonprofit groups that are religious, charitable, educational, scientific or literary in purpose or that work to prevent cruelty to children or animals. In order for donations to be tax deductible the organization has to be qualified. Note: Gifts to individuals are never deductible as charitable contributions even if the individual is associated with a charitable organization.
If the receipient of funds received uses the money for medical expenses, the receipient can deduct the cost of medical expenses within IRS tax guidelines. Fund used to help pay for other personal expenses are not deductible. There is no tracing rule under the IRC section 213 that requires tracing the source of the funds to some taxable source before being able to deduct the expense as a medical expense.
Source: The Tax Book Photo:Pexels
Review Your Documents
Failure to review your retirement planning documents can be a DISASTER. It can really hurt your beneficiaries, this is a common mistake.
Recently a client discovered that her new husband hadn’t updated his beneficiary forms for his retirement plans. Unfortunately the client didn’t find out until he passed away unexpectedly and a quick review of his important documents revealed this mistake.
The good thing is that her deceased husband’s beneficiaries were to leave those assets to his wife and all the beneficiaries plan to honor his wishes the best way they can. But not all stories end this way, in fact loved ones are often caught in the middle of family battles and mired in litigation lasting several years.
Marriage, divorce, birth or death can occur at any time. Tax laws change or are updated on a routine basis. Even though you cannot predict what will happen, you can update your retirement plans as needed when any life changing event occurs or new legislation goes into effect that impact you or your loved ones.
Review your beneficiary forms, custodial agreements and anything else you may have in place to provide for and protect your loved ones at least once a year. An annual review will help ensure your assets will still flow the way you want them to and in the most tax efficient manner. Your retirement distribution expert and tax professional can help you with these types of reviews. These reviews should be FREE services so don’t hesitate to schedule an appointment with your personal advisor(s) if you need guidance or assistance.
Source: America’s Tax Solutions Photo Credits: Pexels
New Law to Affect Refunds in 2017
The IRS has announced initial plans for processing tax returns involving the Earned Income Tax Credit and Additional Child Tax Credit during the opening weeks of the 2017 filing season. The IRS is sharing information now to help the tax community prepare for the 2017 season, and plans are being made for a wider communication effort later in the summer and fall to alert taxpayers about the changes that will affect some early filers.
This action is driven by the Protecting Americans from Tax Hikes Act of 2015 that was enacted into law on December 18, 2015. Section 201 of this new law mandates that no credit or refund for an over payment for a taxable year shall be made to a taxpayer before February 15 if the taxpayer claimed the earned income tax credit or additional child tax credit on the return.
Source:The Tax Book Photo:Pexels
INVESTMENT INCOME | subject to tax
Are your investments subject to the 3.8% Net Investment Tax? It targets things like vacation homes and investment properties owned by high income individuals who exceed the threshold.
This law requires a tax of 3.8% on the lesser of either your net investment income or the amount by which your modified adjusted gross income (MAGI) exceeds a certain threshold.
Here’s a few examples of what is generally included:
Please make sure to consult your personal CPA with question on the Net Investment Tax and how it pertains to you. But always BE TAX ADVANTAGEOUS!
Source: American’s Tax Solutions / www.irs.gov
CHARITY | Donation or Deduction
A donation is a gift. A (tax) deduction is variable tax dollars subtracted, (or deducted), from ones gross income.
Rules to Know…helping others helps you
So many rules to remember, and all you really wanted to do was clean out your closets and be able to park your car in the garage once more.
Photo credit: https://www.flickr.com/photos/fhwrdh/4551794085
Even though we spend so much more time than before online interacting virtually we must get out and about – our customers and clients enjoy seeing us! So owning an automobile of some type is a necessity for business owners. And guess what…
The IRS is giving us a perk, a/k/a deduction. Beginning January 1, 2015, the IRS raised the standard mileage rate for car, van, pickup or panel trucks standard mileage rated from 56 cents to:
As taxpayers, we have the option of claiming actual mileage or operating costs. Mileage, of course, is the number of mile driven for business, and operating costs can include:
Making the decision, mileage or operating costs, is a discussion to have with your tax expert. Whichever way you chose you must keep track of your mileage! At the beginning of each year I write down (in a master business calendar) my car’s current mileage and then I continue to add appointments – making notes of where I went, who I met with and what was covered. Remember that the IRS loves documentation (and so does your CPA).
Photo Credit: https://www.flickr.com/photos/pictures-of-money/17307620362
The opening day of filing season for 2015. Even though we are filing our 2014 taxes, we call it season 2015.
First the good news—many of the tax laws which were set to expire at the end of 2014 have been extended.
Now for the changes.
1. The Affordable Care Act is in full swing and ready to take a bite out of the refunds (or create liabilities) for those who did not have health insurance in 2014. I will be asking you several questions.
• Did you (and your family) have insurance for the entire year?
• Did you purchase your insurance on the Health Care Exchange?
• If you didn’t have insurance, how many months were you uninsured?
• Did you receive a subsidy? (you should receive a form 1095A from the Health Care Exchange).
2. If you had privately purchased insurance, were on Medicaid or had insurance through your employer, you are likely unaffected. My job as your accountant will end with a simple check mark in a box. This will not affect your fees. If, you have purchased insurance from the exchange and received a subsidy or did not have insurance for part of the year, several calculations and forms will be generated. You may have a tax called “Health Care Individual Responsibility” or “Health Care Credit Recovery” if you had no insurance or received too much of a subsidy for your health care.
3. BIG NEWS—There are new regulations in affect which directly impact those with Rental Property, although all returns with depreciation are affected to some degree. Without a lengthy tax law class, all those who depreciate assets on their personal or business returns will be required to file forms electing new (and in most cases) more favorable depreciation rules. I am currently being advised, that those that do not file these forms will be granted “extra attention” from the IRS along with possible line audits involving asset depreciation and repair expenses.
4. GOOD NEWS—Many of you with rental property will be afforded larger depreciation deductions under the new regulations.
So there you have, it—-the Good, the Bad and the Ugly…for 2015 tax season.
Please feel free to quote me, use whatever information I post or e-mail me with questions. All I ask is that my words receive proper credit.
CELL PHONES AND THE IRS
PLEASE READ MY COMMENTS AT THE END OF THIS ARTICLE.
During an audit which concluded earlier than expected this past summer, an IRS agent and myself found ourselves with some extra time on our hands. We began to discuss areas of audit. I am always interested in hearing what the IRS is interested in, and so I was quite eager to engage this agent in such a discussion.
One of the newer areas the IRS targets is cell phone usage. I was pretty surprised, but the agent went on to explain that when cell phones first appeared they were quite expensive, and almost always used for business, so a complete or partial deduction was not an issue. Fast forward 20 years or so and cell phones are the norm. In fact, most people have cell phones and some have even forgone their land lines.
The IRS has now taken the same position that they have with respect to land lines. The first cell phone line is not allowed. The second can be considered a business line. Generally the first line is the more expensive.
The agent then went on to share some case law. The bottom line was that in order to deduct fees for a cell phone, the taxpayer would have had to establish that they would have not had a cell phone at all were it not for the business activity they were engaged in.
However, I am not a person to back down. This seemed a bit excessive. I could understand the fees for cell phone usage, but the other fees…you know…the ones that create a bill of several pages. Certainly some of of those were deductible! I cited a case of real estate professionals who traveled extensively and needed a smart phone for special applications which often were not free and might require data usage.
There was a silence….and the agent agreed I was correct. Text messages, data plans, and applications fees are deductible provided they are used for business.
So, while the burden of proof remains with the taxpayer, the ability for a partial deduction is available.
Dear readers, fellow professionals and friends. The above incident occurred, as I mentioned, during an audit this past summer. I have always been happy to share findings. However, if you quote me, or replay my information, at least (1) be accurate and (2) quote me–as opposed to plagiarizing. This post is not written so much out of anger (although I am pretty indignant as this is not the first time this person has done this to me). The incorrect article is scheduled to appear in the February 2015 issue of the NATP TaxPro Monthly. Not only is is a mere replay of the e-mails, and a cut and paste of the tax regulations I provided, it is incorrect as it omits the final debate with the agent. I’m wondering if she can run back and get them to correct the article before it hits the presses.
In response to the e-mail this individual sent me, “no I am not kinda sort of famous—I AM famous”.
Photo Credit: https://pixabay.com/en/using-device-phone-mobile-using-1577035/
Several months ago I was asked to write an article discussing things accountants wished people knew. Here you have it:
So you want to know what I, a Certified Public Accountant (more commonly known as a CPA) wished people knew about their taxes? I really could write a book, but here are my top ten:
1. When you sign your return you are swearing that you have been truthful. Lying on your tax return is against the law! The IRS takes a dim view of less than truthful taxpayers, imposing hefty penalties, interest on unpaid taxes and in some cases prison time.
2. When you ask a licensed tax professional to prepare your tax return they are swearing that to the best of their knowledge their client has told them the truth. Our signature on your tax return is our testimony to that fact. Please do not ask us to lie for you! The IRS will impose penalties and in some cases bar us from preparing tax returns in the future. This is our livelihood, and we are not willing to risk it.
3. An extension of time to file is not an extension of time to pay. If you expect to owe money, you must attempt to estimate your tax liability and submit it with your extension. If you wind up owing taxes after you have filed your extension you will likely be assessed for interest and underpayment penalties.
4. Do not neglect to file your tax return. If you do not file, and you have a tax liability due, you will be assessed a non filing penalty, possible underpayment penalties in addition to interest which is compounded monthly.
5. If your tax professional recommends making estimated payments, by all means either make them or adjust the number of exemptions you claim on your earnings. Either making estimated payments or having more federal taxes withheld from each paycheck will lighten your tax burden on April 15th avoiding underpayment penalties and interest.
6. Your tax professional did not get you that big refund. You are merely receiving the repayment of an interest free loan you gave the government. By adjusting the number of exemptions you claim on your earnings you can have more money in your pocket each payday. You might even be able to invest these funds and actually see returns on your money.
7. Tax laws are constantly changing. Each year your tax professional attends (or should) classes to stay abreast of the most current tax laws. To those that attempt to prepare their own taxes, I generally ask them if they intend to take out their own appendix or represent themselves in court. There are some things that you should hire a professional to do. Preparing your taxes is one of them. For those that insist on going it alone, I do give them my card and let them know I am also licensed to represent them before the IRS at a later date.
8. Preparing your taxes doesn’t end with filing. You should sit down with your tax professional during the year to review your tax situation, especially if you’ve had a substantial change in income, increased or lost a dependent (child born or child leaves the nest), change jobs, or change marital status.
9. Don’t commingle funds. If you own a business, do not pay personal funds from that business bank account. This is especially true, if you are seeking to limit your liability through the formation of a legal business entity such as an Limited Liability Company, or corporate entity. Commingling funds can nullify the legality of the protection afforded by such entities and cause the corporate veil to be pierced.
10. Do not ignore IRS correspondence. The IRS will not go away or forget about you. Taking care of correspondence at the outset will avoid additional grief later and possibly save you money in the long run.
Please feel free to contact me with any questions or comments.
Rhonda A. Mannes,