Tag Archives: Taxes

Make It Count with Rodefer Moss & Co., PLLC | IRAs are a taxing decision

By Doug York, CPA & Partner, Rodefer Moss & Co, PLLC

When to contribute to your 2016 Individual Retirement Accounts is a taxing and spending decision. So, potentially, is determining how much to contribute. The deadline is April 18 for tax year 2016 IRA contributions. That’s three days beyond the normal April 15 tax day deadline because of Emancipation Day, a holiday in Washington, D.C.

Doug York
CPA/Partner
Rodefer Moss & Co, PLLC

To take advantage of growth in an IRA, it’s usually better to make your contributions as early in the tax year as possible.

But this isn’t always financially feasible, which makes the deadline reaching into the following year a benefit for retirement savings. How much should you contribute? Given the challenges of retirement, the need for consistent income, and a general desire to maintain a similar standard of living once you stop working, you will probably want to contribute as much as you can up to the allowable limit.

Time Magazine in March 2016, in an article on retirement planning, said that even as lifespans lengthen, some 56 percent of Americans have less than $10,000 in retirement savings. Only 18 percent had put away more than $200,000.

An IRA enables you to pay yourself during your growth and peak earning years so that you’ll be able to pay yourself as you ratchet back your work schedule or retire altogether. How much you contribute today will have direct bearing on your quality of life later.

IRA contribution limits for tax year 2016 are $5,500 for taxpayers up to age 50, and $6,500 for taxpayers age 50 or older.

As Americans typically don’t save enough for retirement, the extra $1,000 gives people of greater age an opportunity to make up lost savings ground. The limit starts to phase out if your income is over $99,000 married or $62,000 single. Also you may not be able to contribute if you or your spouse has a 401(k) or other retirement plan.

Tax consequences come into play if you make IRA contributions above the allowable limits.

There is a six percent tax on IRA contributions that exceed the contribution limits. For example, if you’re older than 50 and put $7,500 in your IRA for 2016, you’ll be taxed $60 every year the extra contribution remains in your IRA.

IRA contribution limits don’t apply to rollover IRAs (putting your IRA money into another IRA plan). The rollover rules are expanded for military reservists called to active duty by allowing them up to two years to roll over a distribution.

Roth IRA contributions, as opposed to traditional IRAs, are made with money on which you’ve already paid taxes, making it tax-free when withdrawn. If you have both a Roth IRA and a traditional IRA, you are restricted to the same total $5,500 contribution limit as if you only had a traditional IRA. However, the phase-out doesn’t start until $184,000 for married couples and $118,000 if you’re single.

When it comes to withdrawing IRA funds, another deadline exists.

If you turned 70½ in 2016, you have until April 18, 2017, to take your required minimum distribution. This is true for each IRA in which you participate. The IRS provides a worksheet on how to figure your minimum required distribution.

There’s a hefty 50 percent excise tax on all or part of any required minimum distribution you fail to withdraw from your IRA. Again, this doesn’t apply to a Roth IRA. IRA owners who’ve reached required minimum distribution age can avoid tax on up to $100,000 by electing to transfer funds to a charity. This benefit was made permanent last year.

There are 13 days (maybe less by the time you read this) left in which to make these decisions, if you haven’t already.

As with IRAs and so many other financial instruments, there can be nuances atop nuances. Talk to your accountant or financial planner to think through the best strategy for your present and future.

Rodefer Moss is a three-state accounting firm with offices in New Albany, Corydon, and Georgetown, Ind., Louisville, Ky., and four offices across Tennessee. The firm’s website is www.rodefermoss.com.

Money Matters with Vaughan Scott | Social Responsibility Can Pay Dividends in Many Ways

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By Vaughan Scott

Typically when we consider “Money Matters” we think about saving for retirement, saving for college, or other goals that we have set for ourselves or for our families. However, more and more, we are having conversations with clients about how and what they want to do to “give back”. And, we are building more philanthropic goals (big and small) into our clients documented plans for the future.

I don’t know about you, but when I hear the word “philanthropic”, I think about families like the Carnegie’s and the Rockefellers, but in reality, most of us are philanthropic in many ways and we don’t even realize it. Today we tend to think more in terms of our “Social Responsibilities”. Yes, charitable giving in any form is yet another way to be socially responsible. Our clients often talk about the charitable giving and the service work that they do as being something they feel “an obligation” to do, “a duty” or “a responsibility” of theirs, but always with very positive, inspirational tone. These feelings usually are born out of gratefulness for having been given great opportunities in their lives and this typically results in people giving of their time, talents and treasure (money) in traditional ways.

For example, people are often incredibly generous in the ways they give to their church, write checks to organizations that they want to support, work in soup kitchens, help build houses, help build churches, and/or donate gently used goods to Goodwill and other organizations that are funded through the sale of donated goods. These are all typically very noble and worthy causes. And, while the economic benefits that one might receive are not typically what motivates people to give, certainly anyone engaging in these types of activities should consult with their tax advisors about the deductibility of both cash and “in kind” gifts to charities.

At the same time, I also encourage individuals and families to expand their thinking about what they can do together to make a difference. For example, a few years ago, during a particularly cold, harsh, winter, my mother came up with a great idea to buy sleeping bags, pairs of gloves, warm socks, and hats for the homeless in the region for Christmas. My brother and I bought a dozen or so of each and our mother and our children handed them out to homeless people in our region. This experience was rather rewarding for all of us because, while we had done “Secret Santa” shopping in the past, we typically had fairly clear instructions on what to buy.

In this situation, we had the opportunity to think through the whole process with our children – a great learning experience for them and for us: What types of sleeping bags did we need to buy that were rated for the temperatures that we were dipping into in the middle of the night? How can we get enough of them since stores didn’t typically carry more than 3-4 of the kind we needed?

The conversations that we had together as we worked through the whole process were incredibly valuable, but the conversation our children had with the homeless people they met were even more valuable. Many volunteered their stories about how they had fallen on hard times and everyone expressed their sincere appreciation for the thoughtfulness of the gesture. Needless to say the goodwill and good feelings that our whole family was able to gain from the experience paid us dividends that had far greater value than any economic benefit that we might have gained from donating indirectly through a charity that served the homeless. And, the whole process gave us a great opportunity to teach our children about the importance of “Social Responsibility” beyond protecting the climate, recycling, etc. It also gave us a good reminder that we need to continue coming up with new and unique ways to help others.

In the interest of also trying to spark some interesting conversations around your dinner table, let me leave you with a few questions:

What are the ways that you and your family are socially responsible?
What are the new and unique ways that you and your family could give back or otherwise serve others?

This article was written by and provided courtesy of Vaughan Scott, MBA, CPWA^®, Managing Director – Investment Officer with Axiom Financial Strategies Group of Wells Fargo Advisors in New Albany, IN. He can be reached via email at vaughan.scott@wfadvisors or phone at (812) 948-8475. Visit our website at www.AxiomFSG.com.

Wells Fargo Advisors is a trade name used by Wells Fargo Clearing Services, LLC. Member SIPC.’ Wells Fargo Advisors is a registered broker-dealer and a separate non-bank affiliate of Wells Fargo & Company. CAR 0317-03813.

Obamacare reporting requirements get extension, but haven’t changed

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By Doug York, CPA, President of Rodefer Moss

The size and complexity of the Affordable Care Act’s (Obamacare) rules have been among its biggest problems since former President Barack Obama first put pen to paper to sign it into law. The situation becomes even more complicated around tax time. Employers must provide information both to employees and the IRS to avoid having to pay a penalty.

With Washington’s political wrangling fully underway over the future off Obamacare, there may be a belief among some that the law is in limbo and that we’re in a wait-and-see mode in terms of compliance.

No. Obamacare has not changed and neither have its requirements.

The resulting administrative burden is such that an extension has been given to employers to provide to employees IRS forms necessary to comply with the law. The IRS’s original deadline of Jan. 31, 2017 has been extended to March 2, 2017, for employers to have these forms in employees’ hands.

Additionally, if an employer errs, but nevertheless demonstrates “good faith” in their efforts, they can self-correct their issue without Uncle Sam’s heavy hand handing out penalties.

Employers with at least 50 full-time employees are required to provide a baseline, law-approved set of essential health benefits (EHB) to employees affected by the law’s definitions of full-time employees or equivalent employees. This information must be presented to Employees on IRS form 1095 –C. This ensures employees (as well as the IRS) understand what, and how, they’re affected. Perhaps most importantly to the IRS the form reveals whether it’s owed money in penalties.

IRS Forms 1095-B 1095-C are the object of the extension. The IRS explains on its website what the forms accomplish:

“Form 1095-B, Health Coverage, provides you with information about your health care coverage if you, your spouse or your dependents enrolled in coverage through an insurance provider or self-insured employer last year,” (https://www.irs.gov/affordable-care-act/individuals-and-families/heres-what-you-need-to-do-with-your-form-1095b).

“Form 1095-C, Employer-Provided Health Insurance Offer and Coverage Insurance, provides you with information about the health coverage offered by your employer. In some cases, it may also provide information about whether you enrolled in this coverage,” (https://www.irs.gov/affordable-care-act/individuals-and-families/heres-what-you-need-to-do-with-your-form-1095c).”

“Form 1095-B, Health Coverage, provides you with information about your health care coverage if you, your spouse or your dependents enrolled in coverage through an insurance provider or self-insured employer last year.”

Employers received no extension in the timing to submit their 1094 and 1095 forms to demonstrate Obamacare-related compliance information (separate from the IRS forms listed above) to the IRS. These deadlines are Feb. 28 for those filing via paper, March 31 for those filing electronically.

The extension to March, 2, 2017 conceivably will result in a delay in tax returns if employees wait to have the forms in their possession before filing their taxes; however, taxpayers can use other documentation, such as insurance coverage and proof of payment, to show their status under Obamacare’s requirements.

An employer who files the wrong forms, or files forms with errors or inaccuracies, won’t be penalized by the IRS if the employer can demonstrate a “good faith” effort was made to abide by the law.

Obamacare may be changing, but the safest thing to do is not to assume and proceed as if nothing has changed in terms of reporting requirements. Because indeed, nothing has, changed.

Make It Count with Rodefer Moss & Co., PLLC | Tax Tactics

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By Doug York, CPA, Partner

Making good tax decisions at 2016’s end can lead to a happy new year in 2017. At year-end, there is a better picture of income and cash flow; now is the time to make decisions that could affect how much you’ll pay in taxes. Tax planning in general shifts income into years with lower tax rates and takes deductions in years with higher rates. If rates are equal, cash flow improves through income deferral and accelerated deductions.

This year is unique: the Protecting Americans from Tax Hikes (PATH) Act brought some certainty to year-end tax planning by making permanent many tax incentives that previously were annually extended. However, the 2016 presidential election results, coupled with the Republican congressional majority, could present a different tax landscape in 2017. Campaign comments indicate the possibility of lower tax brackets and fewer incentives; we’ll not know until an additional tax act is enacted in 2017. Based on today’s situation, we’ll review several strategies and tactics to limit income tax liability for individuals and businesses:

Individuals

Married couples typically have tax advantages if they file jointly; however, if one spouse has high medical bills, filing separately can reduce tax liability by increasing medical itemized deductions.
Buying a home has a range of tax ramifications. If you’re planning to buy a home – and you have loans that don’t allow for an interest deduction – check to see if you can save money by financing as much of your new home as you can, up to the down-payment limit, using any money you’d planned for a larger down payment to instead pay off the non-deductible loans.
Currently mortgage insurance premiums are deductible through the end of 2016, not 2017. With interest rates still low, it may be a good time to refinance and remove the premiums from your payments.
One PATH Act item not extended is the deduction for college tuition. If you’re able to take advantage of this deduction, you may want to make the maximum payments by the end of 2016.
If you’re over 70½, the PATH act made permanent your ability to exclude from income up to $100,000 of distributions from your IRA directly to a qualified charity.

Businesses

Accrual-basis taxpayers can declare a bonus for unrelated employees and properly accrued an expense in 2016 as long as the bonus is paid by March 15, 2017.
Businesses can affect taxable income by timing their investment in capital improvements. Bonus depreciation and first-year expensing under section 179 can both have an immediate impact on the current year’s taxable income.
The PATH Act extended bonus depreciation on new assets but included a phase-down over a four-year period. The amount remains at 50 percent for 2016 and 2017, but drops to 40 percent in 2018 and 30 percent in 2019.
Section 179 expensing has been permanently set at $500,000 and an investment limit of up to $2.01 million. Both amounts are indexed for inflation, and are available for assets placed in service up to Dec. 31, leaving about five weeks in the year to make this happen.
Heavy SUVs and pick-up trucks over 6,000 pounds are still eligible for a $25,000 deduction if purchased before Dec. 31, 2016.

With a new administration coming to power in Washington, the tax situation a year from now may be very different. Changes, whenever they occur, ripple across the entire system. The best idea: Find a tax advisor or accountant in whom you can put your trust, and listen carefully.