Review your 2015 transactions to take advantage of the following 8 tax breaks

post-it-819682_640In mid-December, Congress renewed a long list of tax breaks known as “extenders” that have been expiring on an annual basis. This year many of the rules are retroactive to the beginning of 2015, and you can benefit from them as you prepare your 2015 federal income tax return.
In addition, the Protecting Americans from Tax Hikes Act of 2015, which was signed into law on December 18, 2015, makes some of the rules effective through December 31, 2016. Others are effective through 2019, and some are effective permanently. Provisions in the Act also make changes to existing tax rules that were not part of the extenders. All of these changes will affect your tax planning for 2016 and future years. Here’s an overview of selected provisions.
● When you’re age 70½ and over, you can make a tax-free distribution of up to $100,000 from your IRA to a charity. This provision was reinstated for 2015 and is now permanent.
● The deduction for up to $250 of out-of-pocket eligible educator expenses is available for your 2015 return. It’s now permanent and will be indexed for inflation beginning with 2016 tax returns.
● You can choose to claim the itemized deduction for state and local sales taxes in lieu of deducting state and local income taxes on your 2015 return. This break is now permanent.
● The tuition and fees above-the-line deduction for qualified higher education expenses is available for 2015 and 2016.
● If you’re a homeowner, you can exclude mortgage debt cancellation or forgiveness of up to $2 million in 2015 and 2016. Discharges of qualified mortgage debt can also be excluded after January 1, 2017, if you have a binding written agreement in effect before that date. This tax break is only available for your principal residence.
● The maximum Section 179 deduction for qualified business property, including off-the-shelf software, is available for 2015 and is now permanently set at $500,000 (subject to a taxable income limitation). The deduction is phased out above a $2 million threshold. Both thresholds will be indexed for inflation beginning in 2016.
● The additional first-year depreciation deduction, known as “bonus depreciation,” is available for 2015 when you buy qualified business property. The deduction is extended through 2019.
● You can claim the work opportunity tax credit for 2015 if you hired eligible individuals last year. This credit is extended for five years (through 2019).
Because the Act was passed so late in the year, you’ll have to review your 2015 transactions to take advantage of applicable breaks and claim them on your 2015 federal income tax return. Also, with the rules now extended through 2016 (and in some cases beyond), you can begin to update your current tax plan with some measure of certainty.
Give us a call for more information and for help in determining which changes affect you.

Advertisements

There’s a new arrival called myRA

baby-220318__180A new simplified Roth IRA is the newest retirement plan. The account is called a myRA (short for “my retirement account”). It’s funded by having your employer make direct paycheck deposits to your account. The contributions to your myRA are invested in government-guaranteed Treasury securities. A myRA isn’t connected to your employer; it belongs entirely to you and can be moved to any new employer that offers direct deposit capability. The annual contribution limits that apply to regular Roth IRAs apply to myRAs. To find out more about myRAs, contact our office.

Don’t overlook the April 1st deadline

You may be approaching an important deadline if you have retirement accounts and you turned 70½ last year. Generally, you must begin withdrawing money from tax-favored retirement plans in the year you turn 70½. However, you may postpone your first withdrawal until April 1 of the year after you turn 70½. That means you have until April 1, 2015, to complete your required 2014 distribution. period-481478__180

The minimum distribution rules don’t apply to your Roth IRA accounts. And if you are still working at age 70½, you are generally not required to withdraw funds from a qualified employer-sponsored plan until April 1 of the calendar year following your actual retirement.

If you postponed your first distribution, you must take two distributions this year – one for 2014 and one for 2015. Your 2014 distribution must be completed by April 1, while your 2015 distribution must be completed by December 31, 2015. After that, you must take a distribution by December 31 each year until your retirement funds are depleted.

Generally, the amount of the RMD for any year is based on your age. You take the balance in all your traditional IRAs as of the last day of the previous year, and divide by a factor representing your life expectancy. The IRS has published a standard life expectancy table to use in the calculation. Special rules might apply if your spouse is more than ten years younger than you are and is the sole beneficiary of your IRA.

Make sure you notify the holder of your retirement account in time to complete your distribution. Follow up to ensure that the transaction will be completed on time. You may withdraw more than the required amount, but if you fail to take at least the minimum distribution on time, you are subject to a 50% penalty tax.

Don’t overlook this important distribution deadline. Call our office if you would like assistance in planning your retirement withdrawals.

4 Important things to consider when going through a divorce

divorce-619195__180Divorce can be an emotionally draining process. If you are in the middle of one, you probably just want it to be over. But be careful. Divorce has serious tax implications, and the choices you make now may affect you for many years. Consider the following:

  • Alimony and child support. Alimony is tax-deductible if you pay it and taxable income if you receive it. Child support, on the other hand, is neither tax-deductible nor taxable as income.
  • If you are awarded physical custody of your child, you will usually be entitled to the tax benefits related to that child. Special rules may apply if you share custody. In addition to a $4,000 dependency tax deduction, tax benefits may include the dependent care credit, the child tax credit, the earned income credit, and education tax credits. You can transfer your right to claim your child to your former spouse each year, for tax purposes, by signing a special IRS form.
  • Retirement accounts and IRAs. Your former spouse may be awarded part of your retirement account or IRA. If your ex-spouse receives the benefits, he or she will generally be responsible for the taxes. But unless the accounts are divided and transferred in just the right way, you could end up paying the tax.
  • Property settlements. You are allowed to transfer property (house, cars, investments, etc.) to your ex-spouse without triggering income tax, if it’s part of your settlement agreement. But whoever ends up with your marital assets may owe taxes when the assets are sold. Take future taxes into consideration during your negotiations, or you might end up with large and unexpected tax liabilities.

Call us early in the divorce process, and let us help you and your attorney make informed choices.

Update your beneficiary designations

thV4Y9YB5A

Who have you designated as beneficiaries for your insurance policies and retirement accounts? If you can’t remember, you’re not alone. But it’s worth checking. If you make the wrong decision, it could affect who inherits those assets. In some cases, it could also change the taxes your beneficiaries will pay and the value they’ll receive. Here are some key facts about beneficiary designations.

  • When you designate a beneficiary for an account, you are naming the person you want to inherit that account.
  • Your designation determines who will inherit the assets in the account, regardless of what your will might say. Generally, the assets will bypass probate and go straight to the person or institution you named.
  • You can designate a person or group of persons, a charity, a trust, or your estate. You may also want to designate a secondary or backup beneficiary in case the primary is no longer living.

Why are they important? 

  • It’s important to keep beneficiary designations up to date because they determine who will inherit the assets in your accounts. Changing your will won’t change the beneficiaries.
  • There can be tax implications too. With a traditional IRA, your choice of beneficiary can affect how quickly withdrawals must be made and taxes paid. That can change the value of the IRA to your beneficiary.

How do I update them? 

  • First, find copies of all your current designations. Contact your insurance company and plan trustees if you can’t locate the documents.
  • Review them and decide what changes you’d like to make. Make an appointment to go over the changes with your tax or estate planning advisor.
  • Send your updated designations to the account trustees. Make sure you receive confirmations and keep copies in your records.

Supreme Court denies bankruptcy protection for inherited IRAs

thYour retirement funds are protected from creditors even if you file for bankruptcy, with only a few limitations. This protection extends to funds in all government-qualified pension plans, including IRAs (traditional and Roth), 401(k)s, 403(b)s, Keoghs, profit sharing, money purchase, and defined benefit plans. A recent U.S. Supreme Court decision has held, however, that an inherited IRA is not a “retirement fund” and therefore doesn’t qualify for bankruptcy protection.

An inherited IRA is a traditional or Roth IRA that a deceased owner has bequeathed to a beneficiary. It differs from a “true” retirement account in three ways:

  1. The beneficiary is not allowed to contribute additional retirement funds to the inherited IRA.
  2. The beneficiary, regardless of age, may withdraw funds from an inherited IRA in any amount and at any time without penalty.
  3. The beneficiary, regardless of age, is required to take annual minimum distributions from any inherited IRA.

Based on the above characteristics, the Court unanimously concluded that with respect to beneficiaries, inherited IRAs are “not funds objectively set aside for one’s retirement” and instead constitute a “pot of money that can be used freely for current consumption.”

Although the Court didn’t specifically address it, there is a possible option available if (and only if) the beneficiary is the spouse of the decedent. Spouses are permitted to roll over funds from inherited IRAs into their own IRAs, which would presumably bring those funds back under bankruptcy protection. The funds would, however, become subject to the rules that apply to non-inherited IRAs, such as penalties for withdrawals before age 59½.

Certain other strategies may be available if you have inherited or are likely to inherit an IRA and you are interested in possible bankruptcy protection. Call us for an appointment to discuss your options.