Tax & Money Tip: Estate Planning

Posted on January 19, 2011 by taxblogger

Key Estate Planning Documents You Need

This is a general, informational piece only and not intended to provide legal advice. Each individual should seek legal advice for their own situation.

There are five estate planning documents you may need, regardless of your age, health, or wealth:

1. Durable power of attorney
2. Advanced medical directives
3. Will
4. Letter of instruction
5. Living trust

Durable Power of Attorney
A durable power of attorney (DPOA) can help protect your property in the event you become physically unable or mentally incompetent to handle financial matters. A DPOA allows you to authorize someone else to act on your behalf, so he or she can do things like pay everyday expenses, collect benefits, watch over your investments and file taxes.

Advanced Medical Directives
Advanced medical directives let others know what medical treatment you would want, or allows someone to make medical decisions for you, in the event you can’t express your wishes yourself. 

There are three types of advanced medical directives. First, a living will allows you to approve or decline certain types of medical care. Second, a durable power of attorney for health care (known as a health-care proxy in some states) allows you to appoint a representative to make medical decisions for you. Finally, a Do Not Resuscitate order (DNR) is a doctor’s order that tells medical personnel not to perform CPR if you go into cardiac arrest.

Will
A will is often said to be the cornerstone of any estate plan. The main purpose of a will is to disburse property to heirs after your death. Equally important, the will gives you the ability to name the executor who will manage and settle your estate and allows you to name a legal guardian for minor children or dependents with special needs. If you don’t leave a will, these items will be determined according to state law, which might not be what you want.

Letter of Instruction
A letter of instruction (also called a testamentary letter or side letter) is an informal non-legal document that generally accompanies your will and is used to express your personal thoughts and directions regarding what is in the will. Unlike your will, this document remains private and gives you the opportunity to say the things you would rather not make public. This can be the most helpful document you leave for your family members and your executor.

Living Trust
A living trust (also known as a revocable or inter vivos trust) is a separate legal entity you create to own property, such as your home or investments. The trust is called a living trust because it’s meant to function while you’re alive. You control the property in the trust, and whenever you wish, you can change the trust terms, transfer property in and out of the trust, or end the trust altogether.
 
As always, give us a call if you have any questions.

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.

Posted in Tax and Money Tip of the Week | Tagged , , , , , | Leave a comment

Section 179 Depreciation Deduction

Posted on January 12, 2011 by taxblogger

Tax Tip: Depreciation Deduction
January 12, 2011 | No. 25 

Section 179 Depreciation Deduction

If you’re a business owner, you are probably familiar with Section 179 and its benefits.  Section 179 allows business owners to fully deduct certain equipment purchases in the year they were purchased rather than depreciating the expense over several years.  To qualify, property must be used more than 50% in a trade or business and be acquired from an unrelated party.

Under The Small Business Jobs Act, you can now write off up to $500,000 of qualified business assets placed in service in tax years beginning in 2010 & 2011.  Without this law the maximum deduction would have been $250,000.  The maximum deduction phases out dollar-for-dollar for purchases exceeding a specified threshold.

The Small Business Jobs Act also extends a Recovery Act provision for Section 168 “Bonus Depreciation” allowing for up to 50% of the cost of new assets to be depreciated in the year of purchase.

The Small Business Act also allowed for up to $250,000 of “Qualified Real Property” to be Section 179 property if elected for tax years beginning in 2010 and tax years beginning in 2011.  Qualified Real Property is: 1) Leasehold improvement property  2) Restaurant property and 3) Qualified retail property.  These rules may lead to increased depreciation deductions that are available to certain taxpayers; the rules are complex and interact with other depreciation rules.

Carryover of Section 179 depreciation on Qualified Real Property to tax years beginning after 2011 is not allowed, so planning with Section 179 is important this year.

We, of course, will be applying these developments to our existing clients’ situations this upcoming tax season.

Call us if we may be of assistance.

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.

Posted in Tax and Money Tip of the Week | Tagged , , , , | Leave a comment

Happy New Year!

Posted on January 6, 2011 by taxblogger

Tax and Money Tip of the Week |
January 5, 2011| No. 24

Happy New Year!

We are going to take a break from our Tax and Money Tip of the Week.  Instead, the family of Mark Vitek, CPA, P.A. would like to wish you and your family a Happy and Prosperous 2011.

We will resume our Tax and Money Tip of the Week next Wednesday.

As always, give us a call….

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.

Posted in Tax and Money Tip of the Week | Tagged , , , , , | Leave a comment

RMDs – Don’t Forget Your Required Minimum Distributions For 2010 By December 31st!

Posted on December 29, 2010 by taxblogger

If you are age 70 1/2, Don’t forget to take out your RMDs for 2010 from your IRAs before 12/31/10! 

Required Minimum Distributions (RMDs) generally are minimum amounts that an IRA or a retirement plan account owner must withdraw annually starting with the year that he or she reaches 70 ½ years of age or, if later, the year in which he or she retires.

The RMD rules apply to all employer sponsored retirement plans, including profit-sharing plan, 401(k) plans, 403(b) plans and 457(b) plans. The RMD rules also apply to traditional IRAs and IRA-based plans such as SEPs, SARSEPs and SIMPLE IRAs.

An account owner must take the first RMD for the year in which he or she turns 70 ½. However, the first RMD payment can be delayed until April 1st of the year following the year in which he or she turns 70 ½. For all subsequent years including the year in which the first RMD was paid by April 1st, the account owner must take the RMD by December 31st of the year. Consult us for any assistance regarding which year to take your RMD.

There is a stiff penalty if an account owner fails to withdraw a RMD. The amount not withdrawn is taxed at 50%. So make sure that you don’t miss this deadline.

Call us if you need help with Required Minimum Distribution tax rules.

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.

Posted in Tax and Money Tip of the Week | Tagged , , , , , , , | Leave a comment

Should I Rent or Should I Buy?

Posted on December 15, 2010 by taxblogger

Should I Rent or Should I Buy?
 

Let’s take a look at some advantages to both Renting and Buying a home, while also listing some things to consider when making this big decision.

Buying has it’s benefits…

1- As rents rise over time, a mortgage can be locked in for 30 years with the payment remaining constant. This provides for a more stable financial environment.

2- Your home is an investment. As the property values rise, paying your monthly mortgage gives you the ability to build equity in your house instead of for your landlord.

3- Owning a home allows you the freedom to be creative and make improvements that will benefit your investment over time.

4- There are important tax advantages to owning. If you itemize, mortgage interest and property taxes are deductible items on your tax return.

Several disadvantages arise out of home ownership. It is important to carefully consider how long you plan to stay in the property. As the homeowner, you are responsible for maintenance to the property and for state and local taxes arising out of that ownership, if not managed properly, home ownership can lead to foreclosure or eviction, and thirdly, there is less mobility than when renting.  It isn’t quite as easy to sell a home as it is to end a rental lease if necessary.

Renting may be more advantageous if you…

1- You prefer to have house maintenance issues handled for you.

2- Do not plan to remain in the area for several years.

3- You have bad credit and cannot buy

4- You have little in savings for a down-payment or home repairs

5- You require flexibility. Employment and financial stability are concerns for you.

Here are several items to consider for renters. There are no tax benefits and no investment equity is built up while you are renting. Also, you have no control over future rent increases and there is the possibility of eviction.

It’s a complex decision…give us a call if we can help.

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.

Posted in Tax and Money Tip of the Week | Tagged , , , , , , , | Leave a comment

Home Improvement Tax Credits

Posted on December 14, 2010 by taxblogger

Tax Tip:  Home-Improvement Tax Credits| Tip of the Week | December 8, 2010 | No. 20
 

As the end of the year approaches, so does the end to some tax credits for energy-saving home-improvements. If you plan to take advantage of some of those credits, you will need to act fast. All improvements must be in place and the equipment in service by December 31, 2010 to qualify.

The tax credit covers installing certain wood or pellet stoves; energy-efficient furnaces, water heaters and air-conditioning systems; windows and doors; and wall and ceiling insulation. The tax credit covers 30% of the purchase costs up to a maximum $1,500 for the combined 2009 and 2010 tax years. Don’t forget to save the manufacturer’s certificate that states the equipment or service is eligible under the program. If you cannot place your hands on it, the certificates can also be found on the website of the manufacturer.

The improvements qualify for an existing home that is your primary residence. Vacation homes, rentals and new construction are not eligible for the credit.

The cost of installation is covered for installing heating and air-conditioning systems, water heaters and biomass stoves.

In addition, the cost of energy-efficient windows and skylights, energy-efficient doors and qualifying insulation also qualify for the credit, though the costs of installing these items does not count.

Appliances do not qualify for the tax credit, but appliances carrying the Energy Star seal will help reduce your energy bill. Many states and local utilities are offering direct rebates that allow you to take the rebate at the time of purchase. Check http://www.energysavers.gov to see the details of the Energy Savers program in your state.

Tax credits that are not going to expire this year are the tax incentives for rooftop solar-power systems, small residential wind turbines and geothermal pump systems. The tax incentive covers 30% of all costs with installation included and no upper limit. These credits are good on both existing principal residences, new construction and second homes. Rentals do not qualify. Another plus is that they don’t expire until 2016.
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.

Posted in Tax and Money Tip of the Week | Tagged , , , , , , , | Leave a comment

Tax Tip: Year-End Tax Planning Tips| Tip of the Week | November 24, 2010 | No. 18

Posted on November 23, 2010 by taxblogger

 Planning Tips to Consider:
Last week we looked at some of the pending tax increases in 2011 if congress does not act by the end of the year.  Since no one can predict what congress may or may not accomplish, the following are some planning tips to consider:• Make money now!  As we discussed last week, the tax rates may increase in 2011, so you want as much earned income as you can now versus receiving it next year. Some small business owners may have some flexibility in the timing of their billings.  You will definitely want to increase any collection efforts to receive the money in 2010. Also, some employers may allow you to “cash in” your unused vacation days for 2010, as opposed to letting them roll over to 2011.

• Evaluate Capital Gains.  The current long-term capital gains rate is either 0% or 15% depending on your tax bracket.  In 2011, these rates may jump to 10% and 20%. Meet with your financial adviser to see if any investments should be sold this year.  Of course, the tax consequences of an investment strategy are just one factor to consider when deciding to hold or sell.

• Change your portfolio.  You will also want to review your dividend-paying stocks and mutual funds holdings with your financial adviser. Currently, qualified dividends are taxed at long-term capital gains rates. In 2011, these may be taxed as ordinary income. Some things to consider would be to move dividend-paying investments into IRA plans. You may also want to consider moving some of these investments into tax-free investments.

• Schedule an appointment.  With the return of the Estate Tax, you will definitely want to schedule an appointment with your attorney to review your estate plans.

• Increase your 401(k) contributions in 2011.  If you are an employee whose marginal tax rate is increasing by 3%, consider increasing your 401(k) contribution by 1%. The after-tax effect will be about the same, but the money will be yours and not the government’s.

• Green your home. With the expiring energy credits in 2010, be sure to make any improvements to your home this year. These credits are for the purchase of energy efficient windows, doors, insulation, HVAC systems, etc.

• Consider your 2011 tax withholdings and/or estimated payments.  With all of the potential tax changes coming in 2011, you will want to meet with your tax adviser to make sure you don’t have a large tax bill to pay next year. According to the Joint Committee on Taxation, taxpayers with earnings of $40,000 to $50,000 per year will be looking at a tax increase of $923 in 2011. Taxpayers with earnings of $50,000 to $75,000 will pay on average $1,126 more in taxes next year. Higher income individuals will obviously be paying even more in 2011.

As you all know, the only thing that is constant is change.; Some changes, however, are better than others!
 
Warm wishes to you and your family for a wonderful Thanksgiving.  May you enjoy good food and all the blessings of the season.  Thank you for your business and support throughout 2010.
 

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.

Posted in Tax and Money Tip of the Week | Tagged , , , , , , | Leave a comment

Tax Tip: Saving for Retirement Series – Part 4: Roth IRAs

Posted on November 17, 2010 by taxblogger

Tax Tip:  Saving for Retirement Series – Part 4: Roth IRAs| Tip of the Week | November 17, 2010 | No. 17

In this week’s issue, we will discuss the second major type of IRA, the Roth IRA. As a reminder, an individual retirement arrangement (IRA) is a personal retirement savings plan that offers specific tax benefits.

Similar to the Traditional IRA, the Roth IRA allows you to make annual contributions of up to $5,000 for 2010. The law also allows taxpayers age 50 and older to make additional “catch-up” contributions. In total, they can contribute up to $6,000 in their IRAs on or before April 15, 2011.

The important difference between the Traditional IRA and the Roth IRA is that the Roth IRA invests after-tax dollars. The benefit of the Roth IRA is that, if you meet certain conditions, your withdrawals from a Roth IRA will be completely free from federal income tax, including both contributions and investment earnings.

Conditions:
The ability to withdraw your funds with no taxes or penalty is a key strength of the Roth IRA. Qualifying distributions will also avoid the 10% early withdrawal penalty. For the distribution to qualify as tax free and penalty free, you must meet a five-year holding period and have met one of the following conditions:
(1) You have reached age 59 ½ by the time of your withdrawal
(2) The withdrawal is made because of a disability
(3) The withdrawal is made to pay first-time home buyer expenses up to $10,000
(4) The withdrawal is made by your beneficiary or estate after your death.

There are several items to consider when choosing which type of IRA is right for you. The first requirement for setting up a Roth IRA is that you must have taxable compensation of at least $5,000. Your ability to contribute to a Roth IRA in any year depends on your MAGI (modified adjusted gross income) and your income tax filing status. Your allowable contribution is limited for a Single filer, between $105,000 – $120,000 and for a Married filing joint, between $167,000 – $177,000. Above those respective amounts, no contribution is allowed.

Another advantage of the Roth IRA is that there are no required distributions after age 70 ½. And as long as you have taxable compensation and qualify, you can keep contributing to a Roth IRA after age 70 ½.

The question remains, which type of IRA is best for you? Call us to discuss your own 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.

Posted in Tax and Money Tip of the Week | Tagged , , , , , | Leave a comment