Professional Accounting Blog

    Accounting For Your Prosperity

    Karen McCarthy

    Karen McCarthy, with 25+ years of tax planning experience, is a Vice President at Meaden & Moore and the Director of the Personal Tax Advisory Group.

    Recent Posts

    Decoding the Impact of the Pease Limitation on Charitable Giving

    Posted by Karen McCarthy on Jul 24, 2014 8:00:00 AM

    Topics: Tax Planning & Strategies

    Decoding-Impact-Pease-Limitation-Charitable-GivingOne of the tax changes that increased the tax liabilities of high-income taxpayers in 2013 was the reintroduction of the limitation on itemized deductions. This limitation is commonly referred to as the “Pease limitation,” and is named after Donald Pease, the Ohio Congressmen who introduced it. Although the Pease limitation was initially introduced in 1990, subsequent tax acts had gradually phased out the Pease limitation and by 2010, it had been completely repealed. When it was restored in 2013, the Pease limitation generally had the effect of a 1% income tax surcharge to the tax liabilities of those taxpayers who were affected by it.

    For 2014, the Pease limitation applies when AGI exceeds $305,040 for joint filers and $254,200 for individuals.  Income over these threshold amounts will trigger a limitation on most itemized deductions (including charitable contributions, mortgage interest, state and local income taxes, real estate taxes, and miscellaneous itemized deductions). The limitation generally is equal to 3% of AGI above the applicable amount; however, the limitation can never exceed 80% of the amount of the itemized deductions otherwise allowable for the taxable year.

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    Planning for the Possible Restoration of the Charitable IRA Rollover in 2014

    Posted by Karen McCarthy on Jun 17, 2014 12:08:00 PM

    Topics: Tax Planning & Strategies

    Restoration-Charitable-IRA-RolloverQualified charitable distributions (“QCDs”) – sometimes referred to as charitable IRA rollovers - allow individuals age 70 1/2 and older to distribute up to $100,000 from a traditional or Roth IRA directly to most public charities (other than private foundations and donor-advised funds).

    Created by the Pension Protection Act of 2006, QCDs were originally effective from August 17, 2006 through the end of 2007. Congress extended them through 2009 – and then extended them again through 2011. QCDs were expired for 2012, but in 2013, the American Taxpayer Relief Act of 2012 (ATRA), retroactively restored QCDs for 2012 and extended them through 2013. QCDs expired as of December 31, 2013, but is one of 55 provisions contained in an $85 billion tax extenders bill (HR 3474). HR 3474 was passed by the House on March 11, 2014, but currently is stalled in the Senate. On May 29, 2014, the House Ways and Means Committee approved an individual bill which would retroactively restore QCDs (to January 1, 2014) and, finally, would make them permanent for future years.

    We sat down with Karen McCarthy and Natalie Takacs of Meaden & Moore’s Personal Tax Advisory Group to discuss QCD planning for 2014. Takacs begins by discussing the potential benefits of QCDs:

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    Tax Attorney Learns Important Lessons About IRA Rollovers

    Posted by Karen McCarthy on May 6, 2014 11:02:00 AM

    Topics: Tax Planning & Strategies

    IRS To Impose 1-year Waiting Period for IRA Rollovers on Aggregate Basis

    A distribution from an IRA generally is not taxable to a taxpayer to the extent that the taxpayer rolls the amount over to an eligible retirement plan within 60 days.  Although the Internal Revenue Code provides that this rollover provision can only be used to avoid having to include a distribution in income once in a 12-month period, both proposed regulations and an IRS publication indicated that the 1-year waiting period was to be applied on an IRA-by-IRA basis.  In the recent decision of Bobrow V. Commissioner, T.C. Memo 2014-21, however, the Tax Court held that the limitation applies on an aggregate basis, meaning that an individual could not make an IRA-to-IRA rollover if he or she had made such a rollover involving any of the individual’s IRAs in the preceding 1-year period.  On March 20, 2014, the IRS released Announcement 2014-15 indicating that it anticipates that it will follow the Bobrow aggregation rule.  Following Bobrow, no matter how many IRAs a taxpayer has, he or she will only be able to make one tax-free rollover in a 12 month period. 

    We sat down with Karen McCarthy and Natalie Takacs of Meaden & Moore’s Personal Tax Advisory Group to discuss the Bobrow case and its implications for taxpayers with IRAs.  Takacs begins by explaining the facts of the Bobrow case: 

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    Proposed Changes to Post-Death RMDs

    Posted by Karen McCarthy on Mar 18, 2014 9:35:00 AM

    Topics: Tax Planning & Strategies

    President Obama and House Ways and Means Committee Both Propose 5-Year Post-Death Payout Period for Non-spousal Beneficiaries of Qualified Retirement Plans and IRAs

    On March 4, President Obama released his federal budget proposals for fiscal year 2015. Although President Obama’s budget proposal does not call for many of the broad tax reforms proposed by the House Ways and Means Committee’s “Tax Reform Act of 2014,” the two documents notably contain similar proposals to simplify the complex required minimum distribution rules that apply when owners of IRAs and participants in employer-sponsored retirement plans die. 

    Current Law

    Under current law, owners of traditional IRAs and employees in employer-sponsored retirement plans (both defined contribution and defined benefit plans) are subject to required minimum distribution (RMD) rules, which generally require the IRA owner (other than Roth IRAs) or employee (if he has retired) to take minimum distributions beginning at age 70½ or pay a 50-percent excise tax on the amount of such distributions.

    Special rules apply when the IRA owner (including a Roth IRA owner) or employee dies before the entire account balance has been withdrawn.

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    Required Minimum Distribution Tips & Traps – Part I

    Posted by Karen McCarthy on Feb 11, 2014 4:49:00 PM

    Topics: Tax Planning & Strategies

    Common Reasons Why RMDs are Missed

    As discussed in our last blog, the deadline for receiving required minimum distributions (RMDs) generally is December 31st, and the IRS imposes a 50% penalty to the extent that distributions are not timely received.  Unfortunately, the fact that a RMD was not timely paid – or the fact that the amount of the RMD that was paid was not proper – often is not discovered until after the deadline. 

    This article will address some of the more common reasons why RMDs are missed and our next blog post will address some of the more common errors made in calculating RMDs amounts.

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    Satisfying the Year-end Deadlines for Charitable Contribution Tax Deductions

    Posted by Karen McCarthy on Dec 23, 2013 3:33:00 PM

    Topics: Tax Planning & Strategies

    Whether due to the demands of the holiday season or just plain old procrastination, many taxpayers find themselves making significant charitable contributions close to the December 31st deadline for year end tax deductions. For some taxpayers, the timing of a deduction can have a material impact on the value of a deduction. For example, a $1,000 donation by a taxpayer whose marginal tax rate is 15% is $150 while the value of the same donation by a taxpayer subject to the top marginal tax rate of 39.6% is $396. For taxpayers who expect their marginal tax rates to decrease from 2013 to 2014, completing their charitable contributions by December 31, 2013 can result in significant tax savings. The following is a summary of the timing rules for various types of charitable contributions: 

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    Tax Implications of a Non-US Resident Working in The US

    Posted by Karen McCarthy on Nov 14, 2013 10:01:00 AM

    Topics: Tax Planning & Strategies

    Like many companies, you may need to hire the talent and services of foreign nationals or nonresident aliens from around the world to fill critical positions at your company. To hire these workers with confidence, it’s important to understand the tax rules and regulations as they relate to nonresident employees.

    For tax purposes, the IRS categorizes individual workers into four groups: 1) U. S. citizen, 2) permanent resident alien, 3) resident alien (green card) and 4) nonresident alien. 

    Below are some basic tax accounting considerations when hiring nonresident employees. 

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    What is Involved in Converting a Traditional IRA to a ROTH IRA?

    Posted by Karen McCarthy on Sep 17, 2013 10:49:00 AM

    Topics: Tax Planning & Strategies

    IRAs are a major piece of the retirement planning puzzle, as they offer a safe, stable investment with some considerable tax advantages. When it comes to IRAs, many financial planners and investors prefer Roth IRAs to Traditional IRAs, for a number of reasons. As long as a number of basic requirements are met, distributions from a Roth IRA are tax-free. Roth IRAs also do not require minimum distributions at age 70 and ½. In fact, a Roth IRA can be passed on with a tax-free income stream to your heirs. Before converting your Traditional IRA into a Roth IRA, there are a few important aspects of the process to consider.

    Is a Roth IRA right for you?

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    Foreign Bank Account Reporting - File Now or Pay Later

    Posted by Karen McCarthy on Sep 12, 2013 9:03:00 AM

    Topics: Tax Planning & Strategies

    Ever since the Treasury Department started to crack down on compliance to file the Report of Foreign Bank and Financial Assets, many U.S. persons (individuals, entities and trusts included), have made filing part of the annual tax filing ritual.  A simple form with a quirky name, TD F 90-22.1, is filed annually by June 30 following the reporting tax year.  What does it involve?  In most cases, it requires reporting the account balance and name and address of the foreign banks and institutions for which you held an aggregate account balance over $10,000 at any time during the tax year. If the account balance exceeds higher thresholds, there may be additional reporting with your tax return.  

    If you earned income on your foreign accounts, you must report that, too.  If you aren't aware, U.S. resident taxpayers are taxed on their world-wide income. Income is reportable from any source regardless of the value of the account it is derived from.

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