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Tax Tip of the Week | No. 317 | Changes You Need to Know About Credit Card Processing August 26, 2015

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

Tax Tip of the Week | August 26, 2015 | No. 317 | Changes You Need to Know About Credit Card Processing

If you process credit card transactions, you need to know about EMV…

“EMV” is shorthand for Europay, MasterCard and Visa, three major players that joined forces to create protocols for global payment card acceptance. The EMV system works with point-of-sale terminal and ATM manufacturers and credit card processors to ensure that new cards embedded with electronic chips work worldwide. It is the only effective and efficient technology now in use that can prevent payment card fraud on a global scale.

How are you affected?

On Oct. 1, 2015, fraud liability shifts from issuers to merchants for counterfeit card fraud for merchants not using an EMV compliant device. (Fuel merchants have until Oct. 1, 2017).

Studies show the fraud rate is higher in the U.S. than in other countries. In Europe credit card fraud has been reduced by 80% after migrating to EMV; compared to a 47% increase in the U.S. during the same time, but without the migration.

Non-compliant merchants are subject to a liability shift for card-present counterfeit fraud transactions. If the merchant accepts a non-EMV card, has an EMV point-of-sale device and the transaction is fraudulent, the merchant has chargeback rights.

If the merchant accepts an EMV card and does not have an EMV point-of-sale device, then the merchant does not have chargeback rights.

Merchants that have EMV-capable terminals will need a download to enable EMV acceptance and possibly a peripheral device for contactless EMV card processing.

A full-service payment processor, TransFirst can provide savings, choice and support for businesses that process Visa, MasterCard, Discover and American Express cards in person, by mail or phone, online or with a mobile device.
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.

Tax Tip of the Week | No. 316 | No Theft on Worthless Stock, Says Court August 19, 2015

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

Tax Tip of the Week | August 19, 2015 | No. 316 | No Theft Loss on Worthless Stock, Says Court

Here is a recent court case you should know about…

The District Court for the Northern District of Ohio denied a couple’s theft loss deduction for the worthless stock they acquired as part of a “pump and dump” scheme.

The taxpayers, Robert and Penny Greenberger, filed an amended 2010 tax return claiming the theft loss of $569,220 spent on stock in Spongetech Delivery Systems, Inc., which they said entitled them to a refund of $177,102. The Internal Revenue Service denied the deduction.

The court observed that the disagreement is not whether the Greenbergers will be able to claim a loss for their stock, but rather what kind of a loss. If the theft loss deduction is disallowed, they would still be able to claim a capital loss for the value of their shares, while a theft loss deduction is taken against ordinary income for the full amount of the loss in the year it is discovered. In contrast, non-corporate taxpayers may indefinitely carry forward capital losses, taking a $3,000 deduction against ordinary income and using the remainder of the capital loss to offset any capital gains.

“Thus, the disagreement goes to the timing of when the deduction may be taken, and how much of the loss may be deducted from ordinary income as opposed to offset against capital gains,” the court observed. “The distinction matters, since capital gains are subject to lower tax rates than ordinary income.”

The court noted that due to the lack of direct connection between wrongdoer and victim, the theft-loss deduction is generally not allowed in cases where the value of shares bought on the open market declines due to fraud. The IRS has also taken the position that stock acquired on the open market that loses value due to corporate misconduct is not eligible for the theft-loss deduction, although it can still qualify for a capital loss.

The court considered whether the aggressive promotion of the stock by the Greenbergers’ financial adviser changed the outcome. The Greenbergers suggested that the adviser, Douglas Furth, was an agent of Spongetech and told people to buy the stock to further the pump-and-dump scheme. According to the Greenbergers, if Furth specifically targeted them, there could be sufficient privity (that is, a sufficiently close relationship) to make them the victims of a theft.

Not so, said the court.

“Even if Furth were an agent of Spongetech, the fact the Greenbergers purchased their shares on the open market such that there was no direct transfer of funds [to Spongetech executives or Furth] makes the Greenbergers ineligible for the theft-loss deduction,” the court said.

It appears the key point here is the investment was purchased on the open market as opposed to the rash of Ponzi schemes that have occurred recently.

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.

Tax Tip of the Week | No. 315 | Make the Most of RMDs August 12, 2015

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

Tax Tip of the Week | August 12, 2015 | No. 315 | Making the Most of RMDs

When a person reaches age 70.5, and they have an IRA account, they must start taking Required Minimum Distributions (RMD) annually.

If a retiree has sufficient assets and doesn’t need to spend the required minimum distributions from their retirement plans, they might be frustrated by being forced to take them and incur the associated tax liability. There are ways, however, that they can make lemonade from a lemon. Here are several ideas:

Buy life insurance: Life insurance provides a potential tax-free death benefit to heirs, and lets the retiree, through leverage, possibly give those heirs more than they would wind up with by inheriting what remains of the IRA. This option is particularly attractive for those whose beneficiaries are in a higher tax bracket than themselves.

Purchase long-term-care insurance: Long- term-care insurance can provide retiree’s a way to protect their assets should they need in-home or assisted nursing care. With the ever-growing cost of assisted living, it will be important for many people to have this coverage.

Fund a 529 plan: This can be a great way to leave a legacy for children or grandchildren. If the retiree has an RMD that is more than the IRS annual gifting limit, using 529 plans allows them to gift five times the annual gifting limit in one year. Keep in mind that strategy can only be used once every five years.

Make a charitable gift using a donor-advised fund: Charitably inclined retirees can use their unwanted RMDs to give money to their favorite charity through a donor-advised fund. A donor-advised fund allows them to make a tax-deductible (up to 50% of adjusted gross income) contribution to the fund. The fund managers then manage the assets and make distributions to your charity of choice. The investments grow tax free, offering the potential to give more over time.

Use the RMD to pay the tax due on a Roth conversion: Roth IRAs do not have an RMD requirement. Retirees can use their current unwanted RMD to pay the taxes due upon converting their traditional IRA to a Roth. The amount converted would be subject to ordinary income tax, but once it is converted there would no longer be an RMD requirement.

Re-invest: There are worse things you can do than simply to re-invest unneeded RMDs in taxable accounts. If they are invested in individual securities and held for the long term, taxation of gains on those assets (assuming they do indeed gain in value) can be deferred for a long time.

Give us a call to see what tax savings ideas might work for you!
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.

Tax Tip of the Week | No. 314 | Middle Class Families Shrink College Fund Contributions August 5, 2015

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

Tax Tip of the Week | August 5, 2015 | No. 314 | Middle Class Families Shrink College Fund Contributions

Here are the findings of a recent report….

Fewer parents are finding the money to save for their kids’ college. And those who are saving, are saving less. (Bloomberg Business)

After a 30 percent jump in the level of average savings for 2013, the day-to-day cost of living, combined with lower earnings and unexpected expenses, helped push the amount parents have saved for their kids’ college down 25 percent in 2014, according to a new survey. The average savings level of $10,040 is the lowest in three years.

Parents still value college as much as ever, according to a report released on Wednesday by Sallie Mae. Many still couldn’t match 2013’s savings. The share of middle-class families that saved for college dropped to 46 percent, from 51 percent, the first time in the survey’s five-year history that it fell below 50 percent.

Among the income groups broken out, middle-class households also had the highest share saying they’d cut back on household expenses to add to savings in the past year, at 27 percent. (Middle-class families are defined in the survey as having between $35,000 and $100,000 in income.)

On a more positive note, single-parent families are saving a surprising amount, and even saving more than multi-parent families. Single parents have put away an average $11,868 for their children’s college costs, compared with $10,341 for parents who live together.

When choosing how to save, about half of all families rely on basic savings accounts, which, as anyone with a savings account knows, yield next to nothing. And 32 percent of lower-income families use checking accounts. These are dangerous places for would-be savers to plunk money, because they’re easy to tap.

A tax-advantaged 529 college savings account invested largely in equities—depending on how far off college payments are—could be a better way to save. In the 2014 survey, which looked back on a year when the Standard & Poor’s 500 Index rose about 27 percent, Sallie Mae says the 30 percent increase in the average amount saved for college was driven by gains for middle- and high-income families in the value of those savings. The S&P 500 gain college savers looked back on in this year’s survey was about 11 percent.

Households making $100,000 or more, which are the top income group broken out in the survey, are big users of 529s. Just under 50 percent use them, up from 45 percent in the prior year’s survey. The average amount saved in them: almost $19,000, up from $16,500 last year.

The far lower use of 529 plans among lower- and middle-income families may be due in part to confusion. In the survey, many people thought they wouldn’t have enough money to start an account or just didn’t understand how they worked, says Rich Castellano, Sallie Mae’s vice president of corporate communications.

The plans, which do have complicated rules, allow earnings to grow tax-free, and investment earnings aren’t taxed as long as they’re used for educational expenses. Fees on the plans have been falling, and some states, such as Louisiana, offer subsidies that mean there is no fee at all on a basic plan for residents.

While lower college savings are bad news, there was some good news in the survey. People are improving their savings habits, with more using direct deposit to save, more setting aside money each pay period, and more putting part of a tax refund toward college savings. If incomes continue to rise, more people may be primed to save.

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.