Volume 9, Issue 7
In a landmark, unanimous 9-0 decision handed down on June 12, 2014, the United States Supreme Court held that inherited IRAs are not “retirement funds” within the meaning of federal bankruptcy law. This means they are therefore available to satisfy creditors’ claims. (See Clark, et ux v. Rameker, 573 U.S. ______ (2014))
The Court reached its conclusion based on three factors that differentiate an inherited IRA from a participant-owned IRA:
Many of us in the legal, financial and accounting worlds discover our new clients’ well-intentioned, yet disastrous, plans after the fact. The widow has already transferred her house into her children’s names or an inherited IRA is drained to pay for a Porsche. Observing the lost planning opportunity and the financial fallout is universally gut wrenching.
To help get the message out and to illustrate the transformation you provide to clients, you are welcome to use the below facts and scenarios in your own educational materials, presentations and conversations. Consider this a “red flag” list of income tax pitfalls and opportunities so you can be your clients’ (and their beneficiaries’) basis management hero.
Estimated tax is the method used to pay tax on income that isn’t subject to withholding, most notably earnings from self-employment. Many owners of small businesses-whether operated as S corporations, partnerships, limited liability companies electing partnership taxation, or sole proprietorships-pay their estimated tax using the same IRS Form 1040-ES that individuals use.
One of the most significant tax advantages to owning a home comes at the back end of ownership, when you decide to sell it for a profit. A homeowner can exclude up to $250,000 of such profit from the federal capital gains tax. For married couples filing a joint tax return, the exclusion jumps to … Read more
The federal income tax deduction for the business use of a home has a good dollars and cents upside for those who qualify. Some detailed questions have to be answered correctly to get to that point, however. Not surprisingly, the IRS publication on the subject makes use of a complex flowchart filled with “yes or no” questions to guide taxpayers to a determination of their eligibility for the deduction.
To pass the threshold for use of the home business deduction, a taxpayer must satisfy the following two basic sets of requirements: The first set concerns the nature of the business activities, while the second set relates more to the place itself.
Hitting the jackpot while gambling may feel a lot more like manna from heaven than remuneration for a good day’s work, but as far as the government is concerned, those winnings might as well be wages as the results of wagering.
In short, the proceeds are ordinary income on which the winner owes income tax. By “gambling,” the federal income tax code means coming out ahead in a wide range of betting settings, such as casinos, racetracks, and lotteries. Not only that, but income tax will be imposed where someone wins a prize instead of cash, in which case the provider of the prize will put a fair market value on the item won and report that to the IRS.
By some accounts, 70% of adult Americans do not have a will. If you have at least gone to the trouble of making a will, consider yourself ahead of the curve and pat yourself on the back. Then come back to earth and understand that your work is not completely done. A will is not a static instrument. To serve its purposes, it must keep current with life changes, including an individual’s financial circumstances, and with some external factors, such as tax laws. With the help of a professional, you should periodically review your will, staying alert to new or different circumstances that might call for updates.
At the eleventh hour, Congress averted the tax side of the ominous “Fiscal Cliff” that it faced as 2012 drew to a close. The end result of the intense negotiations was the American Taxpayer Relief Act of 2012 (ATRA).
The most publicized part of ATRA prevented scheduled federal tax rate hikes from going into effect for most taxpayers in 2013, while raising taxes on America’s highest earners. ATRA also keeps in place many expiring income tax breaks and revives some tax increases that had expired over the past several years.
For tax years beginning after 2012, ATRA makes permanent almost all of the federal income tax rates first put into place in 2001. Those rates otherwise would have increased in 2013. For high‑income taxpayers,
Even if you’re a taxpayer with simple returns and few supporting documents, you can become a little snowed under by tax records as they accumulate over the years, raising the question of how long you should hold on to such records. The answer depends on the types of documents and transactions involved, but if you have been a tax records pack rat for many years, chances are you can safely dispose of the oldest such records without inviting trouble.
You won’t find many financial advisors who vigorously advocate dipping into the money in your 401(k) retirement account while you’re still working. It is for retirement, after all. Still, using some of what could be a sizeable amount of money sitting in the account for current financial needs may sometimes be too great a temptation to resist. Taking that step is not always ill-advised, but you should know all the ramifications before doing so.