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A Ruling to Remember October 30, 2013

Posted by bradstreetblogger in : tax changes, Tax Tip, Taxes, Taxes , add a comment

Tax Tip of the Week | October 30, 2013 | No. 222 | A Ruling to Remember

Private Letter Ruling 201316024

A Ruling to Remember

A taxpayer we will call Clint, decided to do his daughter a favor. She was attempting to purchase a home that was in foreclosure. Part of the qualification to buy the home was having a substantial amount of funds on deposit. Clint took an IRA distribution and deposited part of it in a non-IRA escrow account. He intended to rollover the distribution back into the IRA upon the completed purchase of his daughter’s home.

However, because of the nature of the foreclosure sale, the funds were not returned to the taxpayer within the 60-day rollover window. Clint still deposited the amount in a new IRA, but received a deficiency notice from the IRS based on the distribution from the initial IRA.

Clint filed a private letter ruling asking the IRS to waive the 60-day rollover requirement with respect to his IRA distribution. The IRS’ answer was a swift and authoritative NO. IRS deemed that Clint did not present any evidence to preclude him from a timely rollover of his IRA distribution back to an IRA. In effect, he took a short-term loan from his IRA, and with it, assumed the risk that it might not be returned to him in a timely fashion.

Lesson to Learn:

Account owners have been doing this for years, and when the funds are not returned on time the answer from IRS is always the same – NO. You cannot use your IRA funds as a short-term, interest-free loan. The account owner must recognize the risk and be ready to face the consequences if they cannot get the funds back in time.

(Note: Private letter rulings (PLRs) are written decisions by the Internal Revenue Service in response to taxpayer requests for guidance. A private letter ruling binds only the IRS and the requesting taxpayer. Thus, a private ruling may not be cited or relied upon for precedent. The fee to submit a PLR starts at $625.)

This article appeared in Ed Slott’s “Monthly IRA Update”.

Give us a call if you have any additional questions.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW

…until next week.

 

A Closer Look at Ohio’s Tax Law Changes October 23, 2013

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Tax Tip of the Week | October 23, 2013 | No. 221 | A Closer Look at Ohio’s Tax Law Changes

Additional guidance on Ohio’s income tax and pass-through entity tax cuts

A couple of weeks ago we looked at a summary of Ohio’s tax law changes for 2013 (TTW# 214).  This week we will take a closer look at the tax deductions available to individuals with “Ohio small business investor income”.

Those with “investor income” may now exclude 50% of that income from the adjusted gross income they report on their Ohio personal income tax return. If the business has multiple owners, each owner is eligible to claim the deduction. However, each investor or owner can only exclude 50% of the first $250,000 of qualifying income from all sources, meaning the deduction is capped at $125,000 ($62,500 Married Filing Separate) for each taxpayer, regardless of the number of small businesses they invest in.

Who Qualifies:

Owners and investors in Ohio businesses structured as pass-through entities (PTEs) that receive business income.   PTEs are not taxed as a business by the federal or state government; instead those owners/investors receiving income from the business pay federal and state income taxes on that income on their individual tax returns.  PTEs include:

Sole proprietorships (Schedule Cs)

-Partnerships

• Subchapter S corporations (S-corps)

• Limited Liability Companies (LLCs)

Who Doesn’t Qualify:

C Corporations.

In addition to income reported on the federal 1040 Schedule C, net business income as reported on the taxpayer’s federal1040 Schedules E and F will also be used in calculating the deduction.  The deduction will be available on Schedule A of the Ohio IT1040.

Current guidance is that all income included on federal Schedule E will be subject to the deduction, regardless of passive vs. material participation considerations.

Additional guidance should be coming in the next few months from the Ohio Department of Taxation on these issues.  We will keep you posted.

For those who qualify, these changes may lead to significant Ohio tax savings. Give us a call before you make any fourth quarter estimated tax payments to Ohio.

Give us a call if you have any additional questions.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW

…until next week.

Feds Bust Up Massive Refund Fraud Ring October 16, 2013

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Tax Tip of the Week | October 16, 2013 | No. 220 | Feds Bust Up Massive Refund Fraud Ring

Hopefully we will hear more results like this…….

Feds Bust Up Massive Refund Fraud Ring

A massive case of organized tax and bank fraud culminated September 27, 2013 with the unsealing of four federal grand jury indictments accusing 55 people of participating in one or more illicit schemes, including the theft of more than 2,000 identities that were used to claim more than $420 million in bogus IRS tax refunds. As a result the IRS paid out more than $7 million, even issuing payments in the names of dead people.

The charges are the result of a two-year-long investigation by federal and local authorities in San Diego and Los Angeles. Twenty-two defendants were arrested during sweeps in Los Angeles, San Diego, Las Vegas and Maryland. Hundreds of federal, state, and local law enforcement officers participated in the takedown. Thirty-three defendants remain at large, including 21 who are believed to be out of the country.

“This case is staggering in terms of the number of victims, its level of sophistication, its audacious methods and the callous disregard for victims,” said U.S. Attorney Laura Duffy. “These arrests are the first strike back on behalf of taxpayers and more than 2,000 victims who now have to reclaim their good names — a frustrating task that can take years. We will continue to make these cases a priority.”

Tax refund fraud involving the use of stolen identities has emerged as such a fast-growing crime category that it has earned an acronym, SIRF, for Stolen Identity Refund Fraud. The Department of Justice has issued a new directive to coordinate, expedite and streamline the prosecutorial efforts of the Tax Division and U.S. Attorneys’ Offices nationwide.

Give us a call if you have any additional questions.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW

…until next week.

 

More Updates On The Affordable Care Act | Tax Tip Of The Week | No. 219 October 9, 2013

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The “Family Glitch”

The following appeared in NATP’s TAXPRO Weekly:

Recent articles have flooded the internet regarding the term “family glitch” and its potential impact on leaving many children without coverage based on a faulty design in how Congress drafted the Affordable Care Act. The claim is that employers are not required to offer family coverage and need only provide self-only coverage to get out of the penalty, but by doing so the family is ineligible for the premium tax credit to subsidize insurance through the exchange. Is this claim true?

This is only partially true. The part that is incorrect is that an employer must still offer family coverage to avoid the penalty as §4980H(a) specifically states “….and their dependents…” thus, insurance must be extended to the children. However, due to the definition of “affordable,” effectively this will hold true.

The safe harbor for an employer to avoid the penalty is to offer insurance that is affordable. Under Regulations §1.36B-2(c)(3)(v)(A)(1) and (v)(A)(2), as well as the W-2 safe harbor under §4980H, affordable is defined as the employee paying no more than 9.5% of his/her household income for self-only coverage. An employer has the ability to avoid the penalty, force the employee to pay the full amount above self-only coverage, and disqualify the employee from the premium tax credit!

Take a typical single mom who makes $30,000 per year and has two kids. Self-only coverage costs $5,000, of which the employer pays $4,000, and family coverage costs $15,000. However, in order to obtain family coverage, the mother has to pay the difference of a full $11,000! Insurance is still deemed as affordable under both the employer penalty and individual credit provisions, even though it costs about 37% of her annual income!

It gets worse, the taxpayer is still technically responsible to cover her children or face the penalty. However, most taxpayers will either be exempt from the penalty under §5000A because the cost exceeds 8% or may receive government assistance. The family glitch effectively holds true; therefore, if a family falls through the cracks of government assistance and being accepted, the individual penalty still applies.

Give us a call if you have any additional questions.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW

…until next week.

To Help You Get Ready For The Affordable Care Act | Tax Tip of the Week | No. 218 October 2, 2013

Posted by bradstreetblogger in : Tax Planning Tips, Tax Tip, Taxes , add a comment

Subsidy Calculator Eligibility

This helpful link was provided by the National Association of Tax Professionals. Use this tool to see if any subsidies may be available to you for health insurance coverage:

The Henry J. Kaiser Family Foundation has a subsidy calculator available. This tool illustrates health insurance premiums and subsidies for people purchasing insurance on their own in the new health insurance exchanges or Marketplaces.

With this calculator, you can enter different income levels, ages and family sizes to get an estimate of your eligibility for subsidies and how much you could spend on health insurance. As premiums and eligibility requirements may vary, contact your state’s Medicaid office or exchange with enrollment questions.

Give us a call if you have any additional questions.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW

…until next week.