Questions or Comments?
You can add comments on the blog, call 919-847-2981, or visit our web site. We look forward to hearing from you.
Mark Vitek, CPA/PFS, CFP®
…until next week.
When they’re old enough to understand the concepts, some children start investing in the markets. If you’re helping a child learn the risks and benefits of investments, be sure you learn about the tax impact first.
Potential danger
For the 2016 tax year, if a child’s interest, dividends and other unearned income total more than $2,100, part of that income is taxed based on the parent’s tax rate. This is a critical point because, as joint filers, many married couples’ tax rate is much higher than the rate at which the child would be taxed.
Generally, a child’s $1,050 standard deduction for unearned income eliminates liability on the first half of that $2,100. Then, unearned income between $1,050 and $2,100 is taxed at the child’s lower rate.
But it’s here that potential danger sets in. A child’s unearned income exceeding $2,100 may be taxed at the parent’s higher tax rate if the child is under age 19 or a full-time student age 19–23, but not if the child is over age 17 and has earned income exceeding half of his support. (Other stipulations may apply.)
Simplified approach
In many cases, parents take a simplified approach to their child’s investment income. They choose to include their son’s or daughter’s investment income on their own return rather than have him or her file a return of their own.
Basically, if a child’s interest and dividend income (including capital gains distributions) total more than $1,500 and less than $10,500, parents may make this election. But a variety of other requirements apply. For example, the unearned income in question must come from only interest and dividends.
Many lessons
Investing can teach kids about the time value of money, the importance of patience, and the rise and fall of business success. But it can also deliver a harsh lesson to parents who aren’t fully prepared for the tax impact. We can help you determine how your child’s investment activities apply to your specific situation.
Questions or Comments?
You can add comments on the blog, call 919-847-2981, or visit our web site. We look forward to hearing from you.
Mark Vitek, CPA/PFS, CFP®
…until next week.
This week we have a very important tip on investing concepts.
This series is not intended as investment advice, but only a general discussion of investing in the new millennium and in the age of the Internet, High Frequency Trading, and Machines.
Considering all the volatility over the last few weeks, here are some thoughts to consider investing today, that our parents may not have taught us.
Here’s a lesson that the 2008-2009 Great Recession taught a lot of people:
KEY LESSON:
Learn what Liquidity (or have a lot of cash or money markets available) means. And know where this money exists and have access to it: to pay your bills, meet obligations, and the unexpected.
RECOMMENDED:
Classic certified financial planning advice says you should have 9 months of your monthly obligations of cash at a minimum in safe places, easily accessible. We like to see 12 months of cash reserves.
Questions or Comments?
You can add comments on the blog, call 919-847-2981, or visit our web site. We look forward to hearing from you.
Mark Vitek, CPA/PFS, CFP®
…until next week.
This week we continue our series on investing concepts.
This series is not intended as investment advice, but only a general discussion of investing in the new millennium and in the age of the Internet, High Frequency Trading, and Machines.
Considering all the volatility over the last few weeks, here are some thoughts to consider for investing today, that our parents may not have taught us:
More on investing next week.
Questions or Comments?
You can add comments on the blog, call 919-847-2981, or visit our web site. We look forward to hearing from you.
Mark Vitek, CPA/PFS, CFP®
…until next week.
This week we will start a series on investing concepts.
This series is not intended as investment advice, but only a general discussion of investing in the new millennium and in the age of the Internet, High Frequency Trading, and Machines.
Considering all the volatility over the last few weeks, here are some thoughts to consider for investing today, that our parents may not have taught us:
1) It’s OK not to play.
Point: You do NOT have to be invested all the time.
2) Have a goal and an exit plan in mind.
3) Never fall in love with any stock.
More on investing next week
Questions or Comments?
You can add comments on the blog, call 919-847-2981, or visit our web site. We look forward to hearing from you.
Mark Vitek, CPA/PFS, CFP®
…until next week.
According to a 2016 report from the Treasury Inspector General for Tax Administration, the IRS mailed more than 188 million notices and letters to taxpayers during 2014. There’s no reason to believe the number of notices will be any less this year. If you’re one of those taxpayers on the IRS mailing list, here’s what to do.
Scan the heading. The first line, generally printed in bold type and centered beneath your name and address, will tell you why the IRS is contacting you. Questions about missing information, additional taxes owed, or payments due, mean you’ll want to take prompt action to avoid more notices or assessments of interest and penalties.
Review the discrepancy. You’ll find the tax form and the year to which the notice applies printed in the upper right corner. Pull out your copy of the corresponding tax return, along with the supporting documents, and compare what you filed with what the IRS is questioning.
Prepare your explanation. Are the proposed changes correct? Did the IRS misapply a payment? Whatever the issue, there’s usually no need to file an amended return. However, the IRS typically wants a response, by either phone or mail, in order to clear the notice from your account.
Do not delay. Ignoring IRS correspondence will not make it go away. Reply to the IRS in a timely manner even if you don’t have all the information being requested.
Please contact us as soon as you receive a notice from the IRS or state or local taxing authority. We’re here to set your mind at ease by helping you resolve the matter as quickly as possible. Many times, we can make the problem “go away” with a properly written response.
Questions or Comments?
You can add comments on the blog, call 919-847-2981, or visit our web site. We look forward to hearing from you.
Mark Vitek, CPA/PFS, CFP®
…until next week.
Click here to read the six midyear tax moves that might benefit your business from the Business Management Daily
Questions or Comments?
You can add comments on the blog, call 919-847-2981, or visit our web site. We look forward to hearing from you.
Mark Vitek, CPA/PFS, CFP®
…until next week.
Wishing you and your family a happy and safe 4th of July!
Questions or Comments?
You can add comments on the blog, call 919-847-2981, or visit our web site. We look forward to hearing from you.
Mark Vitek, CPA/PFS, CFP®
…until next week.
Click here for the strategy and tip on boat “mortgage interest” from Business Management Daily
Questions or Comments?
You can add comments on the blog, call 919-847-2981, or visit our web site. We look forward to hearing from you.
Mark Vitek, CPA/PFS, CFP®
…until next week.
As you probably know, a person must take a Required Minimum Distribution (RMD) from their IRA each year once they reach age 70.5. For many years, there has been a special tax rule that allowed these individuals to contribute the RMD to a charity tax free. The problem in prior years, however, was that this rule was always one of those last minute changes Congress made to the tax code which never allowed time to do any planning.
Changes Congress made to tax code in late 2015 have made this charitable contribution provision “permanent”. Now that we have some time to plan, let’s take a look at how this can be a very powerful tax planning tool.
First, what is a “qualifying charitable contribution”? The requirements are relatively simple. The charitable contribution must be:
1. A distribution from an IRA
2. A direct contribution from the IRA trustee to the charitable organization-with no intervening possession or ownership by the IRA holder
3. Made by an IRA holder who has reached age 70.5
4. Contributed to a 501(c)(3) organization, church or other “non-private foundation” or donor advised fund.
Let’s look at some examples:
Fred has reached age 70.5 and doesn’t really need the RMD to help pay his bills. Fred also likes to make a donation to his church each year. Fred has his house paid off and can no longer itemize his deductions. If Fred does a charitable RMD to his church, he is not paying taxes on a distribution that he could not write off as a charitable contribution. In all likelihood, Fred will also have less of his Social Security benefits included in taxable income because he has eliminated that income from his AGI for the taxable Social Security equation.
Mary is 70.5, but can itemize her deductions due to some sizable medical bills. She also likes to make a contribution to her alma mater each year. By making a charitable RMD, she can make her AGI lower, therefore allowing more of her medical expenses to be deducted against the 7.5% AGI floor on medical deductions.
Rick and Diane are both 70.5 and would like to make a sizable donation to their favorite charity. Each has their own IRA account. They would like to donate $100,000 each this year. (The annual limit is $100,000 for a charitable RMD.) If Rick and Diane do not use the charitable RMD rule, they would not be able to deduct the full charitable contribution this year due to the 50% AGI charitable limitation.
Also note that in all three of these examples, the taxpayers have kept the RMD off of their federal tax return which means they are not paying Ohio taxes on what otherwise would have been a taxable distribution.
Questions or Comments?
You can add comments on the blog, call 919-847-2981, or visit our web site. We look forward to hearing from you.
Mark Vitek, CPA/PFS, CFP®
…until next week.
taxandmoneyblog.com 