Articles & Tips
Business Income Taxes:
• Business Travel
• Health Insurance Tax Credit
• Worker Classification
Estate Planning:
• Beneficiary Designations
• Multiple Beneficiaries of Retirement Accounts
Financial Planning:
• Alimony
• Buy-Sell Agreements
• Cost of Credit
• How to Save More for Retirement
• Life Insurance Review
Individual Income Taxes:
• Kiddie Tax Rules
• Sale of Residence
• Seniors Ability to Make Charitable Donations Directly from IRAs
• Taxability of Lawsuits
• Donations of Stock
Retirement Plans:
• Phaseout Ranges for 2011 IRA Contributions
• Non-spousal Beneficiaries are Able to do IRA Rollovers for Inherited Retirement Plan Distributions
• Roth IRA Conversions
•Business Travel
Transportation costs within the United States are 100% deductible when the primary reason for the trip is business rather than personal. Although the IRS does not give us any specific guidelines, we can interpret their rules to imply that business days include days when your time during normal working hours is mainly devoted to business activities as well as travel days. As long as the trip includes more business days than personal days, you should be able to deduct all your transportation expenses as well as lodging and 50% of meals for business days at your destination.
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• Health Insurance Tax Credit
Qualifying small employers (less than 26 full time employees with an average wage of $50,000 or less) who uniformly pay at least 50% of the cost of employee health insurance are allowed a credit up to 35% of the lesser of 1) the cost of providing health insurance or 2) a benchmark cost determined by DHHS.
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• Worker Classification
Hiring independent contractors to perform work can be simpler than hiring an employee. One immediate benefit is that there are no payroll taxes due when using them. However, if a worker is truly subject to your control as to the means and methods of performing their duties, they may actually be considered employees.
Department of Labor enforcement personnel will work with the Treasury Department to target worker misclassification.
Misclassified workers may subject a business to additional taxes, penalties and interest.
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• Beneficiary Designations
Don't forget to review and update as necessary the beneficiary designations on your retirement accounts and life insurance policies. Your will or trust will not override what is named in the beneficiary designation form, and this could prove awkward – especially in the case of divorce.
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• Multiple Beneficiaries of Retirement Accounts
If you want to leave retirement account funds to several different individuals, you can either designate those people with a percentage ownership of each account (i.e. 50% to son, 50% to daughter) or you can set up and fund separate accounts in which each beneficiary is the sole beneficiary of an account.
The second option is generally preferred because each beneficiary may have different plans for the inherited money. Under the first scenario, if the son wants to take a distribution, the daughter must take one as well – even if she would prefer to leave the money invested for as long as possible. Under the second scenario, both the son and daughter may access the funds as they deem appropriate without influencing the actions of the other.
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• Alimony
Alimony is deductible by the paying ex-spouse and taxable income to the recipient ex-spouse. There are several requirements for payments to be considered alimony, however one in particular is that payments must cease upon the recipient ex-spouse’s death. If not, the payments are not considered alimony. Pay attention to this when agreeing to divorce settlements.
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• Buy-Sell Agreements
When starting up a new business, it is wise to contemplate the “exit strategy” as well. One important piece to that puzzle is establishing a Buy-Sell Agreement among the new owners.
A Buy-Sell Agreement is a contract among co-owners of a business which accomplishes two primary goals. 1) It limits the ability of the existing owners to transfer their ownership to outsiders and 2) It ensures that there is a buyer for each owners’ interest in the business if he/she should die, retire or become disabled.
There are various ways to arrange the Buy-Sell Agreement, but the principal issues to be decided are the events which will activate the agreement and the method to determine the price for the ownership interests.
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• Cost of Credit
There are only a few types of interest expense which are deductible. Included in this short list are most home mortgage interest, home equity interest, investment interest and interest related to a trade or business. Personal interest, such as interest on credit cards and car loans is not deductible. By reviewing your debt and restructuring it, you may be able to convert a non-deductible expense into a deductible one and reduce the effective cost of your credit.
You should note that converting unsecured debt into debt secured by your residence in order to gain a deduction, may not be the wisest move in all situations.
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• How to Save More for Retirement
A study by the Employee Benefits Research Institute indicates that people who have taken the time to calculate how much money they will need for their retirement years have accumulated almost five times as much as those who have never taken the time to do so.
It is believed that the reason for this disparity is that by performing the analysis, these individuals have become aware of how much more they should be saving. Don't let your retirement sneak up on you unprepared!
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• Life Insurance Review
It is a good policy to review your life insurance coverage at least once every three years to make sure it is still adequate based on your current circumstances. This includes a review of the beneficiary designations as well.
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• Kiddie Tax Rules
In 2015, the first $1,050 of unearned income is sheltered by the standard deduction. The next $1,050 of unearned income is taxed at the child's rate. Only unearned income over $2,100 is subject to the parent’s higher brackets.
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• Sale of Residence
The general rule is that an unmarried individual can realize a gain from the sale of a residence of up to $250,000 tax free, while a married taxpayer filing jointly can realize a gain of up to $500,000 tax free by passing two tests – 1) they must have owned the home for two of the last five years and 2) they must have used the property as a principal residence for two of the last five years.
If the taxpayer does not meet those two tests, they still may be eligible for a reduced exclusion if the sale is primarily due to 1) a change in the place of employment 2) health reasons or 3) certain unforeseen circumstances.
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• Seniors Ability to Make Charitable Donations Directly from IRAs
Currently, the Internal Revenue Code permits cash donations of up to $100,000 to be made directly out of the IRA accounts of taxpayers who have reached age 70 1/2.
What are the benefits? The charitable distributions are not included in the taxpayers income, therefore the taxpayer may not be affected by certain income based phase-out rules (itemized deductions, medical expenses, personal exemptions, passive rental real estate losses, etc). The charitable distribution also counts as a distribution for purposes of fulfilling the Required Minimum Distribution requirements. The charitable distribution also benefits taxpayers who are otherwise unable to itemize deductions.
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• Taxability of Lawsuits
An award or settlement is typically taxable if it represents replacement of taxable income, or nonphysical injuries such as discrimination, libel, etc. Awards for physical injuries are generally non taxable. This would include actual injuries as well as sickness and emotional injuries.
Attorney’s fees, in limited circumstances may be deducted above the line, but in most cases would be deducted as an itemized deduction. The benefit could therefore be limited due to the 2% floor on miscellaneous itemized deductions as well as the application of the alternative minimum tax.
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• Donation of Stocks
If you have appreciated stock in your portfolio, consider donating it to charity in lieu of writing a check. For stock held more than twelve months that is donated to a qualified charity, your charitable deduction will be the stock's fair market value. The kicker is that the appreciation realized is not included in your taxable income.
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• Phaseout Ranges for 2015 IRA Contributions
For deductibility of Traditional IRA contributions.
The maximum contribution is the lesser of $5,500 ($6,500 if age is 50 or older) or your taxable compensation.
If you are an active participant in a retirement plan, your contribution may be limited if your modified AGI falls within the following ranges. No deduction is allowed if your modified AGI exceeds the upper limit of the following ranges.
| Unmaried taxpayers |
$61,000 to $71,000 |
|
Applies only when taxpayer is an active participant in a retirement plan
|
| Married filing jointly |
$96,000 to $116,000 |
|
Applies when IRA is for an active participant in a retirement plan
|
| Marrried filing jointly |
$181,000 to $191,000 |
|
| Applies when IRA is for individual who is NOT a participant in a retirement plan, but spouse IS. |
For contributions to Roth IRAs:
| Unmarried taxpayers |
$116,000 to $131,000 |
|
| Married filing jointly |
$183,000 to $193,000 |
|
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• Non-spousal Beneficiaries are Able to do IRA Rollovers for Inherited Retirement Plan Distributions
In the past, a non-spousal beneficiary of a retirement plan, might have been required to pay tax on the full balance of an account all at once. Beginning in 2007, a non-spousal beneficiary of a deceased person’s qualified plan account is eligible to set up an IRA account to receive the inherited plan distribution. The new IRA must receive the funds in a direct “trustee to trustee transfer”. The new IRA must also be titled indicating the deceased and you as the beneficiary.
The balance in the new IRA is then subject to the required minimum distribution rules for inherited IRAs, thus the balance must be paid out based on the beneficiary’s remaining life expectancy or longer if the deceased owner’s computed remaining life expectancy is longer depending on if the deceased had reached age 70 1/2.
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• Roth IRA Conversions
For 2010 and beyond, there is no income limitation in determining who is eligible to convert their traditional IRAs into a Roth IRA. You may therefore qualify to make a non-deductible IRA contribution and then roll it over into a Roth account. If you have no other traditional IRA or SEP accounts, this conversion might be accomplished tax free. Please note that whether an IRA conversion makes sense is dependent on a number of variables and assumptions.
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