Larry, my mom and I have a joint IRA. She is 73 years old and I am 45 years old. How do we figure out how much of it is taxable to each of us?
Helen
Helen, there is a problem here. There is no such thing as a joint IRA. You need to call up your financial advisor and find out more about the account. It is possible that you’re the beneficiary of your mom’s IRA – that’s a whole other matter. If that is the case, it’s taxable to your mom during her lifetime and then it passes to you at her death. But you can’t own an IRA together during her lifetime.
Larry Kopsa CPA
Friday, April 30, 2010
Thursday, April 29, 2010
JUST FOR FUN
See what happened the year you were born by clicking on the following site:
http://www.angelfire.com/ak2/intelligencerreport/click_year.html
http://www.angelfire.com/ak2/intelligencerreport/click_year.html
IRA WITHDRAWALS
I filed an extension and am working on my 2009 tax return. Last year, I cashed in my IRA to pay off some doctor bills. I lost my job and couldn’t pay but I did have my IRA so I used that to pay. I used the whole thing. Now going through my papers I found that I got a 1099 that says that it is all taxable. Please help because I thought it was not taxed if you use it to pay the hospital. Thank you.
Al
Bad news Al. Amounts you withdraw from a traditional IRA are generally taxable in the year you withdraw them, no matter what the reason for the withdrawal.
There is more bad news. If you’re under age 59 1/2, you may be subject to a 10% additional tax plus possibly a state surtax. There are a few exceptions to the additional tax rule. This is what may have confused you. You can avoid the 10% additional tax (not the regular tax) if your IRA withdrawals are equal to or less than your deductible medical expenses. This means if you had medical expenses greater than 7.5% of your adjusted gross income (the number at the bottom of page one of your return).
But there’s no exception for medical expenses that would allow you to escape taxation of your entire IRA. Sorry.
Larry Kopsa CPA
Al
Bad news Al. Amounts you withdraw from a traditional IRA are generally taxable in the year you withdraw them, no matter what the reason for the withdrawal.
There is more bad news. If you’re under age 59 1/2, you may be subject to a 10% additional tax plus possibly a state surtax. There are a few exceptions to the additional tax rule. This is what may have confused you. You can avoid the 10% additional tax (not the regular tax) if your IRA withdrawals are equal to or less than your deductible medical expenses. This means if you had medical expenses greater than 7.5% of your adjusted gross income (the number at the bottom of page one of your return).
But there’s no exception for medical expenses that would allow you to escape taxation of your entire IRA. Sorry.
Larry Kopsa CPA
Wednesday, April 28, 2010
HEALTH CARE BILL PROVIDES A MORAL DILEMMA
Remember that our elected officials were told to pass the bill and then they could find out what is in it. Crazy way to create such a huge government program. We now know that in a couple of years you will be required to have health insurance. If you don’t there will be a fine that you will have to pay when you file your income tax return. The problem is that apparently there is no penalty for failing to pay this fine. Here is the wording according to Congress’s Joint Committee on Taxation:
The penalty applies to any period the individual does not maintain minimum essential coverage and is determined monthly. The penalty is assessed through the Code and accounted for as an additional amount of Federal tax owed. However, it is not subject to the enforcement provisions of subtitle F of the Code. The use of liens and seizures otherwise authorized for collection of taxes does not apply to the collection of this penalty. Non-compliance with the personal responsibility requirement to have health coverage is not subject to criminal or civil penalties under the Code and interest does not accrue for failure to pay such assessments in a timely manner.
Think about it. Without effective enforcement of the individual mandate, and with proscriptions against denying coverage on preexisting conditions, you've got yourself the potential for a pretty big moral hazard. A young person might just say, “I don’t want to pay the fine since there is no penalty and if I get sick they can’t deny coverage.” And remember… it is the IRS that has to make the determination.
Pass the bill to find out what is in it. Or what ain't.
Watch for our upcoming FREE WEBINAR on health care after we have had a chance to digest the new law.
Larry Kopsa CPA
The penalty applies to any period the individual does not maintain minimum essential coverage and is determined monthly. The penalty is assessed through the Code and accounted for as an additional amount of Federal tax owed. However, it is not subject to the enforcement provisions of subtitle F of the Code. The use of liens and seizures otherwise authorized for collection of taxes does not apply to the collection of this penalty. Non-compliance with the personal responsibility requirement to have health coverage is not subject to criminal or civil penalties under the Code and interest does not accrue for failure to pay such assessments in a timely manner.
Think about it. Without effective enforcement of the individual mandate, and with proscriptions against denying coverage on preexisting conditions, you've got yourself the potential for a pretty big moral hazard. A young person might just say, “I don’t want to pay the fine since there is no penalty and if I get sick they can’t deny coverage.” And remember… it is the IRS that has to make the determination.
Pass the bill to find out what is in it. Or what ain't.
Watch for our upcoming FREE WEBINAR on health care after we have had a chance to digest the new law.
Larry Kopsa CPA
Tuesday, April 27, 2010
INFORMATION ON THE NEW HIRE ACT
There is more going on in Washington than the Health Care debate. The President recently signed into law the “Hiring Incentives to Restore Employment Act of 2010”. The centerpiece of this Act is a payroll tax holiday and up-to-$1,000 tax credit for businesses that hire unemployed workers. As I mentioned in another blog entry, the HIRE Act also includes a one-year extension of the enhanced small business expensing option which is referred to as Section 179 deduction. Both of these provisions are extremely important to many businesses.
Here is an overview of two key tax changes affecting business in the recently enacted Hiring Incentives to Restore Employment (HIRE) Act. Please email if you have any questions.
Payroll tax holiday and up-to-$1,000 credit for employers who hire unemployed workers. To help stimulate the hiring of workers by the private sector, the new law exempts any private-sector employer that hires a worker who had been unemployed for at least 60 days from having to pay the employer's 6.2% share of the Social Security payroll tax on that employee for the remainder of 2010. As an additional incentive, for any qualifying worker hired under this initiative that the employer keeps on payroll for a continuous 52 weeks, the employer is eligible for an additional non-refundable tax credit of up to $1,000 after the 52-week threshold is reached, to be taken on their 2011 tax return. In order to be eligible, the employee's pay in the second 26-week period must be at least 80% of the pay in the first 26-week period.
Workers hired after the date of introduction of the legislation (Feb. 3, 2010) are eligible for the payroll tax forgiveness and the retention bonus, but only wages paid after March 18 receive the exemption for payroll taxes. Some additional features of the new hiring incentive include:
• The tax benefit of the new incentive is immediate. It puts money into a business' cash flow immediately, since the tax is simply not collected in the first place.
• The tax benefit generally applies only to private-sector employment, including nonprofit organizations—public sector jobs are generally not eligible for either benefit. However, employment by a public higher education institution qualifies.
• There is no minimum weekly number of hours that the new employee must work for the employer to be eligible, and there is no limit on the dollar amount of payroll taxes per employer that may be forgiven.
• For workers that would otherwise be eligible for the Work Opportunity Tax Credit (i.e., another type of employment tax credit), the employer must select one benefit or the other for 2010. There is no double dipping.
• An employer can't claim the new tax breaks for hiring family members.
• A worker who replaces another employee who performed the same job for the employer isn't eligible for the benefit, unless the prior employee left the job voluntarily or for cause.
• For the hiring to qualify, the new hire must sign an affidavit, under penalties of perjury, stating that he or she hasn't been employed for more than 40 hours during the 60-day period ending on the date the employment begins.
• The incentive isn't biased towards either low-wage or high-wage workers. Under the measure, a business saves 6.2% on both a $40,000 worker and a $90,000 worker.
• The payroll tax holiday doesn't apply with respect to wages paid during the first calendar quarter of 2010, but the amount by which the Social Security payroll tax would have been reduced under the payroll tax holiday provision during the first calendar quarter is applied against the tax imposed on the employer for the second calendar quarter of 2010.
• The Act creates a similar new set of rules allowing a payroll tax holiday for railroad retirement tax purposes.
• The credit for retaining qualifying new hires is the lesser of $1,000 or 6.2% of the wages paid by the taxpayer to the retained worker during the 52-consecutive-week period. Thus, the credit for a retained worker will be $1,000 if, disregarding rounding, the retained worker's wages during the 52-consecutive-week period exceed $16,129.03. However, the credit isn't available for pay not treated as wages under the Code (e.g., remuneration paid to domestic workers).
Extension of enhanced small business expensing. The new law gives a one-year lease on life to enhanced expensing rules, which allow qualifying businesses the option to currently deduct the cost of business machinery and equipment, instead of recovering it via depreciation over a number of years. For tax years beginning in 2010, the maximum amount that a business may expense is $250,000, and the expensing election begins to phase out when a business buys more than $800,000 of expensing-eligible assets. These dollar limits are the same as those that were in effect for 2008 and 2009. Had the HIRE Recovery Act not been passed and signed into law, these dollar limits would have dropped this year to $134,000 and $530,000 respectively.
I hope this information is helpful. If you would like more details about these provisions or any other aspect of the new law, please do not hesitate to email.
Larry Kopsa CPA
Here is an overview of two key tax changes affecting business in the recently enacted Hiring Incentives to Restore Employment (HIRE) Act. Please email if you have any questions.
Payroll tax holiday and up-to-$1,000 credit for employers who hire unemployed workers. To help stimulate the hiring of workers by the private sector, the new law exempts any private-sector employer that hires a worker who had been unemployed for at least 60 days from having to pay the employer's 6.2% share of the Social Security payroll tax on that employee for the remainder of 2010. As an additional incentive, for any qualifying worker hired under this initiative that the employer keeps on payroll for a continuous 52 weeks, the employer is eligible for an additional non-refundable tax credit of up to $1,000 after the 52-week threshold is reached, to be taken on their 2011 tax return. In order to be eligible, the employee's pay in the second 26-week period must be at least 80% of the pay in the first 26-week period.
Workers hired after the date of introduction of the legislation (Feb. 3, 2010) are eligible for the payroll tax forgiveness and the retention bonus, but only wages paid after March 18 receive the exemption for payroll taxes. Some additional features of the new hiring incentive include:
• The tax benefit of the new incentive is immediate. It puts money into a business' cash flow immediately, since the tax is simply not collected in the first place.
• The tax benefit generally applies only to private-sector employment, including nonprofit organizations—public sector jobs are generally not eligible for either benefit. However, employment by a public higher education institution qualifies.
• There is no minimum weekly number of hours that the new employee must work for the employer to be eligible, and there is no limit on the dollar amount of payroll taxes per employer that may be forgiven.
• For workers that would otherwise be eligible for the Work Opportunity Tax Credit (i.e., another type of employment tax credit), the employer must select one benefit or the other for 2010. There is no double dipping.
• An employer can't claim the new tax breaks for hiring family members.
• A worker who replaces another employee who performed the same job for the employer isn't eligible for the benefit, unless the prior employee left the job voluntarily or for cause.
• For the hiring to qualify, the new hire must sign an affidavit, under penalties of perjury, stating that he or she hasn't been employed for more than 40 hours during the 60-day period ending on the date the employment begins.
• The incentive isn't biased towards either low-wage or high-wage workers. Under the measure, a business saves 6.2% on both a $40,000 worker and a $90,000 worker.
• The payroll tax holiday doesn't apply with respect to wages paid during the first calendar quarter of 2010, but the amount by which the Social Security payroll tax would have been reduced under the payroll tax holiday provision during the first calendar quarter is applied against the tax imposed on the employer for the second calendar quarter of 2010.
• The Act creates a similar new set of rules allowing a payroll tax holiday for railroad retirement tax purposes.
• The credit for retaining qualifying new hires is the lesser of $1,000 or 6.2% of the wages paid by the taxpayer to the retained worker during the 52-consecutive-week period. Thus, the credit for a retained worker will be $1,000 if, disregarding rounding, the retained worker's wages during the 52-consecutive-week period exceed $16,129.03. However, the credit isn't available for pay not treated as wages under the Code (e.g., remuneration paid to domestic workers).
Extension of enhanced small business expensing. The new law gives a one-year lease on life to enhanced expensing rules, which allow qualifying businesses the option to currently deduct the cost of business machinery and equipment, instead of recovering it via depreciation over a number of years. For tax years beginning in 2010, the maximum amount that a business may expense is $250,000, and the expensing election begins to phase out when a business buys more than $800,000 of expensing-eligible assets. These dollar limits are the same as those that were in effect for 2008 and 2009. Had the HIRE Recovery Act not been passed and signed into law, these dollar limits would have dropped this year to $134,000 and $530,000 respectively.
I hope this information is helpful. If you would like more details about these provisions or any other aspect of the new law, please do not hesitate to email.
Larry Kopsa CPA
QUOTE OF THE WEEK
"Even the early Chinese understood the value of mentoring.
A single conversation across the table with a wise man is worth a month's study of books."
--Chinese proverb
A single conversation across the table with a wise man is worth a month's study of books."
--Chinese proverb
Monday, April 26, 2010
TAX CREDITS
Over the years the government has put so many tax credits in the tax law that it is hard to keep track of all of them. Here is a cool tool that you can use to make sure that you have not missed any credits. http://www.whitehouse.gov/recovery/tax-saving-tool
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