Individual Retirement Accounts Kinds of IRAs and Prohibited Transactions

Tax E Man — Tax Consultation, Preparation, Representation

IRA Pic2

Kinds of IRAs and Prohibited Transactions

You can open different kinds of IRAs with a variety of organizations. You can open an IRA at a bank or other financial institution or with a mutual fund or life insurance company. You can also open an IRA through your stockbroker. Any IRA must meet Internal Revenue Code requirements, which are listed below for various arrangements.

Traditional IRAs

Your traditional IRA can be an individual retirement account or annuity. It can be part of either a simplified employee pension (SEP) or an employer or employee association trust account.

Read 2016 Individual Retirement Accounts Kinds of IRAs and Prohibited Transactions

SIMPLE IRAs

A savings incentive match plan for employees (SIMPLE) plan is a tax-favored written agreement (salary reduction) between you and your employer that allows you to
choose to reduce your compensation (salary) by a certain percentage each pay period, and have your employer contribute the salary reductions to a SIMPLE IRA on your behalf.

All contributions under a SIMPLE IRA plan must be made to a SIMPLE IRA, not to any other type of IRA. The SIMPLE IRA can be an individual retirement account or an individual retirement annuity, described above.

If your employer maintains a SIMPLE IRA plan, you must be notified, in writing, that you can choose the financial institution that will serve as trustee for your SIMPLE IRA and that you can roll over or transfer your SIMPLE IRA to another financial institution.

Roth IRAs

A Roth IRA can be either an individual retirement account or individual retirement annuity, described above. To be a Roth IRA, the account or annuity must be designated as a Roth IRA when it is opened. A SEP IRA or SIMPLE IRA cannot be designated as a Roth IRA.

Designated Roth accounts. Designated Roth accounts are separate accounts under 401(k), 403(b), or 457(b) plans that accept elective deferrals that are referred to as Roth contributions. These elective deferrals are included in your income, but qualified distributions from these accounts are not included in your income. Designated
Roth accounts are not IRAs and should not be confused with Roth IRAs. Contributions, up to their respective limits, can be made to Roth IRAs and designated Roth accounts according to your eligibility to participate. A contribution to one does not impact your eligibility to contribute to the other.

Read 2016 Individual Retirement Accounts Kinds of IRAs and Prohibited Transactions

Prohibited Transactions

Generally, a prohibited transaction is any improper use of your IRA account or annuity by you, your beneficiary, or any disqualified person.

Disqualified persons include your fiduciary and members of your family (spouse, ancestor, lineal descendant, and any spouse of a lineal descendant). The following are some examples of prohibited transactions with an IRA.
• Borrowing money from it.
• Selling property to it.
• Using it as security for a loan.
• Buying property for personal use (present or future) with IRA funds.

Read 2016 Individual Retirement Accounts Kinds of IRAs and Prohibited Transactions

Any accounting, business or tax advice contained in the Tax E Man Blog or www.PatTax.net, including attachments, links and enclosures, are not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax related penalties.

If desired, Pat Tax, Inc. would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired.

The Tax E Man Blog, along with our website www.PatTax.net, are designed to be year round resources for tax consultation, preparation and representation services provided by Pat Tax, Inc. . Please feel free to contact us with any questions or concerns.

“Empowering clients through education, a stress free transaction and an excellent service experience.”

Individual Retirement Accounts-Roth IRAs

IRA Senior

Roth IRAs

Roth IRA Contribution Limits—2016
Lesser of: Taxable compensation for the year, or:
Under age 50………………………………………………………………………. $ 5,500
Age 50 or older……………………………………………………………………. $ 6,500

What is a Roth IRA?
A Roth IRA is an individual retirement arrangement. It is a personal savings plan that gives you tax advantages for setting aside money for retirement. An account must be designated as a Roth IRA when opened. Roth IRA tax advantages and rules compared to a traditional IRA:

Contributions are not deductible. Active participation in an employer plan is irrelevant.
If certain requirements are satisfied for qualified distributions, distributions are tax free.
Can withdraw contributions any time for any reason without owing taxes or penalties.
Contributions can be made after the participant reaches age 70½.
The required minimum distribution (RMD) rules do not apply. Distributions are not required until death of the participant.
Contributions are not allowed when modified adjusted gross income (MAGI) is above certain limits
Neither a SEP IRA nor a SIMPLE IRA can be set up as a Roth IRA

Click and Read 2016 Individual Retirement Accounts Roth IRAs Here

Who Can Contribute to a Roth IRA?
Generally, you can contribute to a Roth IRA if you have taxable compensation and income less than the top of the phase-out range for your filing status, see Roth IRA
Phase-outs chart, in link below..

Click and Read 2016 Individual Retirement Accounts Roth IRAs Here

“Empowering clients through education, a stress free transaction and an excellent service experience.”

Individual Retirement Accounts-Traditional IRAs

AfricanAmericanCouple

Traditional IRAs

IRA Contribution Limits—2016
Lesser of: Taxable compensation for the year, or:
Under age 50………………………………………………………………………. $ 5,500
Age 50 or older……………………………………………………………………. $ 6,500

What is an IRA?
An IRA is an individual retirement arrangement. It is a personal savings plan that gives you tax advantages for setting aside money for retirement. An IRA is referred to as a traditional IRA if it is not a Roth IRA or a SIMPLE IRA. Traditional IRAs include SEP IRAs.
Traditional IRA tax advantages and rules:

Contributions to an IRA may be fully or partially deductible.
Amounts in your IRA (including earnings and gains) are not taxed until distributed.
There is no limit on how much you can earn and still contribute (however, contributions are not deductible above certain amounts).
Contributions are not allowed past age 70½ and required minimum distributions begin after age 70½.
Early distributions (before you are age 59½) are subject to a 10% additional tax. Exceptions apply.
Distributions are taxed as ordinary income.

Who Can Contribute to an IRA?
Any individual can set up a traditional IRA if he or she receives taxable compensation during the year and is not age 70½ by the end of the year. An individual can have a traditional IRA even if covered by an employer-sponsored retirement plan. However, the deductible amount of contributions to a traditional IRA may be phased out. See Reduced IRA Deduction, later.

Contribution limit. Contributions to IRAs are limited to the lesser of the individual’s compensation (or spouse’s compensation under a spousal IRA), or $5,500 ($6,500 for age 50 or older).

Click and Read 2016 Individual Retirement Accounts Traditional IRAs Here

Total contributions are combined with Roth IRA contributions to determine limits. For example, a $1,000 contribution to a Roth IRA will reduce total contributions allowable to a traditional IRA by $1,000.

Spousal IRA. If both spouses have compensation, each can set up a separate IRA. Spouses cannot participate in the same IRA. If filing status is Married Filing Jointly and one spouse’s compensation is less than the contribution limit, the lower-income spouse can use the compensation of the other spouse to qualify. However, the spousal IRA is limited to total compensation reduced by any IRA contributions.

This means that the total combined contributions that can be made for the year to your IRA and your spouse’s IRA can be as much as $11,000 ($12,000 if only one of you is age
50 or older or $13,000 if both of you are age 50 or older).70½ rule. Contributions cannot be made in a year the participant has reached age 70½ or for any later year.

Click and Read 2016 Individual Retirement Accounts Traditional IRAs Here

“Empowering clients through education, a stress free transaction and an excellent service experience.”

Health Care Reform-State Health Insurance Exchanges

ACA June 6 2

State Health Insurance Exchanges

The Health Insurance Marketplace helps uninsured people find health coverage. When you fill out the Marketplace application online the website will tell you if you qualify for:

Private health insurance plans. The site will tell you whether you qualify for lower costs based on your household size and income. Plans cover essential health benefits, pre-existing conditions, and preventive care. If you don’t qualify for lower costs, you can still use the Marketplace to buy insurance at the standard price.
Medicaid and the Children’s Health Insurance Program (CHIP). These programs provide coverage to millions of families with limited income. If it looks like you qualify, the exchange will share information with your state agency and they’ll contact you. Many but not all states have expanded Medicaid in 2014 to cover more people.

Click and Read 2016 Health Care Reform State Health Insurance Exchanges Here

No Matter What State You Live in, You Can Use the Marketplace
Some states operate their own Marketplace. In some states, the Marketplace is run by the federal government.

Most people must have health coverage in 2015 or pay a fee. If you don’t have coverage in 2015, you’ll have to pay a penalty of $325 per adult, $162.50 per child, or 2% of your income (whichever is higher). The fee increases every year. Some people may qualify for an exemption to this fee. If you enrolled by March 31, 2015, you won’t have to pay the fee for any month before your coverage began.

You’re considered covered if you have Medicare, Medicaid, CHIP, any job-based plan, any plan you bought yourself, COBRA, retiree coverage, TRICARE, VA health coverage, or some other kinds of health coverage.

If you’re eligible for job-based insurance, you can consider switching to a Marketplace plan. But you won’t qualify for lower costs based on your income unless the job-based insurance is unaffordable or doesn’t meet minimum requirements. You also may lose any contribution your employer makes to your premiums.

If you have Medicare, you’re considered covered and don’t have to make any changes. You can’t use the Marketplace o buy a supplemental or dental plan.

Click and Read 2016 Health Care Reform State Health Insurance Exchanges Here

“Empowering clients through education, a stress free transaction and an excellent service experience.”

Health Care Reform-Individual Insurance Requirement

ACA June 6

Requirement to Have Health Insurance

Beginning January 2014, nonexempt U.S. citizens and legal residents are required to maintain minimum essential coverage. Minimum essential coverage can include
government-sponsored programs, eligible employer-sponsored plans, plans in the individual market, grandfathered group health plans, and other coverage as recognized by the Secretary of Health and Human Services (HHS), in coordination with the Secretary of the Treasury.

Government-sponsored programs include Medicare, Medicaid, Children’s Health Insurance Program, coverage for members of the U.S. military, veteran’s health care, and health care for Peace Corps volunteers. Eligible employer-sponsored plans include governmental plans, church plans, grandfathered plans, COBRA coverage, retiree coverage, and other group health plans offered in the small or large group market within a state.

Click and Read 2016 Health Care Reform Individual Insurance Requirement Here

Health Insurance Portability and Accountability Act (HIPAA)

Excepted Benefits
Minimum essential coverage does not include coverage that consists of certain HIPAA excepted benefits. HIPAA excepted benefits include:
1) Coverage only for accident or disability income insurance,
2) Coverage issued as a supplement to liability insurance,
3) Liability insurance, including general liability insurance and automobile liability insurance,
4) Workers’ compensation or similar insurance,
5) Automobile medical payment insurance,
6) Credit-only insurance,
7) Coverage for on-site medical clinics, and
8) Other similar insurance coverage, specified in regulations, under which benefits for medical care are secondary or incidental to other insurance benefits. Other HIPAA excepted benefits that do not constitute minimum essential coverage if offered under a
separate policy, certificate, or contract of insurance include long-term care, limited scope dental and vision benefits, coverage for a disease or specified illness, hospital indemnity or other fixed indemnity insurance, or Medicare supplemental health insurance.

Click and Read 2016 Health Care Reform Individual Insurance Requirement Here

“Empowering clients through education, a stress free transaction and an excellent service experience.”

Health Care Reform-Premium Assistance Credit

2016 Health Care Reform

Premium Assistance Credit

Health Care Reform created a refundable premium assistance credit for eligible individuals and families to subsidize the purchase of health insurance through an exchange.

Eligible individuals enrolled in the plan report their income to the exchange. Based on the income reported, the individual receives a premium assistance credit. The credit is paid directly to the insurance plan. The individual then pays the insurance plan the difference between the credit amount and the total premium charged.

2016 Health Care Reform Premium Assistance Credit

Eligibility
Initial eligibility for the premium assistance credit is based on the individual’s income for the tax year ending two years prior to the enrollment period. Individuals (or couples) who experience a change in marital status or other household circumstance, experience a decrease in income of more than 20%, or receive unemployment insurance, may update eligibility information or request a redetermination of their credit eligibility.

The premium assistance credit is available for individuals (single or joint filers) with household incomes between 100% and 400% of the federal poverty level (FPL) for the family size involved who do not receive health insurance through an employer or a spouse’s employer.

Note: Individuals below 133% of FPL are generally eligible 2016 Health Care Reform Premium Assistance Credit for Medicaid coverage under the new law.

2016 Health Care Reform Premium Assistance Credit

“Empowering clients through education, a stress free transaction and an excellent service experience.”

Health Care Reform Cost Sharing Subsidy for Individuals with High-Deductible Plans

2016 ACA

Cost Sharing Subsidy for Individuals with High-Deductible Plans

Out-Of-Pocket Expense Limits
The health care reform law provides for a cost-sharing subsidy to reduce the maximum annual deductible and out-of-pocket expense limits for high-deductible health
plans for individuals and households between 100% and 400% of the federal poverty level (FPL). A high deductible health plan is currently $6,450 for self-only coverage in 2015 and $12,900 for family coverage in 2015. High-deductible health plans are those plans that
qualify the taxpayer to contribute to a health savings account (HSA) (or allow an employer to contribute to the HSA of an employee).

2016 Health Care Reform Cost Sharing Subsidy for Individuals with High-Deductible Plans

Note: The individual does not have to contribute to an HSA to qualify for the subsidy. The individual merely has to have a high-deductible health plan and fall within the FPL income range.

Note: Individuals below 133% of FPL are generally eligible for Medicaid coverage under the health care reform law.

2016 Health Care Reform Cost Sharing Subsidy for Individuals with High-Deductible Plans

Calculation of Subsidy
For individuals with household income of more than 100%, but not more than 200% of FPL, the out-of-pocket limit is reduced by two-thirds. For those between 201%
and 300% of FPL, the out-of-pocket limit is reduced by one-half, and for those between 301% and 400% of FPL, the out-of-pocket limit is reduced by one-third.

“Empowering clients through education, a stress free transaction and an excellent service experience.”

Repairs vs Improvements

2016 Repairs vs Improvements

Repairs vs. Improvements

Internal Revenue Code section 162 generally allows a current business deduction for the cost of repairs and maintenance incurred during the year. On the other hand, Internal Revenue Code section 263 requires the capitalization of amounts paid to acquire, produce, or improve tangible property. Since repairs and improvements often have very similar characteristics, it can be tricky to classify the expenditures. However, correct classification is important because the cost of repairs can generally be deducted in the year paid, while improvements must be capitalized and the deduction taken over several years through depreciation.

Click and Read Repairs vs Improvements Here

An improvement requiring capitalization occurs with an addition to or partial replacement of property that results in a betterment of the unit of property, restores the unit of property, or adapts the unit of property to a new use. The cost of an improvement must be capitalized and depreciated over a certain number of years as if the improvement were separate property.

Example: Nina has a truck she uses for her contracting business. Her truck was damaged and the cost to repair it is considered a deductible repair cost. Routine maintenance on the truck such as engine tune-ups and oil changes are also currently deductible expenses. In 2015, Nina added a hydraulic lift to her truck, which improved its functionality. The expense of adding the lift is an improvement that must be capitalized and depreciated over the truck’s remaining useful life.

Click and Read Repairs vs Improvements Here

“Empowering clients through education, a stress free transaction and an excellent service experience.”

Fringe Benefits

Tax Treatment of Fringe Benefits

The term “fringe benefit” refers to any benefit provided to an employee that is in addition to money. All benefits provided to an employee are taxable unless the law specifically excludes or defers tax on the benefit. Thus, a fringe benefit can either be taxable, tax-deferred, or excluded from taxation.

The personal use of an employer-provided vehicle is an example of a taxable fringe benefit. An employer contribution to a qualified retirement plan on behalf of the
employee is an example of a tax-deferred fringe benefit. Employer-provided health insurance for an employee is an example of a tax-free fringe benefit.

Click and Read Fringe Benefits Here

Business Owner

A small business owner in a corporate setting may be both the owner and an employee of his or her business. By taking advantage of excludable fringe benefits, the owner receives a double benefit. First, the cost of the benefit is deductible by the business. Second, the cost of the benefit is tax free yo the employer-owner.

Nondiscrimination Rules for Fringe Benefits
Nondiscrimination rules are designed to prevent business owners from offering tax-favored fringe benefits to themselves but not their employees. In general,
if fringe benefits are offered to all employees, then all employees, including the top paid employees, receive tax-favored treatment on employee benefits. However,
if a plan favors highly-compensated employees or key employees, the value of the benefit must be included in their taxable wages. The terms highly-compensated employees and key employees can mean different things depending on the applicable plan. Special restrictions apply for fringe benefits for sole proprietors, partners,
certain LLC members, and S corporation shareholders. Consult your tax advisor if you are a business owner considering providing fringe benefits to yourself and your employees.

Click and Read Fringe Benefits Here

“Empowering clients through education, a stress free transaction and an excellent service experience.”

High-Income Taxpayers

Tax E Man4 — Tax Consultation Preparation and Representation

High Income Tax Payers

High-Income Taxpayers

In addition to being subject to higher federal tax rates, taxpayers whose income exceeds certain levels have tax deductions and credits that are reduced or eliminated.

Click and Read High-Income Taxpayers Here

The provisions listed may have additional qualifications and restrictions. Other provisions of the tax code, such as fringe benefit limitations and taxation on the sale of a principal residence, may further restrict a taxpayer’s ability to take deductions or cause the taxpayer to pay additional tax. Ask your tax professional for more details.

Click and Read High-Income Taxpayers Here

“Empowering clients through education, a stress free transaction and an excellent service experience.”

Share this:

Roth IRAs

Share this:

Traditional IRAs

Share this:

State Health Insurance Exchanges

Share this:

Share this:

Share this:

Share this:

Share this:

Share this:

Share this: