Monthly Archives: January 2014

Taxes and a Charitable Remainder Trust

Need another idea to help you save on your tax liability?

eggsCiuni & Panichi is constantly looking for ways to assist you.  Our Tax Group is always available if you have any questions.

Would you like to benefit a charity while reducing the size of your taxable estate, yet maintain an income stream for yourself?  Would you also like to divest yourself of highly appreciated assets and diversify your portfolio with minimal tax consequences?  Then you should consider a Charitable Remainder Trust (CRT).  Let us tell you how it works:

  • When you fund the CRT, you receive a partial income tax deduction and the property is removed from your estate.
  • For a given term, the CRT pays an amount to you annually.
  • At the term’s end, the CRT’s remaining assets pass to charity.

If you fund the CRT with appreciated assets, it can sell them without paying tax on the gain and then invest the proceeds in a variety of stocks and bonds.  You will still owe capital gains tax when you receive CRT payments, but much of the liability will be deferred.  And, only a portion of each payment will be attributable to capital gains.  This also might help you reduce or avoid exposure to the 3.8% net investment income tax and the 20% top long-term capital gains rate.

Looking for more ideas on tax-smart gifts to charity, minimizing estate taxes, maintaining an income stream?  How about diversifying your portfolio for the utmost tax reduction, contact Jim Komos at 216.831.7171 or jkomos@cp-advisors.com for more information.

Mr. Komos is the Partner-in-Charge of the firm’s Tax Department.  He has experience in all facets of taxation for closely held businesses, their owners and key personnel.  His clients are in a wide range of industries, including manufacturing, service, real estate, and construction.   (c) 2014

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Audit Your Retirement Plan Before the Government Does

Retirement Plan Audit Maintenance

It is a good idea for employers to self-audit their retirement plans by hiring an experienced professional to determine if there are any problems – before they hear from federal examiners.  Here are six common operational faults found by the IRS and the U.S. Department of Labor:

1. Late Deposit of Deferrals.  Many employers do not realize that employee salary deferrals must be deposited as soon as reasonably possible into the retirement plan after a pay date.
2. ERISA Violations.  Section 404(c) of ERISA permits retirement plans to transfer the responsibility and liability for selecting investment options to participants if certain requirements are met.  Many employers believe they will be afforded protection for participants’ investment decisions under this provision.  However, many plans do not comply with the requirements of Section 404(c).
3. Employee versus Independent Contractor.  There are strict rules to determine whether a worker is an employee or independent contractor for tax purposes.  The IRS looks at many factors in making a determination.  If you hire an independent contractor and the IRS later reclassifies the person as an employee, you can be hit with a tax bill for unpaid taxes, interest, and penalties.  You also might be liable for state taxes, unemployment taxes, and employee benefits – such as retirement plan contributions.
4. Services Performed Through a Professional Employer Organization.  Hiring employees through a PEO for long periods of time may not eliminate your obligation to make retirement plan contributions for these workers.
5. Improper Correction Method.  Employers can correct certain compliance problems in retirement plans without requesting advance IRS approval.  However, the proper correction method must be used pursuant to IRS guidelines.
6. Default Account.  Retirement plans often specify a money market account or a GIC (guaranteed investment contract) as the plan’s default account.  But plan fiduciaries must prudently invest nondirected participants’ accounts, even if the plan document provides for a “default” account.

Our Employee Benefits Plan Group can perform a compliance review of your retirement plan to help you avoid costly penalties and time-consuming government investigations.  We can work with you to define the scope of the compliance review so it conforms to your budget.

For more information, please contact Jeff Spencer at jspencer@cp-advisors.com or 216-831-7171.

Commonly Overlooked Investment Related Tax Omissions

calcTax Omissions – Reinvested Dividends

One of the most commonly overlooked investment related tax omissions investors make is forgetting to increase their cost basis in mutual funds to properly reflect reinvested dividends. Many mutual fund investors automatically reinvest dividends in additional shares of the fund as opposed to taking cash dividends. These reinvestments increase tax basis in the fund, which reduces capital gain (or increases capital loss) when the shares are sold.

If you don’t account for reinvested dividends in your cost basis, you’ll end up paying tax twice: first, on the dividends when they’re reported to you on Form 1099-DIV and again, when you sell the shares and the reinvested dividends are included in the proceeds.

You will want to utilize the services of an experienced tax accountant to help ensure you’re properly accounting for dividend reinvestments when you’re reviewing your 1099-DIV forms and filing your 2014 tax return.

Ciuni & Panichi can help with any questions or other tax-efficient strategies for your investments.  Contact Jim Komos at 216-831-7171 or jkomos@cp-advisors.com.

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