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Using IRA's to the Max!

Geraldine Clahar - Thursday, November 09, 2017

 

Are you using IRA’s to the MAX?

 

Saving towards retirement can be difficult considering our expenses and the lack of salary increments over the years.The world economy generally is improving, but not enough to make the economic factors of the past ones that we can depend on to secure our futures in retirement.Times have changed and we must too!Gone are the days when we would find a good paying job with excellent benefits, hold on to that job until we retire and we would be set for life.Today, job security is none-existent; excellent benefits are few and far between; being set for life is your own responsibility.

Have you heard the mantra, “Pay yourself first”?It is a great principle to adopt if you are to be successful in taking responsibility for your financial future.Here are 5 ways to use IRA’s (Traditional, ROTH) to help you take responsibility:

 

  • 1.  Invest in an IRA if you are employed and your employer does not have a retirement plan
  •  

A Traditional or ROTH IRA is a good investment vehicle.Decide which option to choose based on whether the immediate or future tax benefit is more critical for your situation.You can invest in one or the other or a combination of the two as long as you do not exceed the maximum contribution allowable for your age.Under 50 years old the cap is $5500.Age 50 or older the cap is $6500. The cap is expected to increase in future years so check trusted sources for changes.

 

  • 2.  Invest in an IRA if your employer does have a retirement plan, but the employer’s dollar for dollar matching contribution is less than your IRA  maximum contribution for the year
  •  

If you are covered by an employer’s retirement plan, you MAY still be able to invest in an IRA.If you have invested $5500 or more ($6500 if you are 50 years old or older) in your pension plan, then you cannot invest in an IRA. You can combine contributions into your pension plan and IRA as long as the contribution cap for each is respected.

 

  • 3. You are self-employed – a SEP-IRA is a good option
  •  

Small business owners many times find themselves in the position where they are so focused on the business and its employees, that they neglect their own financial situation. The “Pay yourself first” mantra applies here as well.With a SEP-IRA or 401(k) the small business owner can make a significant contribution towards retirement with very little, if any, reporting necessary. You can invest up to 25% of your net business income into a SEP with a cap of $ 54,000 for 2017.

 

  • 4. You are self-employed, your spouse is your employee or full-time homemaker – the spouse can invest in an IRA

 

In general, for one to be able to contribute to an IRA the individual must have earned income.An exception exists for a full-time homemaker whose spouse has earned income.The regulation allows such a homemaker to contribute up to the maximum into an IRA.This is a great loophole to get additional income set aside for retirement.

 

  • 5.You are a business owner and your minor child is your employee, the child can invest in an IRA

 

Many small business owners have their minor children doing odd jobs for them.Take the next step and pay that child.Contribute the eligible amount into an IRA in the child’s name.That’s savings for college, retirement or both. 

 

This article is not all-inclusive. For more information talk with a financial advisor or tax professional. You may also do your own research online.IRS Pub 590 is an excellent resource. Review some of our other blog posts for more helpful information.

 


Introduction to estate planning

Geraldine Clahar - Monday, July 24, 2017

 

 

What is an estate?

 

An estate is the accumulation of everything that one owns – real and personal property.Some estates are small others are large.The following are assets that are part of your estate:

(a)Home(s) and contents

(b)Art collections

(c)Coin collections

(d)Automobiles

(e)Jewelry

(f)Investment property – rental property

(g)Life insurance proceeds

(h)Pension plans

(i)IRA’s

(j)Bank accounts

(k)Investment accounts

(l)Investment value of a business

(m)Revocable trusts

(n)Inheritance

 

Who has an Estate?

 

 

The first time one owns something, the estate is created and grows until death.So, the estate could be created at birth assuming the child is given gift of money or other assets.In effect, everyone has an estate.Hence everyone should be concerned about what happens to that estate in the event of death.

 

How long does the estate exist?

 

The estate is created the first time one acquires an asset.Since a dead person cannot have an estate, at death the estate of the deceased must be distributed to others and once the distribution is complete the estate dies.

 

How is the estate disposed of?

 

The old adage goes “You can’t take it with you.”Everything you own at death has to be transferred to someone or something else within a short time of death.You might not have an estate tax issue, but there will be an issue of transfer of ownership of assets.How the asset is transferred can impact the tax base of the recipient, so serious consideration should be made when transferring assets from one individual to another.

 

There are several ways that the assets of a deceased can be passed or distributed to others:

(a)Will or trust

(b)Title

(c)Probate proceedings

(d)Operation of Law

 

These assets can be given away during that person’s life time (gifts) or at death (bequests). Maximum that can be gifted to any individual each is currently  $14,000 per year.

 

Spousal Exemption and Portability:

 

Each person is allowed to accumulate a certain amount of assets free of estate tax: exemption - $5,459,000 (federal) and $5,250,000 (NYS).The asset value in excess of the exemption amount is subject to estate tax – 40% federal tax rate. The exemption that one spouse does not use can be ported over (transferred) to the surviving spouse.This is added to the surviving spouse’s exemption amount allowing a greater exemption upon that spouse’s death.This is at the federal level only.Portability is not available in New York State.


 

Portability is an election! To make the election a Form 706 must be timely filed – No later than 9 months after date of death.This is a very exact calculation!That is, start counting from the date of death, not the month of death!!

 

 

 3 Reasons to file Form 706 even if no tax is due:

 

 

1.To make the portability election

2.To notify the IRS of valuations made to appreciable assets that have been passed on

3.To establish the fair market values of assets at the date of death

 


MANDATORY PAID FAMILY LEAVE BENEFIT

Geraldine Clahar - Wednesday, June 14, 2017

 

Governor Cuomo recently signed into law a new benefit that must be offered by non-governmental companies with employees in New York State.The family leave benefit will become effective on January 1, 2018.Full-time employees become eligible for benefits after at least 30 days of employment in a calendar year.Part-time employees are eligible after 175 days of employment.Employees are guaranteed job protection while they are utilizing this benefit as well as continuation of health insurance coverage.

 

BENEFIT

 

 

This benefit called “Paid Family Leave” will allow an employee to take time off from work with pay for the following reasons:

1.To care for new-born child

2.To care for a seriously ill family member

3.To assist employees when family members are called to active military service

 

The cost of this benefit will be paid for by employees via payroll deductions.The deduction will be .126% of weekly earnings up to a maximum of $164.55 weekly, based on the average weekly state wage of $1305.92.The average weekly wage will be re-calculated each year, so the maximum deduction will change yearly.

 

PHASE IN

 

 

The paid family leave benefit will be phased in over the next 4 years.

 

# weeks allowed                      % of earnings paid

YEAR 1                                              8                                                   50

YEAR 2                                            10                                                   55

YEAR 3                                            10                                                   60

YEAR 4                                            12                                                   67

 

BENEFIT CLAIMS

 

 

Family leave benefits will be paid directly to the employee by your NYS disability insurance carrier.The cost of coverage will be charged to the employer in increased disability insurance premiums.The family leave deductions withheld from employees will reimburse the employer for increase in premiums created by the family leave benefit.

 

For more information you may visit the following websites:

https://www.ny.gov

http://www.nysif.com

http://www.dfs.ny.gov


New Overtime Rules

Geraldine Clahar - Tuesday, September 13, 2016

Effective December 1, 2016 overtime rules are changing.  The change affects only salaried employees.   Under the new rules a salaried employee must earn at least $47,476 per year or $913 per week to be exempt from overtime pay. 

 

If you have employees in this salary range and you need the details of the new rules you may visit the Department of Labor website at

https://www.dol.gov/whd/overtime/final2016.

 

You may contact our office at 516-483-3851 for further assistance.

 

 

 

 

New Partnership tax filing deadline

Geraldine Clahar - Friday, August 26, 2016

CHANGE IN TAX FILING DEADLINE:

 

The tax filing deadline for Partnerships and LLC's filing as Partnerships is no longer April 15th. The new filing deadline is March 15th.  This change is effective with the tax filing for 2016.  So all Partnership returns must be filed by March 15th, 2017.  Keep this in mind.  If you cannot make the deadline for some reason, you can still obtain an extension.  Your new extension deadline will now be September 15th, six months from the due date of the return.

Notifying SSA, IRS and States of a Change of Address

Geraldine Clahar - Thursday, July 21, 2016

 

The Internal Revenue Service, Social Security Administration and the State taxing agency need to have current address information for all taxpayers at all times.When you change your address remember to inform these agencies as quickly as possible.

 

To notify the IRS use:

a. Form 8822 for Individuals, Estate and Trusts

 

b. Form 8822-B for business entities

 

To notify NYS use:

a. Form DTF-96 for businesses

b. Individuals are requested to make address changes online on the New York State website.

 

For other States log onto the State’s website and search for the Change of Address form or simply Google the form

 

To notify the Social Security Administration (SSA):

(a) Log into your My Social Security Account and make the change there, or

(b) Call the Social Security Administration at 1-800-772-1213 or

(c) Contact your local Social Security Office in person

 

You do not have to update addresses with the SSA unless you are receiving benefits such as Medicare, SSI or Social Security.

 

Be careful to use the proper forms and mail or hand-deliver the information in to the various agencies.With the increase in online scams relating to the theft of personal information, it is not recommended that this type of information be submitted online or over the phone.

 

 

 

NB: Individuals who have a name change (divorce, marriage, adoption etc.), be sure to inform the Social Security Administration of the change immediately.This can have a significant impact in accessing benefits to which you are entitled.

 

To report a name change use Form SS-5 or go online at SSA.gov.You may also call 1-800-772-1213 or go directly to your local Social Security office.

 

If you would like additional information or assistance, please contact us by email at gerrycny@optonline.net or phone at 516-483-3851. We will be more than happy to assist you.

 

Tax Scams

Geraldine Clahar - Wednesday, July 20, 2016

 

The Internal Revenue Service (IRS) has reported a 400% increase in the incidences of tax scams since the beginning of this year.The scams come in various forms:

1. Regular mail

2. Phone calls

3. Emails

4.Texts

5. Social media services

 

Be advised that the IRS DOES NOT make initial contact with taxpayers by phone calls, emails, texts or social media.Information received through the mail that appears usual in any way should be checked out before responding to anything.You can speak with your tax preparer or call the IRS on one of their approved numbers (1-800-829-1040) to verify the authenticity of the mail.

 

Calling the IRS can be time consuming, but “it is better to be safe than sorry”.

If you would like additional information or assistance, please contact us by email at gerrycny@optonline.net or phone at 516-483-3851. We will be more than happy to assist you.

 

Affordable Care Act - Premium Tax Credit

Geraldine Clahar - Friday, January 29, 2016

 

During the 2014 tax filing season I noticed that a number of taxpayers who obtained health coverage through the Marketplace and received healthcare premium credits did not qualify for those credits.I wondered why this occurred. The taxpayers had to repay most if not all of the credit received.Needless to say, it was very unpleasant news for these taxpayers.Even though the IRS was willing to work with the taxpayers in structuring installment repayment agreements, none was too happy to have to make the repayment.     

The Premium tax credit allowed is calculated based on:

  • 1.The total household income  
  • 2.The number of individuals in that household. 

The household income is not only the income received from wages, but ALL income that is reported on page 1 of the Form 1040 less federal adjustments (adjusted gross income), plus the foreign earned income exclusion, tax exempt interest and the portion of social security benefits excluded from taxable income.

From my observation, it appears that taxpayers considered only their W-2 income in estimating their earnings for the coming year.Most of them had income from other sources and when those earnings were added to their W-2 income, they were deemed to be ineligible for all or part of the credit and had to repay the portion for which they were not eligible.

To avoid having to repay any premium credit for which you are not eligible:

  • (a)Make sure that you have considered all your income sources as reported on your prior year’s tax return and any new sources you anticipate for the coming year.
  • (b)If you have already given your income estimate to the Marketplace and now realize that you might have underestimated your household income, contact your Marketplace representative, report the correct estimate of your household income and have them adjust the premium credit accordingly.

NB: If your household income decreases significantly you may be eligible for a larger premium tax credit reducing the portion of the insurance premium that you have to pay out of pocket each month.

 

Remember that the actual amount of premium credit you are entitled to, is calculated when your tax return is prepared.Your tax preparer is required to complete certain tax forms that assess your eligibility and calculate the amount, if any, of credit you should have received.Any overpayment of the credit will have to be repaid, but an underpayment will result in a refund from the federal government.

If you have questions or concerns about your eligibility for the premium tax credit, feel free to contact us through our contact page; call us at 516-483-3851 or email us at gerrycny@optonline.net.It would be our pleasure to be of service to you.

 

Important Documents Needed For Your tax Returns

Geraldine Clahar - Thursday, December 31, 2015

 

The Internal Revenue Service is requiring that tax preparers be more vigilant in ensuring that taxpayers do have proper documentation for all income and expense items claimed on their returns.While we are not expected to audit returns, we should insist on being provided with original documentation that support what is being claimed.

 

Any item not supported by such documentation should be in writing and signed by the taxpayer.The following are some of the documentation that will be needed to properly prepare a return:

1.  Forms 1099-MISC (Miscellaneous income); 1099-DIV (Dividend income); 1099-INT (Interest income); 1099-S (Income –Sale of real estate); 1099-B (Income from sale of investments); 1099-C (Cancellation of Debt); 1099-K (Credit Card Information reporting); 1099-R (Pension distributions); 1099-SSA (Social Security benefits);

2.  Form W-2

3.  Form 1098 (Mortgage Interest statement)

4.  Form 1098-T (Tuition expense)

5.  Letters from donees of charitable contributions and copies of checks or proof of online payments

6.  Tax receipts or copies of checks for payment of real estate taxes paid by taxpayer

7.   Copies of check or cash receipts and invoices from doctors for all medical expenses

8.   Log of business and personal mileage for business use of personal vehicle

9.   Log of medical and charitable miles for the year

10. Log of gambling activities showing winnings and losses per event.Log must include who was with you at each event.

11.  Print-out from pharmacy of out of pocket prescription costs

12.  Invoices, checks and receipts to support all other expenses, business and personal that are claimed for tax purposes.


If you are not sure if a particular piece of documentation is needed, play it safe, bring it along with all your other tax documents.If you need any additional information or clarification, please contact our office.We will be more than happy to assist you.

 

What's Your USP?

G A Clahar - Friday, May 29, 2015

That question was posed to me by a consultant a few weeks ago. I was stumped!! I had never been asked that question before, so I had no idea how to answer. I have since learned that our USP is our Unique Selling Proposition or Unique Selling Point. It is that quality of service or product potential that sets our business apart from all others of its kind.

 

As a small CPA firm, we have always marketed ourselves as providing “quality, professional, personalized and affordable services” to all our clients, small or not so small. We offer the level of service normally seen in a larger firm, but without the ‘large firm’ price tag. That is how we have represented ourselves to our clients and that is how we present ourselves both in our appearance and the quality of the work we do. Our work must be thorough, complete and neat.

 

So, what is our USP? Having carefully thought about our unique qualities as a firm and studying the USP of other successful companies (Head and Shoulders: “You get rid of dandruff”; FedEx: “When it absolutely, positively has to get there overnight”, etc.) we will state our USP as follows:

 

“Large firm quality; Small firm price”


This is the image we portray to our clients and will continue to do so. It is a win/win for our clients and our firm.

 

Experience our USP. Call for an appointment and let us be of service to you.


G.A. Clahar, CPA  ·  1188 Village Ave., Baldwin, New York 11510  ·  Phone: (516) 483-3851