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Tax Tip of the Week | An IRA/Charitable Contribution (QCD) for Year-End Planning December 5, 2018

Posted by bradstreetblogger in : Deductions, General, tax changes, Tax Planning Tips, Tax Tip, Taxes, Uncategorized , add a comment

An IRA/Charitable Contribution (QCD) for Year-End Planning

Over the last few years we continue to see an uptick in charitable contributions made from an IRA. I continue to believe this tax strategy is very often overlooked or just simply ignored. So as this year winds down and many people are making charitable donations, please remember the new tax law has made the way to make charitable contributions even more worthwhile to consider.

-Mark C. Bradstreet, CPA

Bob Carlson Contributor (excerpts from an article titled “7 IRA Strategies For The End of 2018”)

“It’s time for IRA owners to be proactive by planning and implementing their strategies for the rest of the year. Consider these steps now and take those that are appropriate for you.

Caution: Don’t wait until the last few weeks of the year to consider your actions. IRA custodians are very busy then. Many won’t process requests for some types of transactions during the last couple of weeks of the year or won’t guarantee they’ll be completed by December 31.

Use QCDs to make charitable contributions. It’s one of the best ways to make charitable contributions, though it’s available only to owners of traditional IRAs who are age 70 ½ and older.

The Tax Cuts and Jobs Act made the qualified charitable distribution (QCD) even more valuable. The law increased the standard deduction and reduced the itemized expenses that can be deducted.  The result is fewer taxpayers will be itemizing expenses and deducting charitable contributions.

In a QCD, you direct the IRA custodian to send a contribution directly to the charity of your choice. Or you can have the custodian send you a check made payable to the charity, which you deliver to the charity.

The distribution isn’t included in your gross income, yet it counts towards your required minimum distribution (RMD) for the year.”

Bob Carlson is the editor of Retirement Watch, a monthly newsletter and web site he founded in 1990. He researches and writes about all the financial issues of retirement and retirement planning, for both those planning retirement and already retired.

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.

This Week’s Author – Mark C. Bradstreet, CPA

–until next week

Tax Tip of the Week | Are You Protecting Your Assets After Death? November 28, 2018

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

Are You Protecting Your Assets After Death?

I have sometimes wondered how often following a person’s death that their estate assets are not distributed according to their wishes. Probably more often than anyone would care to admit. Not that I think the mistakes are made intentionally; but face it, wires may easily get crossed by the executor and the attorney through the fault of no one.  And, the person (the decedent) is no longer here to oversee their dying wishes and keep things straight.

The below article shares some “checks and balances” that may help safeguard the distribution of your estate assets.

– Mark C. Bradstreet

By Cheryl Winokur Munk

PEOPLE USUALLY take great pains to protect their assets from would-be thieves during their lifetimes. But they don’t always give a lot of thought to safeguarding their estates from interlopers after death.

Estate-planning experts say it is important that individuals put certain safeguards in place while they are still alive – and to instruct heirs to institute protective measures posthumously. While nothing is full-proof, here are a few steps that can offer an added layer of protection.

Checks and balances
In most cases, experts recommend naming two or more executors to make sure that the deceased’s property is collected properly and distributed appropriately. Such an arrangement ensures there is more than one set of eyes involved in coordinating the deceased person’s financial life, says Lynn Halpern, senior fiduciary counsel at Bessemer Trust.

Families with complicated assets might consider hiring a professional to be the second executor as an added safeguard. Costs for these services can vary depending on the will and the state and the corporate executor selected, Ms. Halpern says.

Experts also recommend naming two or three trustees to invest and distribute any assets held in trust. From a cost and simplicity perspective, many people choose to name only one trustee, but there can be a downside to doing this.

“Any time you name one person who can act with autonomy, you increase the level of risk,” says Bob Wyche, partner and managing director at Waldron Private Wealth, a registered investment adviser in Bridgeville, Pa. While naming multiple trustees doesn’t guarantee thievery won’t occur, it lessens the likelihood, he says. “It’s just another system of checks and balances because you can’t do anything unilaterally.”

It’s common for individuals to name the attorney who drafted their trust as the sole trustee, but Mr. Wyche discourages this setup. If a lawyer is simply drafting documents, he or she doesn’t have access to the funds. But if the attorney has sole authority over the assets, the risk of trouble rises, he says.

If people want to use their attorney as trustee, he suggests they at least name a co-trustee. It could be a family member who is familiar with the deceased’s wishes, or a professional, corporate trustee.

Before picking a family member as co-trustee, make sure he or she understands the responsibilities that come with the job – and has enough financial knowledge to identify when someone might not be acting in good faith. “It may not always be clear to [individual family members] where the line is,” Mr. Wyche says.

With an institutional trustee, families will receive more frequent statements, and there is typically oversight from a corporate level to ensure no one individual acts inappropriately, experts say. But such services can be pricey.

Generally speaking, families should expect to pay about 1% of assets for institutional trustee commissions. This fee may be more or less, depending on factors such as applicable state law, the family’s assets and the trust company. Separate investment management charges may also apply.

Still, for some families it may be worth the added cost. “If you have a corporate trustee and pay attention, you’ll be unlikely to miss something,” says Jessica M. Warren, an estate-planning and probate attorney with Warren & Lewis in Austin, Texas.

Another tactic for safeguarding assets held in trusts is to add contingencies to the will, such as requiring an annual accounting from trustees to beneficiaries or their guardians. Most corporate trustees are forthcoming with information, but private trustees generally don’t do it unless a beneficiary requests the information, says Janis Cowhey, a partner at Marcum LLP, an independent public accounting and advisory services firm. “If they know the cookie jar is being watched,” she says, “it can take away temptation.”

Safeguarding tangible assets
When it comes to protecting an estate, families are usually focused most on intangible assets such as bank or brokerage accounts. But Doug Schneidman, a trust and estates partner at Sullivan & Worcester in Manhattan, urges clients to also think about protecting tangible assets such as jewelry and artwork that can be at risk if there’s unfettered access to the deceased person’s home.

Mr. Schneidman advises clients to maintain an updated inventory of the assets in their home and take pictures. Having such a list helps heirs know what’s there, and it helps prevent people from stealing things heirs don’t know about.

Even if some of the items are insured and accounted for elsewhere, it helps to have everything listed in one place, he says.

Keep the list in a protected place, such as an attorney’s office, with a financial adviser, in a house safe or with a child who is going to be the executor of the estate.

The moment someone dies, relatives close to the descendant should secure the apartment or home and quickly take an inventory of the assets, Mr. Schneidman says. He also recommends families severely limit access to the home going forward.

“Many people manage their assets carefully while they are alive; they need to make sure that after they pass away that the goals they worked so hard to achieve are actually accomplished,” says Ms. Halpern of Bessemer Trust.”

Credit to Ms. Cheryl Winokur Munk, Wall Street Journal, October, 2018.  Ms. Winokur Munk is a writer in West Orange, N.J. You can email her at reports@wsj.com.

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.

This Week’s Author – Mark C. Bradstreet, CPA

–until next week

Tax Tip of the Week | The New Kiddie Tax: How It Might Change Gift Giving November 21, 2018

Posted by bradstreetblogger in : Deductions, General, tax changes, Tax Planning Tips, Tax Tip, Taxes, Uncategorized , add a comment

The New Kiddie Tax: How It Might Change Gift Giving

The following article is about a tax that we seldom deal with, but one which can be significant when it comes into play – the so-called Kiddie Tax. The article was written by Bob Carlson and was taken directly from the Accountants’ Daily News (10-16-2018), and discusses changes to the tax and how it is computed.
-Norman S. Hicks, CPA

By Bob Carlson

Opinions expressed by Forbes Contributors are their own.

“Beginning in 2018, youngsters who are subject to the Kiddie Tax will pay tax on their unearned income using the same tax tables as trusts. There will be no reference to the parents’ tax rate.

Take a good look at the new Kiddie Tax before making gifts to children and grandchildren.

The Tax Cuts and Jobs Act greatly simplified the Kiddie Tax. The tax was imposed in the Tax Reform Act of 1986 on unearned (investment) income of children. The idea was to end income splitting. That was the practice of high-income earners shifting some of their income to relatives in lower tax brackets, usually by giving investment assets to children directly or through trusts. Initially, only children under age 14 were subject to the tax. The scope was increased over the years.  Now, it applies to most children under 18 and full-time college students under 24 who don’t pay for more than half of their support.

The original Kiddie Tax had the children paying taxes on their investment income at their parents’ highest tax rate. It required a separate form and some complicated computations. It also required parents to share their tax information with their children.

Beginning in 2018, youngsters who are subject to the Kiddie Tax will pay tax on their unearned income using the same tax tables as trusts. There will be no reference to the parents’ tax rate. That greatly simplifies computation of the tax and means parents don’t have to share their data. But the new rules mean many who are subject to the Kiddie Tax will pay higher taxes than they would have under the old rules.

For example, the maximum 20% capital gains tax is imposed on trusts when taxable income reaches $12,700. Last year, that rate wasn’t imposed on an individual until taxable income exceeded $400,000. Throughout the tax tables, higher tax rates are imposed on trusts at much lower income levels than for individuals.

But some children will pay lower income taxes under the new rules.  When a child’s parents are in the top tax bracket and the child receives only a few thousand dollars of investment income, the income will be taxed at a lower rate under the new rules. The child won’t be in the top tax bracket.

The Kiddie Tax applies to all unearned income. That, of course, includes all types of investment income, but also includes distributions from traditional IRAs and 401(k)s and some Social Security survivor benefits.

A child subject to the Kiddie Tax receives a $1,050 standard deduction that makes that amount of unearned income tax free. The next $1,050 of unearned income is taxed at a lower rate, but tax advisors disagree on whether it is taxed at the child’s tax rate or using the trust tax tables. The rule is unclear until the IRS issues guidance.

This means the first $2,100 of unearned income earned by a child or grandchild is either untaxed or taxed at a low rate. Additional income will be taxed using the trust tax tables. So, parents and grandparents have to monitor a youngster’s unearned income sources carefully before giving additional income-producing investments or selling long-term capital assets held in the youngster’s name.

If you plan to leave assets to a youngster as part of your estate plan, you should consider leaving a child who might be subject to the Kiddie Tax a Roth IRA instead of a traditional IRA. There might be a family member in a lower tax bracket who should inherit the traditional IRA.

Another strategy for grandparents might be to give appreciated property to the parents instead of to the grandchildren. Suppose the grandparents are in the top tax bracket but the parents are in a lower bracket. The grandparents have an investment asset with a significant long-term capital gain. They want to sell the asset to help pay for the grandchild’s education or other needs.

The grandparents would owe the 20% capital gains rate if they sold the asset, and the grandchild also would owe the 20% rate if the amount of the gain plus other investment income put him or her in the top trust tax bracket. But the parents might owe only a 15% (or lower) rate if they were given the property and sold it.

The irony is that under the new rules, top-bracket parents or grandparents probably can transfer more money to youngsters before triggering a higher tax than lower-bracket adults can. The top tax rate of 37% begins at $600,000 of taxable income for married taxpayers filing jointly and at $12,500 for trusts. That means a top-bracket family can transfer up to $12,500 of gains or other unearned income to a child or grandchild before the 37% rate is triggered on the child. But an adult in a lower tax bracket has to transfer less than $12,500 before the child begins paying a higher rate than the adult would pay

The new Kiddie Tax makes computing the tax easier, but it can make planning more complicated for many families.”

Bob Carlson is a contributing editor of Forbes Media and is the editor of Retirement Watch, a monthly newsletter and web site he founded in 1990.

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.

This Week’s Author – Norman S. Hicks, CPA

–until next week

Tax Tip of the Week | The Biggest Mistakes with Student-Loan Repayments November 14, 2018

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

The Biggest Mistakes with Student-Loan Repayments

Among them: Borrowers not knowing how much or who they owe

By Cheryl Winokur Munk

Until maybe 2 or 3 years ago, I failed to fully understand the complexity of student loan repayments. Lots of different options exist, some having very different tax and repayment ramifications. The below article deals with some but not all of these options. However, it is a good starting point.

– Mark C. Bradstreet, CPA

Over the next few months, many 2018 college graduates and their families will have to start making payments on student loans.

Graduates are typically given a six-month grace period to find a job and start earning income, meaning the bill is coming due for many of them beginning in November.

With that in mind, here are some of the biggest mistakes parents and students make with student-loan repayment—and how to avoid them.

1. Payment-related confusion

While students are in school and during the grace period before repayments are due, it can be easy for students and families to lose sight of who they owe, how much they owe and when they owe it—especially if they have taken out a combination of federal and private student loans over several years.

A 2017 survey of 1,040 college students by College Ave Student Loans, a private student-loan provider, found that 35% of seniors were unsure how much they would owe on their coming monthly student-loan bill. This can lead to issues with repayment and budgeting, experts say.

To avoid confusion—and late payments—students are advised to make a list of all their loans and loan servicers, keeping in mind that the company that provided the loan may not be the same company servicing the loan. Students should then create a simple spreadsheet with basic information such as each servicer’s name, address, phone number and website, says Tori Berube, vice president of college planning and community engagement at the NHHEAF Network Organizations, which helps New Hampshire families plan and pay for college.

The spreadsheet also should list when each loan payment is due and the amounts of the respective payments, Ms. Berube says.

Federal and private student-loan servicers contact borrowers directly with loan and payment information, but families sometimes miss or misplace these communications. Families may have to do some legwork to be sure they have properly accounted for all borrowed funds, experts say. For information on federal-loan servicers and loans, families can visit nslds.ed.gov, click on Financial Aid Review, and log in with the username and password they created when they first applied for financial aid. For information about private loans, students can reach out directly to their loan company or to their school’s financial-aid office if they are aren’t sure which company to contact.

Students also can request a free copy of their credit report, which lists all outstanding loans, Ms. Berube says. They can get a free copy of their credit report every 12 months from each of the three credit-reporting companies via annualcreditreport.com.

2. Failing to update contact information or education status

Many students list their parents’ address or a school email as part of their contact information for student loans. But when they move or change email addresses—as students often do after graduation—they sometimes forget to tell their loan servicers.

If students and families don’t report contact-information changes to their loan servicers, they risk missing important communications about their monthly payments, which increases the likelihood that they will fall behind on payments, says Elaine Rubin, a communications specialist at Edvisors, a provider of free information on paying for college and financial aid. Once that happens, it can be hard to catch up, she says.

It’s also important for students to notify their loan servicers if they return to school at least half time, because their loans, in most cases, will be eligible for a deferment, Ms. Berube says.

3. Missing opportunities to reduce student-loan debt

Families don’t always take advantage of opportunities to pay down student debt sooner—even though doing so would result in them paying less overall, experts say.

There are a number of ways students and families can save on student loans. For instance, they may receive interest-rate incentives for enrollment in automated-payment plans, says Melissa Shoemaker, customer experience manager of strategy and planning at the Pennsylvania Higher Education Assistance Agency, a national provider of student financial-aid services.

Students also could pay more on their loans than is owed each month—with special focus on paying down loans with the highest interest rates or balances—by rounding up their monthly payment, applying large sums of money such as tax refunds when they can or paying half the amount twice monthly so the borrower effectively makes 13 monthly payments a year instead of 12, Ms. Shoemaker says. Doing so would reduce the amount of interest they pay overall.

4. Not asking for help

Students and families who are struggling financially don’t always ask for help when they need it. That can be a critical mistake, experts say, because delinquency can lead to default.

Students who can’t afford to make payments, or who want to know what their options are should that ever happen, should contact their loan servicer, says Rick Castellano, a spokesman for Sallie Mae, a private student-loan provider. Loan servicers may be able to offer a temporary interest-rate reduction, he says, or provide information on income-driven repayment plans or loan consolidation.

“Students and their families should understand that there are resources available to help through their struggles,” Mr. Castellano says.

5. Falling for student-loan repayment scams

In recent years, federal and state regulators have cracked down on student-loan debt-relief scams, but bad apples persist and consumers need to recognize warning signs. Experts advise students to steer clear of any company that changes an upfront fee to purportedly lower their debt or forgive it quickly. Students and families also should be wary of companies that call or email out of the blue, claiming to be associated with the government or a loan servicer. They should never give out sensitive personal information such as their Federal Student Aid—or FSA—ID to a third party; that’s an automatic red flag that something is amiss, says Ms. Rubin of Edvisors.

“You don’t have to pay for help to lower your monthly payments, consolidate your loans or understand your options for loan forgiveness,” she says. Students and families can review their federal student-loan repayment options at StudentAid.gov/repay. For private student loans, they should contact the loan servicer directly. There is no cost for these services.

If a third party is offering a debt-relief opportunity that sounds too good to be true, it probably is, Ms. Rubin says.

Ms. Winokur Munk is a writer in West Orange, N.J. She can be reached at reports@wsj.com.
This article appeared in the October 8, 2018, print edition as ‘5 Big Mistakes with Repaying Student Loans.’

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.

This Week’s Author – Mark C Bradstreet, CPA

–until next week

Tax Tip of the Week | How to Apply for Social Security Benefits and Medicare – the Ins and Outs November 7, 2018

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

How to Apply for Social Security Benefits and Medicare – the Ins and Outs

No matter who you are, we are ALL moving ever closer towards that magical age of drawing your Social Security Benefits and using the Medicare system; unless, of course,  you already are reaping such benefits.  On a regular basis, we receive calls asking how and when to apply for these programs.  The following article very nicely answers these questions.

–    Mark C. Bradstreet, CPA

“Pundits spend a good deal of time advising Americans about the best age to claim Social Security – at age 62, at full retirement age, at age 70 and the like.

But they hardly ever discuss the nuts and bolts of applying for Social Security benefits like they should.

You see, the seemingly simple act of completing an application for your own or your spouse’s retirement or for disability benefits isn’t always as straightforward as you might think. “I had a client once who described this as ‘the most complicated and bureaucratic process known to mankind,’” says Robin Brewton, the chief operations officer for Social Security Solutions.

Here’s what experts say you need to know:

Start three months before you want payments. “It doesn’t take that long to clear a claim—no way,” says Andy Landis, author of Social Security: The Inside Story. “But (starting the process early) allows time to iron out any wrinkles that come up, like finding your military discharge form – DD Form 214, Discharge Papers and Separation Documents – or other documents. Then it’s clear sailing to your first payment.”

Others suggest the same. If you want benefits to start on your 66th birth month go to the Social Security office three months prior to your birth month, says Ted Sarenski, the CEO of Blue Ocean Strategic Capital. “Social Security will only give retroactive benefits six months prior so in no case go to them more than six months past your birth month if you intend to begin benefits on your birth month.”

Most claims are done online these days. You really don’t have to apply for benefits in person anymore. Just go to www.ssa.gov and click on the “retirement” box for retirement, spousal or Medicare claims. “There are great instructions and tips there,” says Landis. “Then it takes maybe 20 minutes to complete the application.”

Other experts agree that online is the best way to apply for Social Security. “I am a firm believer in applying online for benefits,” says Kurt Czarnowski, a principal with Czarnowski Consulting.

Prefer to work with a real live human? You can, of course, still apply in person. But if you choose this route, don’t walk into your local office cold. “You might face a one- or two-hour wait, or worse,” says Landis. Instead, call 1-800-772-1213 to set up an appointment, for either a phone or in-office claim. Of note, the Social Security Administration (SSA) generally doesn’t publish the phone numbers of their local offices. You can find your local office and its business hours at https://secure.ssa.gov/ICON/main.jsp.

Consider this warning from Brewton if you do decide to file in person: “Our experience with our own clients has been that the (SSA) agents have attempted to get them to do something different than the client wanted.”

Word to the wise. The SSA’s phones are staffed from 7 a.m. to 7 p.m. in whatever time zone you’re in. “But they’re swamped mid-day, from about 10 a.m. to 3 p.m.,” says Landis. “Instead, call near either end of the day, like 8 a.m. or 5 p.m. If the recording says it will be a long wait, just hang up and call back at a better time.”

When calling Uncle Sam, Landis recommends always having a magazine or other diversion at hand in case you have to wait.

The two “gotcha” questions. When you file, there are two questions that seem to trip people up, according to Brewton. One: “If you are eligible for both a retirement benefit and a spouse’s benefit, do you want to delay receipt of retirement benefit?” And two: “When do you want benefits to begin?”

So many consumers are confused by the first question, says Brewton. “Some don’t know that they may be eligible for multiple benefits; others just simply don’t understand the question,” she says, noting that the question applies only to those who are still eligible to “restrict the scope of the application to spousal benefits only” or what some refer to as filing a restricted application. This applies only to those who were born on or before Jan. 1, 1954. “Those wanting to receive only spousal benefits must answer ‘yes” to this question,” she says. “If you answer “no,” your own retirement benefits will begin.”

The second question is a “gotcha” because, says Brewton, the field is pre-populated with the earliest possible date for someone to start benefits. “For those who are filling out the application up to four months in advance of when they want benefits to start, they’ll need to change the date in the field,” she says. “If a consumer has carefully crafted a claiming strategy, particularly if it is coordinating retirement and spousal or divorced spouse benefits, the wrong date can cost thousands of dollars and ruin the strategy.”

Use the comment section. Would-be Social Security beneficiaries should always use the comments section near the end of the application to clearly spell out what their intentions are, says Brewton. “If they’re trying to file a restricted application, they should say so,” she says. “If they want to collect divorced spouse benefits at full retirement age and switch to their own later, they should say it in the comments. This is documentation of your intent in the event an error occurs in processing.”

Also, Brewton recommends asking someone to sit with you while you file – a friend, spouse, or family member. “It will help you get a second set of eyes on the questions and your answers,” she says.

Make a mistake? If you discover that you made a mistake during the filing process, the sooner it is addressed, the better. Unfortunately, a correction isn’t easy to pull off and requires substantial documentation, says Brewton. “I recommend that clients who file in person or on the phone get the name of the person who assisted with the filing and have that person read the questions and answers back to the consumer,” she says.

Brewton recommends documenting conversations with dates and times. “I do believe that, given the number of Social Security beneficiaries, actual errors are few,” she says. But they do happen from time to time and they can be significant.

Landis also notes that the SSA will contact you if they have any questions about your application. However, the SSA, just like the IRS, will not email you. “Be aware of scammers trying to get your Social Security number,” says Sarenski.

Ultimately, says Brewton, the best defense against errors is a good offense – a smart claiming strategy that is written down. “If a consumer doesn’t feel heard by the SSA, or if the SSA is trying to convince them that a claiming strategy isn’t possible, the best bet is to walk away and get professional assistance. You can always file later.”

Filing for Social Security disability is the hardest. Those filing for Social Security Disability Insurance tackle it in stages, starting online at www.ssa.gov. “The SSA needs to know all your doctors and hospitals that have information about your medical condition,” says Landis. But here’s a trick of the trade that will save you a ton of work: “If one doctor or hospital has all your records, just list that source and say they have everything,” Landis says. “Then be prepared to wait—it takes months to decide a disability claim. The sooner you start, the sooner it will be done.”

Filing a survivor claim? Most claims can be filed online. Not this one. If you’re filing a survivor claim (widow, widower, or surviving child), you can’t do it online, says Landis. Start by calling 800-772-1213 for a claims appointment.

Don’t be late. Every type of claim has a time limit, especially Medicare, says Landis. “You can file up to three months before you want benefits, he says. “Delaying? Not advised.”

What can you expect after you file? You should be aware of and plan for the fact that Social Security benefits are paid one month in arrears, says Czarnowski. “For example, say someone retires at the end of June and intends to start collecting Social Security benefits effective with the month of July,” he says. “That person won’t receive his/her first payment until August.”

Also note, says Czarnowski, that anyone born between the 1st and the 10th of the month is always paid on the 2nd Wednesday of the month; anyone born between the 11th and the 20th of the month is always paid on the 3rd Wednesday of the month; and anyone born between the 21st and the end of the month is always paid on the 4th Wednesday of the month. “And by ‘paid’ I mean that their payment is ‘direct deposited’ into their bank account on that date,” he says. “This is something that people need to understand and anticipate, and in my experience, many of them don’t.”

Examine your documents. Sarenski suggests examining your “introductory” letter and all other correspondence immediately upon receiving it in the mail from the SSA. “It is best to correct any errors as soon as you know of them,” he says.

More on what you’ll need to complete the process can be found in this downloadable PDF .”

Robert Powell is editor of Retirement Weekly, contributes regularly to USA TODAY, The Wall Street Journal, TheStreet and MarketWatch. Got questions about money? Email Bob at rpowell@allthingsretirement.com.

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.

This Week’s Author – Mark C Bradstreet, CPA

–until next week

Tax Tip of the Week | The Worst Investment Strategies You Can Make from a Tax Standpoint October 31, 2018

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

The Worst Investment Strategies You Can Make from a Tax Standpoint

Needless to say, income taxes can be a big bite. On the other hand, the performance of your overall investment portfolio is obviously important. And, it may be good or bad. But, which is more important – saving income taxes or protecting the overall future of your portfolio by taking some chips off the table now. Do you cash-in your investment now knowing that income taxes may be as low as 0%, or as high as somewhere between 23.8% to 43%. Or, do you risk missing out on an investment gain by failing to cash in because you can’t bring yourself to write an “income tax” check? This answer varies by individual. Each person may have a VERY different tax situation in terms of other income and expenses, loss carryforwards, capital loss carryforwards, credit carryforwards, amount of estimated taxes paid, AMT, NIIT, additional Medicare tax, social security benefits – just to mention a few off the cuff. The other side of the coin is that individuals also have significantly different investment holdings. Both factors may be huge considerations – one cannot be simply ignored to the exclusion of the other.

The article that follows goes into greater depth and covers several examples of what may be considered poor tax planning.

1.     Selling stock too soon.  Capital gains on holdings of more than a year are taxed favorably at rates from zero for those in the lowest bracket to 23.8% for those in the highest individual rates. Efforts should be made, if possible, to retain stocks for at least one year to get the favorable rates.
2.    Not realizing losses when there are taxable gains.  In years that you have taxable gains, you should try to offset taxes as much as possible by realizing losses embedded in your portfolio and selling some of those shares.
3.    Having losses offset the wrong type of capital gains.  If there is a choice, it is better to offset short term gains with long term losses. This way, you will get the full benefit of the loss against income that would be taxed at regular rates. Offsetting long-term gains with short-term losses wipes out income that would have been taxed favorably. This strategy requires some advance calculations and planning.
4.    Not carrying forward capital losses.  Capital losses can offset capital gains with up to $3,000 of losses in excess of gains used to offset other income. Losses not deductible can be carried forward indefinitely until used up, at amounts of $3,000 per year.
5.    Thinking that a surviving spouse can utilize capital losses.  Carried-forward capital losses disappear at death and cannot be used by a surviving spouse who previously filed a joint return if those losses are not attributed to him/her.
6.    Not properly utilizing losses on options trades.  Those that trade in stock options and have losses can offset these against capital gains. If options are sold, income is not recognized until they are repurchased at a gain or expire. If the options are exercised, the amount received is added to the sale price of the shares. If you buy options and exercise them, their cost is added to the purchase price of the acquired shares.
7.    Unintentionally creating a wash sale.  People who trade and have losses and then reacquire shares in the same company within 30 days before or after selling them will have a “wash” sale and cannot recognize the loss. They need to be careful of falling into this trap. See point #8 below for a way to avoid the wash sale rules.
8.    Not harvesting losses.  People with tax losses can harvest these losses to be used currently or in future years without running afoul of the wash-sale rules. This is done by selling the loss shares and immediately buying shares in similar companies so that the market risk hasn’t changed. An example is to sell shares in a certain sector and buy the exchange traded fund (“ETF”) for that sector…hold it for 31 days…and then sell that and repurchase the prior shares that were sold. This puts your portfolio in the same position as before the first sale, but you have the losses to offset current or future capital gains. You can also do this with mutual funds and index funds, not just ETFs. Your risk is that the substituted funds or ETFs don’t perform similarly during that 31-day period as the individual stock you sold.
9.    Putting stocks in children’s names and then selling them.  People who put stocks in their children’s names will not get any tax benefit because, except for minimal amounts, the Kiddie tax will be at the same rates as the parents (As of 2018, Kiddie Tax is now taxed at the trust rates). But this can be done with other people you might be supporting, such as an elderly parent. Caution:  Watch for interactions on their returns that need to be factored in, such as triggering a tax on Social Security benefits.
10.    Owning publicly traded partnerships (“PTP”) in retirement accounts.  Certain types of income from PTPs are considered “unrelated business taxable income” and are subject to taxation even though they are in a tax-deferred or tax-advantaged account, such as an IRA, Roth IRA or 401(k). Also, owning PTPs in your own name can increase your tax preparation fee, since many of these entities issue multiple-page K-1s (up to 10 pages) rather than a single-page 1099.
11.    Buying tax-free government bonds when their earnings will result in higher tax payments. People who buy tax-free government bonds to avoid federal income tax can still be subject to the Alternative Minimum Tax if the bonds are for private activities…or returns from these bonds can trigger a tax on Social Security benefits. You have to run the numbers.
12.    Wrong asset location.  Many investors have stock in their tax-deferred accounts, and tax-exempt bonds in their own names. But income earned in a tax-deferred account, such as an IRA or 401(k), is taxed as ordinary income when distributed, regardless of the nature of the income in the IRA—this means capital gains and dividends would lose their beneficial rates. A better way is to have the tax-deferred account own corporate bonds and keep stock in your personal accounts. The overall yield will increase since corporate bonds pay higher interest than tax-exempt bonds, and the stock will provide capital gains and dividends that will be favorably taxed. Also, unrealized stock appreciation will never be taxed if owned at death.
13.    Not using retirement accounts for active trading.  Tax-deferred accounts should be used by active traders who generate extensive short-term gains or if they trade or sell options. Active traders who have IRAs or self-directed retirement accounts should not overlook doing this.
14.     Investing in mutual funds at the wrong time of the year.  Many mutual funds declare and pay their capital gains dividends for the year in December. Buying such shares in November or December could cause you to pay tax on money you are receiving back from what you just invested. You then pay tax on your own money rather than on earnings.

As I always say, taxes are complicated and need an understanding to not fall into traps or to have you engage in costly strategies. These strategies can help you avoid or minimize your taxes from investing transactions. It’s always wise to review your investment strategies with a tax adviser and not just your investment adviser.

Credit to Edward Mendlowitz, CPA, ABV, PFS (Money, September 15, 2017)

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.

This Week’s Author – Mark C Bradstreet, CPA

–until next week

Tax Tip of the Week | Keep your Tax Returns Forever? October 24, 2018

Posted by bradstreetblogger in : General, Tax Deadlines, Tax Preparation, Tax Tip, Taxes, Uncategorized , add a comment

Tax Tip of the Week
October 24, 2018

One of our more commonly asked questions is, how long do I have to keep my income tax returns?

Maybe, the key words in this question are “have to.” For practically all intents and purposes “have to” refers to the requirement of retaining three (3) years after filing them. The reasoning is that you and the IRS only have three (3) years to amend or change a return (typical statute of limitations).

BUT, there are some notable exceptions to the three (3) year rule:

(1) The IRS may go back six (6) years when a significant income amount (25%) has been omitted from an income tax return. They can also go back indefinitely if the IRS proves you filed a fraudulent tax return.

(2) What about the situation where the IRS says you failed to file a return? Let’s say the IRS asks for a return from four (4) years ago. Oops – you just shredded that one since you were diligently following the three (3) year rule. Who knows why the IRS did not receive the return. Maybe your neighbor hijacked it from your mailbox, possibly your postal carrier lost it or the IRS Center received it but simply missed processing it because the return was attached to another return and overlooked. It matters not, why the return was not shown as received by the IRS, because the burden is yours to prove the return was filed. Now you have to resurrect your records, prepare and file the tax return again or be classified forever and ever as a “non-filer.”

Bob Carlson, editor of Retirement Watch, contends that keeping your tax returns indefinitely may well be worth the hassle. “Once you show a return was filed, the statute of limitations is three (3) years, unless the fraud or six (6) year exceptions apply. With very few exceptions, the IRS won’t be able to question the details of the (older) returns. You can shred and dispose of those supporting records and keep a copy of the return.”

It may well be worth the hassle to store these old returns in an effort to gain just a little peace of mind.

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.

This Week’s Author – Mark C Bradstreet, CPA

–until next week

Tax Tip of the Week | Meetings (And Their Unintended Benefits!) October 17, 2018

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

Tax Tip of the Week
October 17, 2018

Too much is written about wasted meetings. And, without a doubt, many meetings are a huge time suck! The worst meeting is having a meeting just because it is time to have another meeting. No one has their heart and soul in a meeting like that.

But, there is the other side of the coin. I am in a lot of freewheeling, brainstorming business meetings. Many of these sessions have a wide array of topics, many of them unplanned. I love these meetings because so many, really cool, unexpected, great ideas often just appear out of thin air.

Also, please note that rarely do I start a meeting without a written agenda. It not only gives me a starting point but also a place to deviate from. All business owners already have inside them the answers they are seeking. Sometimes all they need is an opportunity to say things out loud and having someone to ask the right questions. Often, these are the moments that open the right doors. So, don’t be afraid of not sticking to the agenda. The good stuff lies just off the beaten path.

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.

This week’s author – Mark Bradstreet, CPA

–until next week.

Tax Tip of the Week | Should a Parent or Student Take Out the College Loan? October 10, 2018

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

Tax Tip of the Week
October 10, 2018 

Per Forbes (June 13, 2018) who quoted Make Lemonade, “there are more than 44 million borrowers who collectively owe $1.5 trillion in student loan debt in the U.S. alone.” These numbers equate to about one in every four American adults who are paying off student loan debt. Many of our clients are fighting this fight. I hope some of you find this article helpful.

“MANY FAMILIES plan to borrow money to pay for college. But some aren’t sure who should take out the loans – the parents or the student.

Considering that 42% of families borrowed money to help pay for college in the 2016-17 academic year, according to Sallie Mae’s “How America Pays for College 2017,” this is a decision that many people will face. More students take out loans than parents, but there is no set formula for making the determination. It is largely a personal choice, based on a family’s preferences and financial circumstances experts say, and the approach could change from year to year.

For those wrestling with the decision, here are a few things to consider:


Students generally should exhaust their federal student-loan eligibility before looking at other options, experts say. That’s because the interest rate on federal student loans is fixed regardless of a student’s credit history (or lack thereof), a cosigner isn’t required, and these loans are typically less expensive than a federal parent Plus loan or private student loans, says Debra Chromy, president of the Education Finance Council, a national trade association representing nonprofit and state-based higher-education finance organizations.

Federal student loans come with other benefits, such as the ability to apply for an income-driven repayment plan, in which loan payments are based on a percentage of the borrower’s discretionary income and family size. Some federal student loans may even be forgiven and discharged under certain circumstances. People who work for the government, at qualifying nonprofits or in teaching, for example, may qualify for loan forgiveness.

The problem is, students may not be able to cover the cost of college with federally backed student loans because there are limits on how much they can borrow annually and in total. (The limits depend on the student’s year in school and whether he or she is considered a dependent.)

If federal student loans won’t fully cover the cost of school (and a student has exhausted scholarship and grant opportunities), it may be appropriate to consider other types of loans. The first step is to decide how much responsibility a parent is willing – and able – to take on.


Not all parents are in a position to take on debt for their children – even if they would ideally like to cover all of their student’s education expenses. And if parents can’t afford to take on college debt they shouldn’t experts say, especially if it is going to take away from their retirement savings. While students have many other ways to pay for college, the same isn’t true of parents trying to save for retirement. And if parents eat up all their retirement money on education costs, they may be forced into the uncomfortable position of having to rely on their children for financial help later on in life.

“If you’re taking the loan as a parent only, you have to feel comfortable that you are paying it off with your earning power,” says Joe DePaulo, co-founder and chief executive of College Ave Student Loans, a private student-loan provider.

For parents who are comfortable taking on debt for college, here are a few options:

Federal Direct Plus loan for parents. With this option, parents can borrow money from the U.S. Education Department to cover any costs not covered by the student’s financial-aid package, up to the full cost of attendance. Parents generally need to start making payments as soon as the loan is fully disbursed, but they may request a deferment while their child is in school and for an additional six months after the student graduates; interest still accrues during this time. A Direct Plus loan made to a parent cannot be transferred to a child. Also, the interest rate may be considerably higher than some private options and there is an origination fee that comes off the top; that fee is 4.248% for loans between Oct. 1, 2018 and Sept. 30, 2019. Under certain conditions, a parent may be eligible to have part of the loan forgiven or discharged.

Home equity.   Parents may be able to take out a secured loan, such as a home-equity line of credit or home-equity loan, to pay education costs. With a home-equity line of credit, borrowers withdraw money as they need it, up to a certain amount. These loans often have a floating interest rate, and borrowers generally have 10 to 20 years to pay the money back. A home-equity loan, by contrast, is a one-time lump-sum loan that often comes with a fixed interest rate. The interest rates on home loans may be more favorable than other types of loans, but parents need to consider factors such as their home’s value, how much they owe, how much they need and whether they are comfortable putting up their home as collateral before proceeding, experts say.

Private parent loans. Private lenders such as Sallie Mae and College Ave Student Loans offer private student loans for parents. Typically, these loans are available to people with strong credit histories. Borrowers may be able to choose between a variable or fixed rate and determine a repayment option that works for them. On the downside, these loans could be more expensive than other alternatives, says Charlie Javice, chief executive of Frank Financial Aid, a company that assists families in the financial-aid process.


Students also have the option of taking on private student loans, which may be offered by state-based agencies, public companies, marketplace lenders or banks. Students generally can borrow up to their cost of attendance.

These kinds of loans usually require a cosigner – often the parent – because most college-age students don’t have the necessary credit history to obtain a loan on their own. With a cosigned loan, payment history – good and bad – will affect the credit record of both people on the loan.

Parents who cosign a private student loan need to consider the possibility that the child could be delinquent or default, Ms. Javice says. This can be a long-term concern since borrowers typically have about 10 years or more to pay off these loans. Several years out of school a child could lose a job, become an addict, go through a divorce or be unable to pay for some other reason, and the parent will be on the hook, Ms. Javice says. In some cases, the loan could become a stain on the parents’ credit record, which might affect their ability to borrow money to buy a home or a car, she says.

For some parents, the desire to encourage fiscal independence and responsible financial behavior in their children outweighs the fear that they could end up on the hook for the child’s debt.

They want their child named on the loan in the belief it will motivate the student to do well in school, finish on time and even spend the money more responsibly, says Mr. DePaulo of College Ave Student Loans. There are also parents who plan to cover the debt on the student’s behalf, but prefer the loan be in their child’s name to start the child’s credit history out on the right foot, he says.

There’s no hard and fast rule about which type of private loan – parent or student – will be the least expensive or most beneficial. Different loans have different rates, perks and requirements, so families should shop around and compare how the various options stack up, says Ms. Chromy of the Education Finance Council.

Families “should explore all their options so that they can make an informed choice that best reflects their needs,” she says.”

Credit given to Cheryl Winokur Munk
Wall Street Journal
Monday, July 9, 2018

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.

This week’s author – Mark Bradstreet, CPA

–until next week.

Tax Tip of the Week | When to Ignore the Crowd and Shun a Roth IRA Conversion October 3, 2018

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

Tax Tip of the Week
October 3, 2018


This is a great article! Laura Saunders is right on point! Many of these factors could also apply to any spike in taxable income in a particular year. Enjoy!

“Switching your traditional individual retirement account to a Roth IRA is often a terrific tax strategy – except when it’s a terrible one.

Congress first allowed owners of traditional IRAs to make full or partial conversions to Roth IRAs in 2010.

Since then, savers have done more than one million conversions and switched more than $75 billion from traditional IRAs to Roth accounts.

The benefits of a Roth conversion are manifold. A conversion gets retirement funds into an account that offers both tax-free growth and tax-free withdrawals. In addition, the account owner doesn’t have to take payouts at a certain age.

While traditional IRAs can also grow tax-free, withdrawals are typically taxed at ordinary income rates. Account owners 70 ½ and older also must take payouts that deplete the account over time.

IRA specialist Ed Slott and Natalie Choate, an attorney in Boston, say that Roth IRAs also yield income that is “invisible” to the federal tax system. So Roth payouts don’t raise reported income in a way that reduces other tax breaks, raises Medicare premiums, or increases the 3.8% levy on net investment income.

Yet both Ms. Choate and Mr. Slott agree that despite their many benefits, Roth conversions aren’t always a good idea.

IRA owners who convert must pay tax on the transfer, and the danger is that savers will give up valuable tax deferral without reaping even more valuable tax-free benefits. For tax year 2018 and beyond, the law no longer allows IRA owners to undo Roth conversions.

Savers often flinch at writing checks for Roth conversions, and sometimes there are good reasons not to put pen to paper. Here are some of them.

Your tax rate is going down. In general, it doesn’t make sense to do full or partial Roth conversions if your tax rate will be lower when you make withdrawals.

This means it’s often best to convert in low-tax rate years when income dips. For example, a Roth conversion could work well for a young saver who has an IRA or 401(k) and then returns to school, or a worker who has retired but hasn’t started to take IRA payouts that will raise income later.

Those who will soon move to a state with lower income taxes should also consider waiting.

You can’t pay the taxes from “outside.” Mr. Slott advises IRA owners to forgo a Roth conversion if they don’t have funds outside the account to pay the tax bill. Paying the tax with account assets shrinks the amount that can grow tax-free.

You’re worried about losses. If assets lose value after a Roth conversion, the account owner will have paid higher taxes than necessary. Ms. Choate notes that losses in a traditional IRA are shared with Uncle Sam.

A conversion will raise “stealth” taxes. Converting to a Roth IRA raises income for that year. So, benefits that exist at lower income levels might lose value as your income increases. Examples include income tax breaks for college or the 20% deduction for a pass-through business.

Higher income in the year of a conversion could also help trigger the 3.8% tax on net investment income, although the conversion amount isn’t subject to this tax. The threshold for this levy is $200,000 for singles and $250,000 for married couples, filing jointly.

You’ll need the IRA assets sooner, not later. Roth conversions often provide their largest benefits when the account can grow untouched for years. If payouts will be taken soon, there’s less reason to convert.

You make IRA donations to charity. Owners of traditional IRAs who are 70 ½ and older can donate up to $100,000 of assets per year from their IRA to one or more charities and have the donations count toward their required payouts.

This is often a highly tax-efficient move. But Roth IRA owners don’t benefit from it, so that could be a reason to do a partial rather than full conversion.

Financial aid will be affected. Retirement accounts are often excluded from financial-aid calculations, but income isn’t. If the income spike from a Roth conversion would lower a financial-aid award, consider putting it on hold.

You’ll have high medical expenses. Under current law, unreimbursed medical expenses are tax deductible above a threshold. For someone who is in a nursing home or has other large medical costs, this write-off can reduce or even wipe out taxable income. If all funds are in a Roth IRA, the deduction is lost.

You think Congress will tax Roth IRAs. Many people worry about this, although specialists don’t tend to. They argue that Congress likes the up-front revenue that Roth IRAs and Roth conversions provide and is more likely to restrict the current deduction for traditional IRAs and 401(k)s- as was considered last year.

Other proposals to limit the size of IRAs and 401(k)s to about $3.4 million, to make non-spouse heirs of traditional IRAs withdraw the funds within five years, and to require payouts from Roth IRAs at age 70 ½ also haven’t gotten traction so far.”

Credit given to Laura Saunders, Wall Street Journal
Saturday/Sunday, August 18-19, 2018

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.

This week’s author – Mark Bradstreet, CPA

–until next week.