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The following articles contain information that can help keep you up to date on current issues, laws, and regulations – and also serve as reminders. We frequently update the articles, with the most recent toward the top of the list.

Corporate Transparency Act
December 2023

As of 12/13/2023

The Corporate Transparency Act (“CTA”) was enacted into law as part of the National Defense Act for Fiscal Year 2021. The CTA requires the disclosure of the beneficial ownership information (otherwise known as “BOI”) of certain entities from people who own or control a company.

It is anticipated that 32.6 million businesses will be required to comply with this reporting requirement. The intent of the BOI reporting requirement is to help US law enforcement combat money laundering, the financing of terrorism and other illicit activity.

The CTA is not a part of the tax code. Instead, it is a part of the Bank Secrecy Act, a set of federal laws that require record-keeping and report filing on certain types of financial transactions. Under the CTA, BOI reports will not be filed with the IRS, but with the Financial Crimes Enforcement Network (FinCEN), another agency of the Department of Treasury.

We’re here to help assess if you have a BOI reporting requirement and how to meet the reporting obligation. Please contact us at your earliest convenience to discuss your business situation.

In the meantime, below is preliminary information to consider as we approach the implementation period for this new reporting requirement. Note that the rules are evolving. Please go to for updates.

What entities are required to comply with the CTA’s BOI reporting requirement?

Entities organized both in the U.S. and outside the U.S. may be subject to the CTA’s reporting requirements. Domestic companies required to report include corporations, limited liability companies (LLCs) or any similar entity created by the filing of a document with a secretary of state or any similar office under the law of a state or Indian tribe.

Domestic entities that are not created by the filing of a document with a secretary of state or similar office are not required to report under the CTA.

Foreign companies required to report under the CTA include corporations, LLCs or any similar entity that is formed under the law of a foreign country and registered to do business in any state or tribal jurisdiction by filing a document with a secretary of state or any similar office.

Are there any exemptions from the filing requirements?

There are 23 categories of exemptions. Included in the exemptions list are publicly traded companies, banks and credit unions, securities brokers/dealers, public accounting firms, tax-exempt entities and certain inactive entities, among others. Please note these are not blanket exemptions and many of these entities are already heavily regulated by the government and thus already disclose their BOI to a government authority.

In addition, certain “large operating entities” are exempt from filing. To qualify for this exemption, the company must:

  1. Employ more than 20 people in the U.S.;
  2. Have reported gross revenue (or sales) of over $5M on the prior year’s tax return; and
  3. Be physically present in the U.S.

Who is a beneficial owner?

Any individual who, directly or indirectly, either:

  • Exercises “substantial control” over a reporting company, or
  • Owns or controls at least 25 percent of the ownership interests of a reporting company

An individual has substantial control of a reporting company if they direct, determine or exercise substantial influence over important decisions of the reporting company. This includes any senior officers of the reporting company, regardless of formal title or if they have no ownership interest in the reporting company.

The Small Entity Compliance Guide contains detailed reporting requirements.

When must companies file?

There are different filing timeframes depending on when an entity is registered/formed or if there is a change to the beneficial owner’s information.

  • New entities (created/registered after 12/31/23) — must file within 90 days
  • Existing entities (created/registered before 1/1/24) — must file by 1/1/25
  • Reporting companies that have changes to previously reported information or discover inaccuracies in previously filed reports — must file within 30 days

What sort of information is required to be reported?

Companies must report the following information: full name of the reporting company, any trade name or doing business as (DBA) name, business address, state or Tribal jurisdiction of formation, and an IRS taxpayer identification number (TIN).

Additionally, information on the beneficial owners of the entity and for newly created entities, the company applicants of the entity is required. This information includes — name, birthdate, address, and unique identifying number and issuing jurisdiction from an acceptable identification document (e.g., a driver’s license or passport) and an image of such document.

Understand your reporting requirement.

Penalties for willfully not complying with the BOI reporting requirement can result in criminal and civil penalties of $500 per day and up to $10,000 with up to two years of jail time. Please plan ahead so you can comply and understand your filing obligations.

Select New Tax Provisions Under the 2017 Jobs Act
January 2019

The Tax Reform introduced many new taxes and deductions, three of them deserves special attention.

  • 20% deduction for pass-through businesses
    This new provision allows many owners of sole proprietorships, partnerships, trusts and S corporations to deduct 20 percent of their qualified business income (net profit) subject to certain limitations.  You get a deduction if your taxable income is below $315,000 (joint)/$157,500 (single); if yours is more, then there are more hoops to jump through before you can qualify.

    A question often asked is whether rental income will qualify for this deduction.  Unfortunately, the IRS hasn’t provided guidance on this specific subject.  The general rule is if the activity qualifies as a trade or business, then the activity qualifies for the pass-through deduction.   The facts and circumstances will determine if an activity is a trade or business.  To be engaged in a trade or business, the courts have said that one must be involved in the activity with continuity and regularity and that the taxpayer’s primary purpose for engaging in the activity must be for income or profit.  An IRS letter ruling says “The issue of whether the rental of property is a trade or business of a taxpayer is ultimately one of fact in which the scope of a taxpayer’s activities, either personally or through agents, in connection with the property, are so extensive as to rise to the stature of a trade or business.”

    Hopefully the IRS will provide further guidance on this before the tax season.  One thing is for certain, if you say that your rental is a trade or business, then you should issue 1099s to those that are required to be issued, such as the landscaper that is not a corporation. 
  • Opportunity Zone – reduced or deferred capital gains
    The Tax Reform created qualified opportunity zones to encourage tax-favored investment in distressed communities throughout the country and U.S. territories. Under the new law, investors may be able to defer tax on almost all capital gains they invest after 12/31/2017, through 12/31/2026.

    To qualify for deferral, capital gains (principal does not need to be reinvested) must be invested in a qualified opportunity fund (QOF) within 180 days.  The amount of gains subject to tax is reduced by 10% if you hold the fund for at least five years; and the gain is reduced by 15% if you hold the fund for at least 7 years.  The law says if you hold it for over 10 years, 100% of the gain is nontaxable.  If you properly elected to defer your capital gains invested in a qualified opportunity zone, then you have until December 31, 2047 to satisfy your 10-year investment holding time requirement.

Tax on Global Intangible Low-Taxes Income (GILTI)
In the past, a US person was generally not taxed on income of a foreign corporation unless a dividend was paid.  This is a new tax imposed on the foreign profit of a US person that owns at least 10% of the value or voting rights of a controlled foreign corporation regardless whether a dividend is paid.  The foreign profit of an individual US shareholder will be taxed at the shareholder’s individual income tax rate; however, US corporate shareholder may claim a deduction, subject to certain limitations, equivalent to 50% of its GILTI, resulting in 10.5% minimum tax rate.  Since this 50% deduction is not available to the individual US shareholder, it is important to look at your corporate structure to be sure that yours is still tax efficient.

Here is a select list of tax law changes that will impact most of us (the individual taxpayer) and a few action items.  Most of the individual provisions expire after 2025 if Congress does not extend them.  For a detailed listing of tax law changes, please visit

  • Tax return on a postcard?  Yes, it’s a reality, sort of.  The IRS has re-designed the individual tax return (form 1040) to fit into two half pages with many supporting schedules.  Here is the draft version  
  • Tax rates have been cut across each tax bracket by 3%, as a result, your federal income tax withheld from your paychecks has decreased.  If you rely on the withheld amount to meet your withholding requirements, please double check your numbers to be sure that you are still on target.  The IRS provides a withholding calculator (hyperlink) for you to check your numbers.   As a reminder, the IRS requires that you prepay at least 90% of your current year’s taxes or 110% of your prior year’s taxes via wage withholding or quarterly tax. 
  • Increased child tax credit to $2,000 per child and new credit of $500 for family member if below certain income thresholds ($400,000 joint and $200,000 for others).
  • Increase in itemized deduction ($24,000 for a couple; $12,000 for singles)
  • Elimination of personal exemptions
  • Increased alternative minimum tax (AMT) threshold which will decrease the number of taxpayers subject to AMT tax
  • Elimination of miscellaneous itemized deductions such as investment management fees, tax prep fees and unreimbursed work related expenses.  For those that have unreimbursed work expenses, you may want to ask your employer to reimburse the expenses even if you have to take a pay cut.  This is because you are reducing your wage income for no change in your cash position.
  • Real estate tax (on personal use property) and sales (or state income tax) combined is capped at $10,000.
  • If you converted to Roth IRA from IRA, recharacterization is no longer allowed after 12/31/17.
  • Mortgage interest deduction is only allowed on up to $750,000 of home-acquisition debt.  You are grandfathered in for the old limit of 1 million for pre-12/16/2017 loans or if you were under contract to purchase before 12/16/17 and the purchase closed prior to 4/1/18.
  • Interest on Home Equity line of Credit will only be deductible if the funds are used to buy, build or improve your qualified residence (first two homes) that secures the loan and the total of your acquisition loan and HELOC does not exceed the limits.   You will be required to show fund tracing upon request from the IRS.  You should consider putting the funds from the HELOC in a separate account for easier tracking.
  • Moving expenses after 2017 are no longer deductible
For divorce or separation instruments executed after Dec. 31, 2018, in general, alimony will not be deductible by the payer spouse or includible in the payee spouse's gross income.
Home Mortgage and Home Equity loan Interest Under the New Tax Law
January 2019

How is the interest you pay on your home mortgage being impacted by the Tax Cuts and Jobs Act (the Act).

Under the pre-Act rules, you could deduct interest on up to a total of $1 million of mortgage debt used to acquire your principal residence and a second home, i.e., acquisition debt. For a married taxpayer filing separately, the limit was $500,000. You could also deduct interest on home equity debt, i.e., other debt secured by the qualifying homes. Qualifying home equity debt was limited to the lesser of $100,000 ($50,000 for a married taxpayer filing separately), or the taxpayer's equity in the home or homes (the excess of the value of the home over the acquisition debt). The funds obtained via a home equity loan did not have to be used to acquire or improve the homes. So you could use home equity debt to pay for education, travel, health care, etc.

Under the Act, starting in 2018, the limit on qualifying acquisition debt is reduced to $750,000 ($375,000 for a married taxpayer filing separately). However, for acquisition debt incurred before Dec. 15, 2017, the higher pre-Act limit applies. The higher pre-Act limit also applies to debt arising from refinancing pre-Dec. 15, 2017 acquisition debt, to the extent the debt resulting from the refinancing does not exceed the original debt amount. This means you can refinance up to $1 million of pre-Dec. 15, 2017 acquisition debt in the future and not be subject to the reduced limitation.

And, importantly, starting in 2018, there is no longer a deduction for interest on home equity debt. This applies regardless of when the home equity debt was incurred. Accordingly, if you are considering incurring home equity debt in the future, you should take this factor into consideration. And if you currently have outstanding home equity debt, be prepared to lose the interest deduction for it, starting in 2018. (You will still be able to deduct it on your 2017 tax return, filed in 2018.)

Lastly, both of these changes last for eight years, through 2025. In 2026, the pre-Act rules are scheduled to come back into effect. So beginning in 2026, interest on home equity loans will be deductible again, and the limit on qualifying acquisition debt will be raised back to $1 million ($500,000 for married separate filers).

Qualified small employer health reimbursement arrangement (QSEHRA)
December 2017

The IRS has issued guidance on the requirements for providing a qualified small employer health reimbursement arrangement (QSEHRA), the tax consequences of the arrangement, and the requirements for providing written notice of the arrangement to eligible employees.

QSEHRAs are health reimbursement arrangements exempt from the ACA's market reforms. A health reimbursement arrangement (HRA) is funded solely by an employer. The contribution cannot be paid through a voluntary salary reduction agreement on the part of an employee. Employees are reimbursed tax free for qualified medical expenses up to a maximum dollar amount for a coverage period.

To be a QSEHRA, the arrangement generally must:

  • Be funded solely by an eligible employer without salary reduction contributions;
  • Provide—after an eligible employee provides proof of minimum essential coverage—payment or reimbursement of qualified medical expenses (which includes premiums for other health coverage, such as individual health insurance) incurred by the employee or his or her family members;
  • Limit annual payments and reimbursements to $4,950 per employee (increased to $5,050 for 2018) or $10,000 per family (increased to $10,250 for 2018), and prorated where coverage is less than the entire year; and
  • Be provided on the same terms to all eligible employees.

An eligible employee is generally required to furnish a written notice to its eligible employees at least 90 days before the beginning of a year for which the QSEHRA is provided (or, in the case of an employee who is not eligible to participate in the arrangement as of the beginning of such year, the date on which such employee is first so eligible). An employer that provides a QSEHRA during 2017 or 2018 must generally furnish its initial written notice to its eligible employees by the later of (a) February 19, 2018, or (b) 90 days before the first day of the plan year of the QSEHRA.

Notice 2017-67 provides 79 Questions and Answers (Q&As) that clarify and explain a number of issues relating to QSEHRAs.

Optimum Use of Pell Grant & American Opportunity Tax Credit
December 2016

Students with scholarship such as Pell Grants, who claim education-related tax credits like the American Opportunity Tax Credit (AOTC), may be foregoing tax credits for which they qualify.

The AOTC is a tax credit available to students in the first four years of postsecondary education to offset costs for "qualified tuition and related expenses", which includes tuition, required fees, and course materials. Individuals may elect to claim a personal, partially refundable AOTC equal to 100% of up to $2,000 of qualified higher education tuition and related expenses plus 25% of the next $2,000 of expenses paid for education furnished to an eligible student in an academic period. So, the maximum AOTC is $2,500 a year for each eligible student.

Students who are not eligible for the AOTC may be eligible for a Lifetime Learning Credit (LLC) in any year of postsecondary study. The non-refundable LLC is equal to 20% of up to $10,000 of qualifying expenses per tax return.

Pell Grants (and many other scholarships) can be treated in one of two ways for tax purposes:

  1. Tax-free and subtracted from AOTC-eligible expenses. Pell Grants allocated to qualified tuition and related expenses are excluded from taxable income, but they are also subtracted from qualified tuition and related expenses for purposes of the AOTC and LLC, potentially reducing the credit for which students are eligible.
  2. Taxable and not subtracted from AOTC-eligible expenses. Pell Grants allocated to living expenses such as room and board are included in the student's taxable income and are not subtracted from qualified tuition and related expenses for purposes of the AOTC and LLC, potentially increasing the credit for which students are eligible.

Generally students are allowed to decide whether to treat their Pell Grants as paying for qualified tuition and related expenses or for living expenses. A student may choose to treat his Pell Grant as paying for living expenses even if the institution applies the Pell Grant against tuition and fees. A student may allocate Pell Grant funds toward living expenses up to the amount of his actual living expenses, which may differ from the living expenses estimated by his school in computing his official cost of attendance under student aid rules. Under such an allocation:

  1. Any scholarship (including a Pell Grant) must be used in a manner consistent with its terms;
  2. Any scholarship that is allocated to qualified tuition and related expenses must be subtracted from qualified tuition and related expenses for purposes of the AOTC (or LLC); and
  3. Any scholarship that is allocated to living expenses be included in taxable income on the student's (and not the parent's) federal income tax return.

The issue. Many students would benefit by claiming at least a portion of their qualified tuition and related expenses for the AOTC, even if that requires including some of their Pell Grant (or other scholarships) in taxable income. If a student's qualified tuition and related expenses exceed his scholarships by $4,000 or more, the student can claim the maximum AOTC without having to include any scholarship in income. But if qualified tuition and related expenses minus scholarships is less than $4,000, the student may benefit by including a portion of the scholarship in income in order to claim a larger AOTC. Most Pell Grant recipients who are eligible for the AOTC would benefit from allocating a portion their Pell Grant to living expenses so as to be able to claim at least $2,000 of qualified tuition and related expenses for the AOTC.

The tax-minimizing allocation of Pell Grants and other scholarships between qualified tuition and related expenses and living expenses depends on a number of factors, including the terms of each scholarship, the amount of scholarships and expenses, the student's marginal tax rate and his having income tax available for use against the non-refundable share of AOTC or LLC, and, in the case of tax dependents, the parents' income tax before AOTC or LLC. The calculation of the optimal strategy is especially complicated because in the case of a dependent student it may depend on two tax returns and because a student's marginal tax rate may change depending on how much of the scholarship is included in income. The optimal strategy is specific to each student's situation.

Further, the student may treat scholarship funds to have been used for non-qualified tuition and related expenses (such as room and board), simply by including the funds in income, as long as the scholarship is allowed to be used for non-qualified tuition and related expenses (as is the case with Pell Grants).

The Sharing Economy
December 2015

Today's technology allows for easier publishing and access to a wider pool of people for matching offers and acceptances.  Many companies have sprung up to provide network platforms that allow for sharing of real and personal property, loans or donations from strangers, as well as offering various personal services such as driving. These websites include Airbnb, Getaround, Uber, Lyft, TaskRabbit, Amazon Mechanical Turks, e-Tutoring and Lending Club, as well as eBay, which has matched buyers with sellers since 1995.

If you use one of these online platforms available to rent a spare bedroom, provide car rides, or to connect and provide a number of other goods or services, you're involved in what is sometimes called the sharing economy.  In a sharing economy, there are tax considerations for both parties, particularly the party receiving funds, yet users of these websites often have little understanding of the tax issues involved. 

If you receive income from a sharing economy activity, it's generally taxable even if you don't receive a Form 1099-MISC, Miscellaneous Income, Form 1099-K, Payment Card and Third Party Network Transactions, Form W-2, Wage and Tax Statement, or some other income statement. This is true even if you do it as a side job or just as a part time business and even if you are paid in cash. On the other hand, depending upon the circumstances, some or all of your business expenses may be deductible, subject to the normal tax limitations and rules.
The IRS lists the following tax issues that may apply to those participating in the sharing economy:

The sharing economy is here to stay. It's enticing to many as a way to generate quick cash or create a business venture. If you are involved in some aspect of shared services, it's a good idea to speak to a professional about taxation.

U.S. Treasury Launches myRA
December 2015

The U.S. Department of the Treasury (Treasury) has announced that it has expanded the ways that taxpayers can fund myRAs (my Retirement Accounts), which are a type of government-administered Roth IRA initially offered by Treasury in 2014.

Background — Roth IRAs. A Roth IRA is an individual retirement account (IRA) that is treated as a traditional IRA except to the extent that special rules apply to it. (Code Sec. 408A(a))

An individual can make annual nondeductible contributions to a Roth IRA in amounts up to $5,500 (for 2015) (plus an additional $1,000 for those 50 and older), or 100% of compensation if less, reduced by the amount of contributions for the tax year made to all other IRAs. For 2015, the allowable contribution phases out when modified adjusted gross income (MAGI) exceeds certain amounts, and no contribution is allowed where, for example, MAGI exceeds $193,000 for married taxpayers and $131,000 for single taxpayers and heads of household. (Code Sec. 408A(c))

Qualified distributions from Roth IRAs aren't included in income. These are distributions made after the 5-tax-year period beginning with the first tax year for which the taxpayer or the taxpayer's spouse made a contribution to a Roth IRA established for the taxpayer, including a qualified rollover contribution from an IRA other than a Roth IRA, and that are made: (1) on or after attaining age 59 1/2; (2) at or after death (to a beneficiary or estate); (3) on account of disability; or (4) for a first-time home purchase expense up to $10,000.

For distributions that aren't qualified distributions, the amount of distributions that is in excess of contributions is taxable, and the amount includible in income is also subject to the 10% early withdrawal tax unless an exception applies. (Code Sec. 408A(d))

Background — myRAs, generally. In his 2014 State of the Union address, President Obama promised that he would take executive action to create myRAs, "starter" savings accounts that would be available through taxpayers' employers and backed by the U.S. government. MyRAs were described as being simple, safe, and affordable starter savings accounts to help low- and moderate-income taxpayers save for retirement. The President subsequently directed Treasury to effectuate this program (see Weekly Alert ¶ 2 02/06/2014). Thereafter, Treasury made an announcement that it would be creating the mechanism for setting up myRAs (see Weekly Alert 21 05/22/2014) and created a myRA website (see Weekly Alert 1 03/19/2015).

A myRA is a government-administered Roth IRA authorized to hold only one type of investment, a U.S. Treasury security which earns interest at the same variable rate as investments in the government securities fund for federal employees.

MyRAs are subject to the same rules that apply to private Roth IRAs, including the MAGI-based eligibility for contributions, maximum annual contributions, and tax treatment of distributions.

Participants can save up to $15,000, or for a maximum of 30 years, in their myRA account. When either of these limits is reached, the myRA will have to be rolled over to a private sector Roth IRA. A rollover to the private sector allows savers to continue to grow their savings past the maturity of their myRA starter savings account.

Background — funding myRAs. Until now, myRAs were available only to individuals who worked for an employer that offered direct deposit and was able to direct a portion of their paycheck to their myRA account.

Treasury announces expansion of funding options. Treasury has announced two additional ways that taxpayers can fund a myRA account:

  • From a checking or savings account. Taxpayers can set up recurring or one-time contributions to their myRA from a savings or checking account; and
  • From a federal tax refund. On their federal income tax return, taxpayers can direct some or all of their federal tax refund to their myRA.
10 Things to Know about Identity Theft and Your Taxes
July 2015

Identity Theft and Your Taxes

Learning you are a victim of identity theft can be a stressful event. Identity theft is also a challenge to businesses, organizations and government agencies, including the IRS. Tax-related identity theft occurs when someone uses your stolen Social Security number to file a tax return claiming a fraudulent refund.

Many times, you may not be aware that someone has stolen your identity. The IRS may be the first to let you know you're a victim of ID theft after you try to file your taxes.

The IRS combats tax-related identity theft with a strategy of prevention, detection and victim assistance. The IRS is making progress against this crime and it remains one of the agency's highest priorities.
Here are ten things to know about ID Theft:

  1. Protect your Records.  Do not carry your Social Security card or other documents with your SSN on them. Only provide your SSN if it's necessary and you know the person requesting it. Protect your personal information at home and protect your computers with anti-spam and anti-virus software. Routinely change passwords for Internet accounts.
  2. Don't Fall for Scams.  The IRS will not call you to demand immediate payment, nor will it call about taxes owed without first mailing you a bill. Beware of threatening phone calls from someone claiming to be from the IRS. If you have no reason to believe you owe taxes, report the incident to the Treasury Inspector General for Tax Administration (TIGTA) at 1-800-366-4484.
  3.  Report ID Theft to Law Enforcement.  If your SSN was compromised and you think you may be the victim of tax-related ID theft, file a police report. You can also file a report with the Federal Trade Commission using the FTC Complaint Assistant. It's also important to contact one of the three credit bureaus so they can place a freeze on your account.
  4.  Complete an IRS Form 14039 Identity Theft Affidavit.  Once you've filed a police report, file an IRS Form 14039 Identity Theft Affidavit.  Print the form and mail or fax it according to the instructions. Continue to pay your taxes and file your tax return, even if you must do so by paper.
  5. Understand IRS Notices.  Once the IRS verifies a taxpayer's identity, the agency will mail a particular letter to the taxpayer. The notice says that the IRS is monitoring the taxpayer's account. Some notices may contain a unique Identity Protection Personal Identification Number (IP PIN) for tax filing purposes.
  6. IP PINs.  If a taxpayer reports that they are a victim of ID theft or the IRS identifies a taxpayer as being a victim, they will be issued an IP PIN. The IP PIN is a unique six-digit number that a victim of ID theft uses to file a tax return. In 2014, the IRS launched an IP PIN Pilot program. The program offers residents of Florida, Georgia and Washington, D.C., the opportunity to apply for an IP PIN, due to high levels of tax-related identity theft there.
  7. Data Breaches.  If you learn about a data breach that may have compromised your personal information, keep in mind not every data breach results in identity theft.  Further, not every identity theft case involves taxes. Make sure you know what kind of information has been stolen so you can take the appropriate steps before contacting the IRS.
  8. Report Suspicious Activity.  If you suspect or know of an individual or business that is committing tax fraud, you can visit and follow the chart on How to Report Suspected Tax Fraud Activity.
  9. Combating ID Theft.  Over the past few years, nearly 2,000 people were convicted in connection with refund fraud related to identity theft. The average prison sentence for identity theft-related tax refund fraud grew to 43 months in 2014 from 38 months in 2013, with the longest sentence being 27 years.   During 2014, the IRS stopped more than $15 billion of fraudulent refunds, including those related to identity theft.  Additionally, as the IRS improves its processing filters, the agency has also been able to halt more suspicious returns before they are processed. So far this year, new fraud filters stopped about 3 million suspicious returns for review, an increase of more than 700,000 from the year before. 
  10. Service Options. Information about tax-related identity theft is available online. We have a special section on devoted to identity theft and a phone number available for victims to obtain assistance.

For more on this Topic, see the Taxpayer Guide to Identity Theft.

Additional IRS Resources:

IRS YouTube Videos:

IRS Podcasts:

Source: IRS Summertime Tax Tip 2015-01

Avoid These 3 Social Security Mistakes
July 2015

Americans are an impatient bunch, at least when it comes to Social Security.

People who delay taking Social Security benefits will be rewarded with higher monthly payments, yet hardly anyone waits until 70, the age at which benefits are maximized. Many lock in reduced benefits by not waiting even until their full retirement age, which is between 66 and 67 for most people currently in the workforce. Some start at 62, locking in benefits as soon as they can.

Claiming benefits early is one of dozens of potential mistakes when it comes to Social Security. That should come as no surprise because the system is complex.

"The Social Security system has 2,728 core rules and thousands upon thousands of additional codicils" designed to clarify those rules, write the authors of Get What's Yours, a new book on the topic. Here are three potential blunders.

Obsessing over the break-even point.
If you delay taking Social Security, the monthly benefit rises. Yet about 40% of participants begin around age 62, while fewer than 2% wait until 70. Some people need the money now or don't think they will live long. Others wonder if Social Security will remain solvent. Still others fear getting shortchanged. They recognize that they would need to live a long time — often into their mid-80s — before receiving more money from the higher payments that come from delaying. This is a common Social Security break-even calculation, and some people pay too much attention to it.

"It's very beguiling to think if you take benefits at 62 and invest them for eight years ... you end up with a very nice pile of money, and it would take you a long time to earn that money back in the form of higher benefits that you would get if you waited until age 70," Philip Moeller, co-author of Get What's Yours, said in an interview that can be viewed at
But dying fairly early, and leaving some dollars on the table, might not be the biggest risk. A greater danger for most people, Moeller said, involves outliving one's assets. "Don't focus on the break-even date," he and co-authors Laurence Kotlikoff and Paul Solman advise in their book. "Worry about the broke date — the date you can't pay all your bills because you took benefits that were too low, too early."

Failing to coordinate with your spouse.
One interesting feature of Social Security is that you might be eligible to receive benefits based on someone else's work history — and they, potentially, can on yours. Joint planning thus becomes important, especially for spouses.

"You can collect spousal benefits instead of collecting on your own record," said Boston law firm Margolis & Bloom in a report. "If your spouse earned considerably more than you, this can be an attractive choice."

Married spouses thus should decide how each person should claim benefits. The exercise can get complicated, but it's worth the effort. When married couples don't carefully plan their strategies for claiming benefits, they could receive reduced payments.

For example, if one partner dies fairly soon after opting to claim early benefits, at a reduced dollar level, it can diminish the spouse's survivor benefits.

According to Grimes, it can be wise for at least one spouse in a two-earner household to defer the receipt of regular retirement benefits. In that case, when the first spouse dies, the survivor would be able to collect a higher Social Security benefit. "Having one earner put off benefits until age 70 ensures that the surviving spouse collects the highest benefits possible," he said.

Not realizing that you can change your mind.
Not every Social Security decision is set in stone. For example, people can do over, or withdraw, a decision to take benefits early, renewing their eligibility to qualify for higher monthly payments down the road.
Recipients who start benefits early have one year to change their minds. The drawback is that you must pay back any money already received. If you also have had Medicare premiums taken out of your Social Security benefits, you must repay those funds too, Moeller said.

A do-over (withdrawal) means you're starting over, as if you never filed for benefits in the first place. For people who need short-term cash in the form of immediate Social Security benefits but then decide to do it over, "this essentially becomes a one-year, interest-free loan," said Margolis & Bloom.
What if you can't repay the benefits that you received after 12 months have elapsed? An option would be to suspend the receipt of further benefits so that you could start earning credits that would make you eligible for higher payments later. You can suspend benefits upon reaching full retirement age.

For example, said Margolis & Bloom, if you started benefits at 62 then suspend them at 66, you could build up delayed retirement credits from 66 to 70 that would qualify you for higher payments. Benefits rise by 8% a year from 66 to 70, so delaying over that stretch would result in a monthly payment that's 32% larger.

The bottom line is, with Social Security, you have some flexibility. They're among dozens of potentially helpful strategies available.
Source: USA Today

ABLE account for disabled persons
March 2015

On Dec. 19, 2014, the President signed into law the Tax Increase Prevention Act of 2014 (TIPA, P.L. 113-295). This legislation included the Achieving a Better Life Experience Act of 2014 (ABLE Act), which provides for a new type of tax-advantaged account for disabled persons, an ABLE account.
The new law, which applies for tax years beginning after December 31, 2014, allows states to create "Achieving a Better Life Experience" (ABLE) accounts, which are tax-free accounts that can be used to save for disability-related expenses. Here are the key features of ABLE accounts:

  • ABLE accounts can be created by individuals to support themselves or by families to support their dependents.
  • There is no federal taxation on funds held in an ABLE account. Assets can be accumulated, invested, grown and distributed free from federal taxes. Contributions to the accounts are made on an after-tax basis (i.e., contributions aren't deductible), but assets in the account grow tax free and are protected from tax as long as they are used to pay qualified expenses.
  • No federal tax benefits are provided for those who contribute to an ABLE account.
  • Money in an ABLE account can be withdrawn tax free if the money is used for disability-related expenses. Expenses qualify as disability related if they are for the benefit of an individual with a disability and are related to the disability. They include education; housing; transportation; employment support; health, prevention, and wellness costs; assistive technology and personal support services; and other expenses.
  • Distributions used for nonqualified expenses are subject to income tax on the portion of such distributions attributable to earnings from the account, plus a 10% penalty on that portion.
  • Each disabled person is limited to one ABLE account, and total annual contributions by all individuals to any one ABLE account can be made up to the gift tax exclusion amount ($14,000 in 2015, adjusted annually for inflation). Aggregate contributions are subject to the State limit for education-related Section 529 accounts.
  • ABLE accounts can generally be rolled over only into another ABLE account for the same individual or into an ABLE account for a sibling who is also an eligible individual.
  • Eligible individuals must be blind or severely disabled, and must have become so before turning 26, based on marked and severe functional limitation or receipt of benefits under the Supplemental Security Income (SSI) or Social Security Disability Insurance (DI) programs. An individual doesn't need to receive SSI or DI to open or maintain an ABLE account, nor does the ownership of an account confer eligibility for those programs.
  • ABLE accounts have no impact on Medicaid, but, in certain cases, SSI payments are suspended while a beneficiary maintains excess resources in an ABLE account. More specifically, the first $100,000 in ABLE account balances is exempted from being counted toward the SSI program's $2,000 individual resource limit. However, account distributions for housing expenses are counted as income for SSI purposes. Assuming the individual has no other assets, if the balance of an individual's ABLE account exceeds $102,000, the individual is suspended, but not terminated, from eligibility for SSI benefits, but remains eligible for Medicaid.
  • Upon the death of an eligible individual, any amounts remaining in the account (after any reimbursements to Medicaid) will go to the deceased's estate or to a designated beneficiary and will be subject to income tax on investment earnings, but not to a penalty.
  • Contributions to an ABLE account by a parent or grandparent of a designated beneficiary are protected in bankruptcy. In order to be protected, ABLE account contributions must be made more than 365 days prior to the bankruptcy filing.

If you would like more details about these changes or any other aspect of the new law, please do not hesitate to contact us.

Good News for RRSP and RRIF Owners
November 2014

U.S. tax is due each year on the income that is accruing in registered retirement savings plans (RRSPs) and registered retirement income funds (RRIFs).   A provision in the U.S.-Canada tax treaty enables U.S. citizens and resident aliens to defer tax on income accruing in the RRSP or RRIF until it is distributed.  However, in order to get the deferral treatment, the account owners must attach a form 8891 to their tax return and choose this tax treaty benefit, something many eligible taxpayers failed to do.  In the past, a primary way to correct this omission and retroactively obtain the treaty benefit was to request a private letter ruling from the IRS, a costly and often time-consuming process.

The IRS has announced that it is eliminating Form 8891, and taxpayers are no longer required to file this form for any year, past or present.  This relief is retroactive.  Under this change, many Americans and Canadians with RRSPs and RRIFs now automatically qualify for tax deferral similar to that available to participants in U.S. individual retirement accounts (IRAs) and 401(k) plans. In general, U.S. citizens and resident aliens qualify for this special treatment as long as they filed and continue to file U.S. returns for any year they held an interest in an RRSP or RRIF and include any distributions as income on their U.S. returns.

This announcement does change any other U.S. reporting requirements that may apply under the Bank Secrecy Act (BSA) and section 6038D. See instructions to FinCEN Form 114 due by June 30 of each year, and Form 8938 attached to a U.S. income tax return for more information about the reporting requirements under the BSA and section 6038D.  Different reporting thresholds and special rules apply to each of these forms.

Interest-Free, Tax-Free IRA Loans Are Over?
November 2014

Many clients have taken advantage of the 60-day tax-free rollover IRA rules for short term cash needs.  A tax-free rollover involves taking assets out of an IRA and then redepositing them to the same (or another) IRA no later than 60 days after the day the distribution is received. For example, a person may need an immediate infusion of cash for an emergency or for an investment opportunity. If the money is rolled back into an IRA within the 60-day limit, that person has obtained a tax-free and interest-free loan from his IRA. A tax-free rollover from an IRA into another IRA may be made only once a year, and the one-year period begins on the date the taxpayer receives the IRA distribution, not on the date when he rolls it over into another IRA.

Before 2015, the one-year rule applies separately to each IRA an individual owns, enabling a taxpayer with multiple IRAs to generate a surprisingly long interest-free, tax-free loan.  The IRS is now putting a stop to it.  Starting Jan. 1, 2015, the limit of one rollover per year applies on an aggregate basis and not on an IRA-by-IRA basis.  However, this new rule will not affect an IRA owner’s ability to transfer funds from one IRA trustee to another, meaning trustee-to-trustee transfer as opposed to the taxpayer’s getting a check and making the transfer himself or herself, rollovers between qualified plans to IRAs, or Roth conversions. 

Bottom line, always do trustee-to-trustee transfer.  IRA trustees can accomplish a trustee-to-trustee transfer by transferring amounts directly from one IRA to another or by providing the IRA owner with a check made payable to the receiving IRA trustee.

Simplified Option for Home Office Deduction
July 2013

Beginning January 1, 2013, there is a new, simpler option to figure the business use of your home if you work from home. 

To qualify for home office deduction, the space must be exclusively used on a regular basis either (1) as the principal place of business for any trade or business, this includes a place of business that you use for the administrative or management activities of your business if there is no other fixed location; (2) as a place of business that is used by you to meet with patients, clients, or customers in the normal course of business.

For the use of a home office by an employee to qualify, the use must be for the convenience of his or her employer.

This simplified option does not change the rules for who may claim a home office deduction. It merely simplifies the calculation and recordkeeping requirements. The new option can save you a lot of time and will require less paperwork and recordkeeping. 

Here are six facts the IRS wants you to know about the new, simplified method to claim the home office deduction.

  1. You may use the simplified method when you file your 2013 tax return next year. If you use this method to claim the home office deduction, you will not need to calculate your deduction based on actual expenses. You may instead multiply the square footage of your home office by a prescribed rate.
  2. The rate is $5 per square foot of the part of your home used for business. The maximum footage allowed is 300 square feet. This means the most you can deduct using the new method is $1,500 per year.
  3. You may choose either the simplified method or the actual expense method for any tax year. Once you use a method for a specific tax year, you cannot later change to the other method for that same year.
  4. If you use the simplified method and you own your home, you cannot depreciate your home office. You can still deduct other qualified home expenses, such as mortgage interest and real estate taxes. You will not need to allocate these expenses between personal and business use. This allocation is required if you use the actual expense method. You’ll claim these deductions on Schedule A, Itemized Deductions.
  5. You can still fully deduct business expenses that are unrelated to the home if you use the simplified method. These may include costs such as advertising, supplies and wages paid to employees.
  6. If you use more than one home with a qualified home office in the same year, you can use the simplified method for only one in that year. However, you may use the simplified method for one and actual expenses for any others in that year.
Two Supreme Court Rulings Boost Same-Sex Marriage Rights
July 2013

On June 26, 2013, the U.S. Supreme Court announced its rulings on two landmark cases related to same-sex marriage. The 5-4 decisions bolster the federal benefits available to same-sex married couples and clear the way for same-sex marriages in California.

In the first case, the court struck down Section 3 of the Defense of Marriage Act of 1996 (DOMA), which defined marriage as the union of a man and a woman. This case involved a claim by Edith Windsor, who sought a refund from the IRS of the $363,000 in estate taxes she paid because the federal government did not recognize her marriage to her long-time partner and spouse, Thea Spyer. Her suit contended that DOMA violated the principles of equal protection.

In their written opinion, the court's majority agreed, stating that DOMA "violates basic due process and equal protection principles applicable to the Federal Government ... Its unusual deviation from the tradition of recognizing and accepting state definitions of marriage operates to deprive same-sex couples of the benefits and responsibilities that come with federal recognition of their marriages."

The second case, Hollingsworth v. Perry, concerned California's Proposition 8, which banned same-sex marriage in that state. The justices ruled that the petitioners did not have standing to defend Proposition 8 in federal court. This left in place a lower federal court decision that threw out the ban on gay marriage in California, effectively legalizing same-sex marriage in that state.

What effect do the rulings have?

In California

The Supreme Court's decision allows California to resume same-sex marriages. Marriage licenses will be issued once legal details are worked out, most likely by the end of July.

In states that have legalized same-sex marriage

Because the Supreme Court justices struck down Section 3 of DOMA, couples in the 13 states (including California) and the District of Columbia that have legalized same-sex marriage will be allowed to receive federal benefits and protections that were previously available only to opposite-sex married couples.

Striking down Section 3 of DOMA means that the legal definitions of "marriage" and "spouse" under federal law now include legal unions between same-sex partners as well as opposite-sex partners. The effect of this change is enormous, because more than 1,000 federal laws reference marriage or spousal status.

The following list details some of the federal benefits or protections that may now be available to legally married same-sex couples:

Social Security survivor's and spousal benefits
Certain veterans benefits, such as pensions and survivor's benefits
Lifetime gift tax-free property transfers to spouses
Estate tax relief for surviving spouses
Military spousal benefits
Family medical leave rights
Spousal IRA contributions
Spousal visas for foreign national spouses
Joint filing of federal income taxes
Private pension benefit options (e.g., survivor annuities)
Employer health-care benefits may be received on a pretax basis

In states that have not legalized same-sex marriage

States still retain the authority to define marriage, and some states may choose to continue to define marriage as a legal union between a man and a woman. In other states, same-sex marriage may eventually be legalized. States still do not have to recognize same-sex marriages as legal if they were performed in other states.

Stay tuned

The Supreme Court's DOMA ruling means that same-sex couples are entitled to the same federal benefits as opposite-sex couples, but it doesn't necessarily make financial planning for same-sex couples less complicated. For example, even though federal benefits are immediately extended, it may take some time to fully implement the Supreme Court's decision. Federal government agencies will need to review and modify rules and regulations, and employers will need to review and revise their policies, benefits, and paperwork. In addition, questions remain. It's unclear if and how the right to federal benefits will be protected when a couple marries in a state where same-sex marriage is legal, then moves to a state where it isn't. And along with these new protections, same-sex couples will now have new options and obligations that will need to be considered when developing and executing a financial plan.

Caring for Your Aging Parents
March 2013

What is it?
Caring for your aging parents is something you hope you can handle when the time comes, but something you probably hope you never have to do. Caring for your aging parents means helping them plan for the future, and this can be overwhelming, both physically and emotionally. When the time comes for you to take care of your parents, you may be certain of only two things: Your parents need you, and you need help.

Start planning
Talk to your parents about the future
Start caring for your aging parents by talking with them about their needs and wishes if they are able. In some cases, however, they may not be willing to talk to you about their future, either because they are afraid to face it or because they resent your interference. If this is the case, you may need to do as much planning as you can without them, or, if their safety or health is in danger, step in as caregiver anyway.

Prepare a personal data record
The first step you should take is to ask your parents to help you prepare a personal data record (if they are unable to help you, you'll have to search for the information yourself). A personal data record is a document that lists information that you might need in case your parents become incapacitated or die. Information that should be included is financial information, legal information, medical information, insurance information, and information regarding professional advisors and the location of important records.

When Marcia and her mother prepared a personal data record, Marcia realized that her mother did not have a durable power of attorney or health care proxy in case she became incapacitated and could not make decisions about her medical care. The next day, Marcia made an appointment with her mother's lawyer to discuss this issue.

Get advice
You can't know everything, and you probably don't have enough time to learn everything you need to know to care for your parents. That's why you should seek advice from professionals. Some advice will be free, and some you will have to pay for. If you live far from your parents or are too overwhelmed to handle all your parents' affairs, you can hire a geriatric care manager who will evaluate your parents' situation, suggest options, and coordinate professionals who can help. In addition, talk to your employer. Some employers have set up employee assistance programs that offer advice and assistance to people who are dealing with personal challenges, including caring for aging parents.

Get support
Don't try to care for your parents alone. Many local and national caregiver support groups and community services are available to help you cope with caring for your aging parents. If you don't know where to start finding help, call the Eldercare Locator, an information and referral service sponsored by the federal government that can direct you to resources available nationally or in your area. Call the Eldercare Locator at (800) 677-1116.

What kind of advice will you need?
Housing and health care advice
If your parents are like many older individuals, where they live will depend upon how healthy they are. As your parents grow older, their health may deteriorate so much that they can no longer live on their own. At this point, you may need to find them in-home health care or health care within a retirement community or nursing home. On the other hand, you may want them to move in with you. In addition, you will need information on managing the cost of health care, long-term care insurance, major medical insurance, Medicare, and Medicaid.


  • National Association for Home Care
  • Visiting Nurse Associations of America
  • Centers for Medicare & Medicaid Services (formerly known as the Health Care Financing Administration)
  • American Association of Homes and Services for the Aging
  • American Association of Retired Persons (AARP)
  • Health Insurance Association of America

Financial advice
If your parents need help managing their finances, you may need to contact professionals whose advice both you and your parents can trust, including one or more of the following individuals or organizations.


  • Your financial planner
  • Your banker
  • Your investment counselor
  • Your tax attorney
  • The Social Security Administration

Legal advice
Legal advisors can help you plan for your parents' incapacity (including preparing documents such as power of attorneys, medical directives, and living wills), contact nursing home ombudsmen, set up and monitor guardianship, prepare wills, give tax advice, and provide bill payment and representative payee assistance. Many states provide funds for the delivery of free legal services to the elderly and many attorneys specialize in elder law, so finding legal advice shouldn't be difficult.


  • Your attorney
  • National Association of State Units on Aging
  • American Bar Commission on the Legal Problems of the Elderly
  • Legal Counsel for the Elderly

What kinds of support and community services will you need?
Caring for your aging parents will be easier if you know what kinds of support and community services are available and where to locate them. The following is a list of the kinds of support and community services you can find locally and nationally, along with specific suggestions of who to contact for information.

Adult day care
If you need to work or run errands and you can't leave your parents alone, consider using adult day care. These programs are located in hospitals, churches, temples, nursing homes, or community centers. Many are private nonprofit organizations. Adult day care can be expensive but is sometimes subsidized by the government, and fees may be based on a sliding scale. In addition, Medicare, Medicaid, long-term care insurance, or your health insurance may pay part of the cost.


  • Your local senior center or community center
  • National Institute on Adult Day Care
  • The Alzheimer's Association

Caregiver support groups (self-help)
Many self-help groups are available to provide information and emotional support on broad topics (such as aging) or specific topics (such as heart disease). You may find these support groups helpful if you know little about caring for your aging parents. Such groups might also provide an opportunity to help others by sharing your experiences.


  • The Alzheimer's Association
  • Children of Aging Parents
  • National Self-Help Clearinghouse

Caregiver training/health education
You may feel better about taking care of your parents if you are armed with knowledge. You may want to complete first-aid courses or take classes in gerontology.


  • Your local college or university
  • Your local hospital
  • The American Red Cross

Geriatric assessment
If you are uncertain of your parent's mental or physical capabilities, ask his or her doctor to recommend somewhere you can take your parent to undergo an assessment. These assessments can be done at hospitals or clinics. Your parent will be evaluated to determine his or her capabilities. The evaluation determines whether the individual can take care of himself or herself on a day-to-day basis, including such things as bathing, dressing, eating, using the telephone, doing housework, and managing money. Based on this evaluation, you and your parent will receive advice regarding care options.


  • Your doctor
  • Your lawyer
  • The National Association of Professional Geriatric Care Managers
  • Aging Network Services

Respite care
When you are caring for your aging parents, you may feel guilty or even resentful because you don't have limitless energy. Taking care of your parents is hard work, however, and everyone needs a break once in a while. If you are caring for your aging parents, look into respite care. Medicaid may pay for some respite-care services.


  • Your doctor
  • Your local hospital
  • The Alzheimer's Association
  • National Association for Home Care

Financial and tax considerations for you
Caring for your aging parents is not only an emotional burden for you but may be a financial one as well, depending upon how well off your parents are and how much caring for them costs. Because many adults today are becoming first-time parents in their thirties, and others are remarrying and rearing second families, increasing numbers of adults are finding themselves in the "sandwich generation." They face having to pay expenses of growing children (including college expenses), plan for their own retirement, and support their aging parents financially. Thus, it's important to plan not only your parents finances, but your own as well.

Financial planning for your parents
Making sure that your parents won't outlive their money is a critical step in ensuring that your own finances will remain sound. In particular, you'll need to make sure that your parent is receiving all the benefits to which he or she is entitled and that his or her money is invested wisely. You'll also need to create a financial profile for your parents, a statement that includes income, expenses, and net worth. If, after considering your parent's financial condition, it's clear that they won't have enough resources to pay for their own care, you'll need to find ways to supplement their income. You may need to look at Supplemental Security Income (SSI), for instance, or ask other relatives for help. You'll also have to determine how much financial support you can give your parents (see below).

Financial planning for you
Besides caring for your parents, you have a lot of other financial obligations. Before you can determine the best way to help your parents financially, you'll have to look at your own financial picture. Not only will you need to consider your current expenses, but you'll have to look down the road a few years, considering how much you'll need to save for your own retirement and, perhaps, for your child's education.

Due to the complexities inherent in providing adequately for several generations in the same family, consider seeking the advice of a financial professional.

Tax benefits for children supporting aging parents
Federal income tax law provides several tax benefits to you if you are supporting your parents financially. If you have a dependent care account at work, you can put pretax dollars into the account that you can use to pay for some costs associated with caring for your dependent parents. You may be able to claim an exemption for your parents as dependents, and you may be entitled to claim a dependent care credit. In addition, you may be able to file your taxes as head of household and deduct medical expenses you paid for your parents. For more information consult your tax advisor.

Questions & Answers
If you are financially supporting your parent, is he or she entitled to receive Social Security benefits based on your earnings?

If you are providing at least one-half of your parent's support at the time of your death, and he or she is age 62 or over and is not entitled to a retirement benefit that is equal to or larger than the amount he or she would receive based on your earnings record, then he or she may be entitled to receive a parent's Social Security benefit equal to 82.5 percent of your primary insurance amount (PIA).

If you have any questions, please contact us.

IMPORTANT DISCLOSURES:  Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual's personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law.  Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials.  The information in these materials may change at any time and without notice.

Changes to Washington State Tax Landscape
July 2, 2010

Early in 2010, the Washington State Legislature passed a number of laws that have current or future tax impact for businesses and individuals.  For a list of changes, please click here

Hidden in the various changes are two provisions that dramatically change the taxation of companies that do business in Washington State.   The first provision is the new “Economic Nexus” rule.  This revises the criteria to establish “nexus” in Washington State, thereby subjecting itself to Washington taxation.   For example, an out of state company who sells to Washington State customers but otherwise maintains no physical presence in the State is now subject to Washington taxation if its Washington sales are more than $250,000.  The same company could, prior to the enactment of this provision, avoid Washington State taxation by not maintaining any physical presence in Washington State regardless of the amount of its Washington sales. 

The second big change is the new apportionment method that must be used for businesses that report B&O tax under certain classifications, such as the “Service and Other Activities” classification. 
Apportionment is a way to allocate business income and expenses for companies that do business in multiple states.  The new apportionment method calls for the use of a single receipts factor, where the numerator is the total gross income of the business attributed to Washington, and the denominator is the total gross income worldwide.  Based on a temporary rule (WAC 458-20-19402), income is attributed based on a cascading method, with the first determining factor being where the customer received the benefit of the service.   This contrasts drastically with the previous apportionment method, which was based on the cost of doing business.

Both provisions are effective June 1, 2010.  Companies need to act now to analyze the impact these changes will have on their operations and bottom line.  Please contact us if you would like to discuss how these changes will impact you.

Is Roth IRA Conversion Right for You
January 18, 2010

2010 is touted by some as the year of the Roth IRA conversion, because the adjusted gross income limit is removed, allowing those with high income to convert. Although converting Roth IRA provides many tax benefits, it is not for everyone.

Follow this link to an article from the Journal of Accountancy that provides an in-depth analysis of the pros and cons of conversion. You may also find it helpful to use a Roth IRA Conversion Calculator to run comparisons. Here is the link to the calculator from Charles Schwab. Each person’s situation is unique. Please contact us if you have questions pertaining to your specific needs.

Saving Your Tax Records: What you Need to Know.
June 24, 2009

Now that the end of the traditional tax filing season is upon us, it may be tempting to purge certain tax documents from your files for the current and past tax years. However, you should be aware of the rules for retaining relevant tax records in the event that the IRS — or another taxing authority — requires that those records be produced as part of an audit.

Keep at Least Three Years
The following records are commonly used to substantiate a taxpayer’s income and expense items:

  • Form(s)
  • W-2 Form(s) 1099
  • Form(s) K-1
  • Bank and brokerage statements
  • Canceled checks or other proof of payment of deductible expenses

At a minimum, the above tax records should be kept for a three-year period following the date that you filed your return, or its due date, if later.

However, the IRS’s time limit for initiating an audit on a return where income was grossly understated, yet no fraud was discovered, is six years. Therefore, it is ideal to retain the above documents for six years to better protect yourself in the event of an audit.

Some Records to Keep Longer
Be aware that the tax consequences of a transaction that occurs in one year may depend on what happened in earlier years. Therefore, the period for which you should retain records must be measured from the year in which the tax consequences actually occur. This is true, for instance, where you sell property that you bought years earlier.

Example: Maria bought her home in 1987 for $90,000 and made an additional $20,000 of capital improvements in 1995. If she sells her home in 2007, Maria will need to know her tax basis (i.e., the original cost plus later capital improvements) to determine the tax consequences of the sale. So, she may have to produce records relating to the purchase in 1987 and the capital improvements in 1995. Therefore, those records should be kept for at least six years after Maria’s 2007 return is filed instead of just six years after the transactions occurred.

Although as much as $250,000 of home-sale gain can escape tax — up to $500,000 for joint-return filers — you should still retain all records relating to home purchases and improvements. You cannot know now how much the home will be worth when it’s sold. Plus you cannot be certain that the home-sale exclusion will still be available when your future sale takes place.

Similar issues apply to other property that is likely to be bought and sold — for example, shares in a corporation or in a mutual fund, bonds (or other debt securities), etc. Keep in mind that if you reinvest dividends to buy additional shares of stock, each reinvestment is a separate purchase of stock, and the records of each reinvestment should be kept for at least six years after the return is filed for the year in which the stock is sold.

Another example: The calculation of the casualty and theft loss deduction is determined in part by your basis in the damaged or stolen property. Therefore, you’ll need to keep records to support your basis until six years after you file the return claiming the loss deduction.

What If You Lose Records?
Safeguard your records against loss from theft, fire, or other disaster. Consider keeping your most important records in a safe deposit box or other safe place outside your home. Moreover, consider keeping copies of the most important records in an easily accessible location so that you can quickly take them with you if you have to leave your home in an emergency.

If your records are lost or destroyed, don’t despair. It may be possible to reconstruct some of them. For instance, your stockbroker may be able to help determine the tax basis of securities you sold, and an attorney who represented you in the purchase of your home may retain records relating to the closing. Still, since you can never be sure whether those persons will actually have the records you need, the safest course of action is to retain them yourself, in as safe a place as possible.

Prior Years’ Tax Returns
It is a good idea to maintain one or more permanent files with important legal and personal documents, including those relating to taxes. Specifically, as a general rule, you should retain copies of your federal and state income-tax returns (and any tax payments) indefinitely. For instance, the IRS or another taxing authority could claim that you never filed a particular year’s return. If that occurs, the IRS (or other authority) could assess tax and penalties relating to the return in question. You will need a copy of your return to bolster your position that you actually filed the return.

Need More Information?
Filing your returns on a timely basis is just one aspect of properly handling your taxes. Be prepared to defend yourself in the event of an audit by retaining your records for the appropriate time period. Call us if you have any further questions.

Rules for Deducting Capital Losses
January 28, 2009

The current recession and stock market decline have resulted in losses on investments and other capital assets for many investors. Most investors have realized significant capital losses from selling investments in taxable accounts. Moreover, these investors may currently have open-loss positions (“paper losses”) they may be considering liquidating. If you are an investor in either situation, it helps to be familiar with the federal tax rules as they relate to deducting capital losses.

The Basics

In general, capital losses are fully deductible — dollar for dollar — against capital gains. A traditional approach to reducing taxes is to time capital losses to offset capital gains in the same tax year. Unfortunately, in the current economic climate, finding capital gains to be offset by losses may be difficult. For individuals with excess capital losses over capital gains, $3,000 of the net loss is deductible against ordinary income per year ($1,500, if married filing separately). A taxpayer may carry forward any unused capital losses to be deducted in subsequent tax years, subject to the same restrictions.

Example: John, a single taxpayer, realized $30,000 in capital losses in 2008 and only $2,000 in capital gains. John may offset his $2,000 in gains with $2,000 of his losses. Then, he can claim $3,000 of net capital losses against his ordinary income from salary, interest, and dividends. The remaining $25,000 of net capital losses can be carried forward to 2009 and future years to be deducted in those years.

Short Term v. Long Term

For loss-deduction purposes, long-term capital gains and losses (on assets held for more than one year) must be separated from short-term gains and losses (on assets held one year or less). Federal tax law requires that losses must be netted in a certain order.

Watch Out for “Wash Sales”

Investors should not buy substantially identical securities within a period beginning 30 days before and ending 30 days after the loss sale. Otherwise, the loss will be disallowed.

Hope on the Horizon?

One proposal in Congress would liberalize the deduction for net capital losses so that more net losses can be deducted against ordinary income. However, at this point, the proposal is still just that — only a proposal.

Need More Information?

Naturally, selling an investment on which you have a paper loss to generate a tax deduction needs to make sense for your portfolio as well as for your taxes. If you have tax questions regarding deducting capital losses, give us a call. We are always here to help.

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