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One Wrong Move and the Entire IRA is Taxed | Tax Tip of the Week | No. 217 September 25, 2013

Posted by bradstreetblogger in : Tax Planning Tips, Tax Tip, Taxes, Taxes , 1 comment so far

What You Need to know About Inherited IRAs

A couple of weeks ago (see TTW #211) we talked about the many advantageous of Roth IRAs.  This week we will look at inherited traditional IRAs.

The advantage of owning a traditional IRAs is that they grow tax-deferred and are only taxed when you take a distribution.  Typically, if you take a distribution prior to age 59.5 you will pay a 10% premature distribution penalty.  You must also take Required Minimum Distributions (RMDs) when you reach age 70.5.  The rules of inherited IRAs, however, are very specific and need to be understood by anyone planning to leave an IRA—or if you plan to inherit and IRA.

-If a spouse is the sole designated beneficiary the rules are pretty basic.  The IRA account should be retitled to their name.  (Example:  John and Mary Smith are married and John dies first.  The inherited IRA should be retitled “John Smith [deceased August 28, 2013] for benefit of (FBO) of Mary Jones, beneficiary”).  If John died before RMDs started, then the maximum distribution period is Mary’s life expectancy.  If John died after RMDs occurred, the maximum distribution period is the longer of Mary’s life expectancy or John’s remaining life expectancy.

By retitling the IRA Mary can take distributions and avoid the 10% premature distribution penalty if she is under age 59.5.  If Mary is more than ten years younger than John, she should retitle the account again at age 59.5.  This lets her defer any future withdrawals until she reaches age 70.5.  If she doesn’t take this step, withdrawals must start when John would have reached age 70.5.

-If a nonspouse is the designated beneficiary (John and Mary’s son, Bobby for example), they cannot roll the money into an IRA in Bobby’s name.  Once again, it should be retitled as described above in the child’s name. (Example:  “John Smith [deceased August 28, 2013] for benefit of (FBO) of Bobby Jones, beneficiary”).  If there are multiple heirs, each recipient should retitle the IRAs as described in their respective names.

The maximum distribution period for the IRA is now Bobby’s life expectancy.  Once again, by retitling the IRA Bobby will avoid any premature distribution penalties if he is under age 59.5.

The rules of inherited IRAs where a trust is the designated beneficiary or if there is no designated beneficiary listed go beyond the scope of this Tax Tip.

If you plan on leaving an IRA to your heirs—or if you are going to inherit an IRA, you should definitely call us before calling the IRA custodian!

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.


IRS Issues Tax Guidance for Same-Sex Marriages | Tax Tip of the Week | No. 216 September 18, 2013

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

These Changes Affect 2013 Tax Returns…. 

The U.S. Department of the Treasury and the Internal Revenue Service (IRS) on September 4, 2013 ruled that same-sex couples, legally married in jurisdictions that recognize their marriages, will be treated as married for federal tax purposes. The ruling applies regardless of whether the couple lives in a jurisdiction that recognizes same-sex marriage or a jurisdiction that does not recognize same-sex marriage.

Under the ruling, same sex couples will be treated as married for all federal tax purposes, including income and gift and estate taxes. However, the ruling does not apply to registered domestic partnerships, civil unions, or similar formal relationships recognized under state law.

Legally-married same-sex couples generally must file their 2013 federal income tax return using either the “married filing jointly” or “married filing separately” filing status. Individuals who were in same-sex marriages may, but are not required to, file original or amended returns choosing to be treated as married for federal tax purposes for one or more prior tax years still open under the statute of limitations. If a protective claim was filed, the taxpayers are permitted to file refund claims to tax years 2009 and earlier.

The entire press release, Revenue Ruling 2013-17 and FAQs can be found in NATP’s Tax Guidance for Same-Sex Marriages page.

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.


This Deadline is Approaching Soon… | Tax Tip of the Week | No. 215 September 11, 2013

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

Employers Still Face October 1st Deadline for Employee Notification 

All employers are required to provide employees with notices describing the health insurance marketplaces. This is one of the many provisions of the Affordable Care Act that was not delayed.

The Department of Labor has created notice templates for employers who provide health benefits and employers that do not. All employers, regardless of their size, must distribute these by Oct 1.

In related news, the IRS has issued guidance on the tax credit available to certain small employers that offer health insurance coverage to employees.

Section 45R(a) provides for a health insurance tax credit in the case of an eligible small employer for any taxable year in the credit period.

The regulations define an eligible small employer as:

• An employer with no more than 25 full-time employees for the taxable year

• Whose employees have average annual wages of less than $50,000 per FTE (as adjusted for inflation for years after Dec. 31, 2013)

• Having a qualifying arrangement in effect that requires the employer to pay a uniform percentage (not less than 50%) of the premium cost of a qualified health plan offered by the employer through a Small Business Health Options Program – or SHOP – Exchange.

We will try to keep you posted on the ever-changing rules of the Affordable Care Act.

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.


Highlights of Ohio’s Latest Tax Law Changes | Tax Tip of the Week | No. 214 September 4, 2013

Posted by bradstreetblogger in : Tax Deadlines, Tax Tip, Taxes, Taxes , 1 comment so far

Ohio’s Tax Law Changes Started This Week

Ohio Governor John Kasich and the Ohio General Assembly recently approved a new two-year state budget that includes some significant state tax law changes.  The first change became effective September 1, 2013.  The following are the highlights of the new tax laws:

  • The state sales and use tax   increased from 5.5% to 5.75% on September 1, 2013.  Combined with the additional county taxes, this means the new sales tax rate for Montgomery country residents will be 7.25%.  Greene and Warren county residents will now pay a 6.75% sales tax.
  • A 10% personal income tax cut will be phased in over three years.  In 2013, you will see an 8.5% reduction in your state income tax.  In 2014, the tax rate cut will increase .5% to a 9% reduction in state income taxes.  In 2015, an additional 1% tax rate cut will become effective for the full 10% reduction in state income taxes.
  • Ohio small business owners will be entitled to take a 50% tax reduction on the first $250,000 of business income in 2013.  This maximum $125,000 tax savings is available to owners/investors of companies structured as pass-through entities (S-corporations and partnerships)
  • The $20 personal exemption credit will be available only to households with Ohio taxable income under $30,000
  • The 10% and 2.5% “rollbacks” (reductions) of property taxes will be eliminated for any new and replacement tax levies passed in November 2013.  Existing levies and renewals will continue but will not increase if new local real estate millage is added.
  • The “Homestead Exemption” available to Ohio property owners age 65 and over will become means tested.  This means that only homeowners age 65 and older will receive the property tax reduction if their income is less than $30,000 for those applying in 2014.  Currently eligible homeowners will not be impacted.
  • Other changes are being made to the Commercial Activity Tax (CAT), Motor Fuel Receipts Tax, sales taxes with Ohio nexus and tobacco taxes.

State officials say these tax laws changes will create $2.7 billion in tax cuts for individuals and small business while increasing and additional $1.5 billion in new funds for education over the next three years.

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.