Monthly Archives: June 2015

Tax Issues and Inherited IRAs

Special tax rules for inherited IRAs

iraNormally, retirement plan distributions made to a nonspouse beneficiary after the account owner’s death are taxable at the time they are received and cannot be rolled over to the beneficiary’s own IRA. However, employer-sponsored retirement plans are required to offer nonspouse beneficiaries the option to roll over inherited amounts tax-free in a direct (trustee-to-trustee) rollover to an inherited IRA. No taxes will be due on the inherited IRA rollover until the beneficiary receives a distribution from the inherited IRA. An inherited IRA is an IRA that has been acquired by a beneficiary on the death of someone other than a spouse.

The following special rules apply to an inherited IRA:

  • • The IRA must be a brand-new IRA set up for the specific purpose of receiving the inherited account.
  • The IRA must be specially titled in the deceased account owner’s name.
  • No other contributions may be made to the IRA.
  • No other amounts may generally be rolled into or out of the IRA.
  • Minimum required distributions will need to be made over the beneficiary’s life expectancy starting the year after the IRA owner’s death.

Still have questions?  Contact the tax planning expert at Ciuni & Panichi.  James Komos at 216.831.7171 or jkomos@cp-advisors.com for more information and new ways to save.

You may also be iterested in:

Tax Refund Fraud is Running Rampant

Are You Deducting the Milage You’re Entitled To?

© 2015

July Tax Tips

100% Tax Deduction for Certain M&E Expenses!

What can I take as a tax deduction for meals and entertainment?

dinnerGenerally, businesses are limited to deducting 50% of allowable meal and entertainment (M&E) expenses. But certain expenses are 100% deductible, including expenses:

  • For food and beverages furnished at the workplace primarily for employees,
  • Treated as employee compensation,
  • That are excludable from employees’ income as de minimis fringe benefits,
  • For recreational or social activities for employees, such as holiday parties, or
  • Paid or incurred under a reimbursement or similar arrangement in connection with the performance of services.

If your company has substantial M&E expenses, you can reduce your tax bill by separately accounting for and documenting expenses that are 100% deductible. If doing so would create an administrative burden, you may be able to use statistical sampling methods to estimate the portion of M&E expenses that are fully deductible. For more information on how to take advantage of the 100% deduction, please Jim Komos at 216.831.7171 or jkomos@cp-advisors.com.

Why the details matter when selling investments.

7_istock_000005830377large_seedlingIf you don’t pay attention to the details, the tax consequences of a sale may be different from what you expect. For example, if you bought the same security at different times and prices and want to sell high-tax-basis shares to reduce gain or increase a loss to offset other gains, be sure to specifically identify which block of shares is being sold.

And when it gets close to year end, keep in mind that the trade date, not the settlement date, of publicly traded securities determines the year in which you recognize the gain or loss.
Finally, consider the transaction costs, such as broker fees. While of course such costs aren’t taxes, like taxes they can have a significant impact on your net returns, especially over time, because they also reduce the amount of money you have available to invest.

The tax experts at Ciuni & Panichi can answer your questions about the potential tax impact of an investment sale you’re considering — or all of the details you should keep in mind to minimize it — contact Jim Komos, 216.831.7171 or jkomos@cp-advisors.com.

You may also be interested in:

June Tax Tips

May Tax Tips

© 2015

Tax Refund Fraud is Running Rampant

ReggieNovakSomeone took my tax refund!

According to a January 2015 Government Accounting Office (GAO) report, the IRS estimated it prevented $24.2 billion in fraudulent identity theft tax refunds occurring during the 2013 tax year.  Unfortunately, the IRS also paid an estimated $5.8 billion that year for tax refund requests later determined to be associated with fraudulent returns. The GAO noted that because of the difficulties in knowing the amount of undetected fraud, the actual amount could far exceed those estimates.  Tax refund fraud has become so prominent it was reported that some states suspended electronic state filings because of a sharp increase in suspected fraudulent returns. In February 2015, TurboTax, the most widely-used tax software, stopped the filing of state returns for about 24 hours because of suspected fraud.

The IRS is well-aware of the magnitude of the problem. But budgetary constraints and legal mandates have created a system where it is often unable to follow up on the red flags that its system detects until after a refund check has been cut and sent.

What can you do to protect yourself? The most important thing is to protect your social security number.  All a fraudster needs to file a fraudulent tax return is a person’s name, date of birth, and social security number.  CNNMoney.com reported last year that hackers stole more than 6.5 million social security numbers in 2014.  Criminals will then use the information they have stolen to file false returns and pocket the refund checks, often before the legitimate taxpayers have had a chance to submit their own returns. It’s a crime made easier by electronic tax filing, which allows the fraudsters to mass-produce fraudulent returns and receive the fraudulent refund via mail, direct deposit, or prepaid credit card within a month.

Unfortunately, there is very little a taxpayer can do to protect themselves from becoming a victim.  A few best practices would include filing as early in the tax reporting season as possible. The scammers tend to file fake returns early in the season so they can beat the real taxpayer to the punch. If you file first, it’s the scammer’s return that will be rejected.  You can also request an identity protection PIN from the IRS.  To get a unique PIN number, simply visit the IRS website or call 1-866-704-7388. You will be asked for information from last year’s tax return and can then select a six-digit PIN to file your return. The PIN is only good for one tax year, so the IRS will send you a new one each December.

In addition, the following are tips the IRS provides to help protect you from becoming a victim of identity theft:

  • Don’t carry your Social Security card or any documents with your Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN) on it.
  • Don’t give a business your SSN or ITIN just because they ask. Give it only when required.
  • Protect your financial information.
  • Check your credit report every 12 months.
  • Secure personal information in your home.
  • Protect your personal computers by using firewalls, anti-spam/virus software, updated security patches, and make sure to change passwords for Internet accounts.
  • Don’t give personal information over the phone, through the mail, or on the Internet unless you have initiated the contact or you are sure you know who you are dealing with.

If you believe you are a victim of identity theft, the IRS recommends the following:

  • If you receive a notice from the IRS and you suspect your identity has been used fraudulently, respond immediately by calling the number on the notice.
  • If you did not receive a notice but believe you’ve been the victim of identity theft, contact the IRS Identity Protection Specialized Unit at 800-908-4490 right away so they can take steps to secure your tax account and match your SSN or ITIN.
  • Also, fill out the IRS Identity Theft Affidavit, Form 14039.
  • In addition, we recommend you take additional steps with agencies outside the IRS:
    - Report incidents of identity theft to the Federal Trade Commission at www.consumer.ftc.gov or the FTC Identity Theft hotline at 877-438-4338 or TTY 866-653-4261.
    - File a report with the local police.
    - Contact the fraud departments of the three major credit bureaus:
     Equifax – www.equifax.com, 800-525-6285
     Experian – www.experian.com, 888-397-3742
     TransUnion – www.transunion.com, 800-680-7289
  • Close any accounts that have been tampered with or opened fraudulently.

Reggie Novak is a Senior Manager in the Audit and Accounting Services Group.  As a Certified Fraud Examiner, Mr. Novak can assist you with prevention services, including recommending internal controls and other measures to be implemented to prevent theft or misappropriation.  If fraud is suspected, he can investigate and present his findings and recommendations.  Contact Reggie Novak at 216.831.7171 or rnovak@cp-advisors.com for more information.

June Tax Tips: ESAs and Vehicle Donations

Expect to be paying elementary or secondary school costs in the future?

Consider an ESA

college moneyAs the school year draws to a close, it’s a good time to think about Coverdell Education Savings Accounts (ESAs) — especially if you have young children.

One major advantage of ESAs over another popular education saving tool, the Section 529 plan, is that tax-free ESA distributions aren’t limited to college expenses; they also can fund elementary and secondary school costs. That means you can use ESA funds to pay for such qualified expenses as tutoring and private school tuition.

Here are some other key ESA benefits:

  • Although contributions aren’t deductible, plan assets can grow tax-deferred.
  • You remain in control of the account — even after the child is of legal age.
  • You can make rollovers to another qualifying family member.

The annual contribution limit is $2,000 per beneficiary. However, the ability to contribute is phased out based on income.

Would you like more information about ESAs or other tax-advantaged ways to fund your child’s — or grandchild’s — education expenses? Contact Jim Komos at 216-831-7171 or jkomos@cp-advisors.com for assistance.
© 2015

Before donating a vehicle, find out the charity’s intent.

car2If you donate your vehicle, the value of your deduction can vary greatly depending on what the charity does with it. You can deduct the vehicle’s fair market value (FMV) if the charity:

  • Uses the vehicle for a significant charitable purpose (such as delivering meals-on-wheels to the elderly),
  • sells the vehicle for substantially less than FMV in furtherance of a charitable purpose (such as a sale to a low-income person needing transportation), or
  • makes “material improvements” to the vehicle.

But in most other circumstances, if the charity sells the vehicle, your deduction is limited to the amount of the sales proceeds.

You also must obtain proper substantiation from the charity, including a written acknowledgment that:

  • Certifies whether the charity sold the vehicle or retained it for use for a charitable purpose,
  • includes your name and tax identification number and the vehicle identification number, and
  • reports, if applicable, details concerning the sale of the vehicle within 30 days of the sale.

For more information on these and other rules that apply to vehicle donation deductions, please contact the tax experts at Ciuni & Panichi, Inc. - Jim Komos at 216-831-7171 or jkomos@cp-advisors.com for assistance.
© 2015