Tax Attorneys at Ainer & Fraker, LLP Discuss the Inheritance and Tax Rules governing the Individual Retirement Account (IRA)
The designated beneficiary listed on your IRA account beneficiary form determines who gets your IRA. This is true even if your will or trust names different beneficiaries. You may have filled out that beneficiary form long ago and no longer remember who you designated as your beneficiary. Perhaps your family circumstances or marital status have changed. Whenever your family circumstances change, you need to review your beneficiary designations. You may have named an ex-spouse as your beneficiary and now may not want him or her to receive your IRA.
If you are recently remarried and want your IRA account to go to your children, your new spouse may have to sign a waiver of rights to your retirement benefits. Otherwise, the IRA might go automatically to your new spouse. This is also generally true for employer plan benefits.
If you have a trust and want the IRA proceeds to go to the trust, then you need to name the trust as the beneficiary. There is no tax advantage to naming a trust as the beneficiary of an IRA. Of course, there may be a non-tax-related reason, such as controlling a beneficiary’s access to the money; thus, naming a trust rather than one or more individuals to inherit the IRA could achieve that goal. However, that is not typically the case. Naming a trust as the beneficiary of an IRA eliminates the ability for multiple beneficiaries to maximize the opportunity to stretch the required minimum distributions (RMDs) over their individual life expectancies.
Worse yet is if your IRA does not have a designated beneficiary. When there is no beneficiary form on file, you are really rolling the dice. Your retirement assets will go to whomever the IRA trustee has named for you in the default language in the documents for the account.
When you fill out the beneficiary designation form, you have the opportunity to also designate one or more contingent beneficiaries who will inherit the IRA if the primary beneficiary has passed away before you do. For example, you could name your spouse as the primary beneficiary and your child and brother as next in line if your spouse pre-deceases you. This is a safety net of sorts in case you don’t get around to changing the primary beneficiary after that person passes away.
Don’t take chances; make sure your IRA beneficiary designations are up to date and correctly specify who you want to get your IRA in the event of your death.
Contact a Tax Attorney at Ainer & Fraker, LLP to discuss the Tax Considerations regarding your IRA.
Ainer & Fraker , LLP – By 2014, each state must establish an exchange to help individuals and small employers obtain coverage. Benefit options will be in a standard format and a single enrollment form used for all policies.
Plans offered through an exchange must provide essential health benefits, limit cost sharing, and provide specified accrual benefits (i.e., the percentage amount paid the insurer). Out-of-pocket deductibles are limited to caps for Health Savings Accounts and further limited to $2,000 ($4,000 for families) in the small group market.
Plans in the individual and small group markets use a metallic designation for the accrual benefits provided:
- Bronze 60%
- Silver 70%
- Gold 80%
- Platinum 90%
Ainer & Fraker, LLP – If a taxpayer purchases a home computer for use in their work as an employee, they can claim a depreciation deduction if:
1. Use of the home computer is for the convenience of the employer (that is, the taxpayer is required to use a computer on the job and the taxpayer’s employer does not provide the employee with a computer)
2. Use of the home computer is required as a condition of the taxpayer’s employment. To satisfy this requirement, there must be a clear showing that the employee cannot perform properly the duties of employment without it.
50% Rule – If the taxpayer meets the two tests above and also use their home computer more than 50% in their work, they can claim an accelerated depreciation deduction and can utilize the Section 179 deduction to write off the computer in the year of purchase. On the other hand, if they do not use the home computer more than 50% in their work, they must depreciate the computer using the straight-line method and cannot take a Section 179 expense deduction.
Computer used in home office – The 50% rule does not apply to the taxpayer’s computer if part of the taxpayer’s home is treated as a regular business establishment and the taxpayer uses the computer exclusively in that part.
Nonemployee use of a home computer – A taxpayer can deduct depreciation on the home computer to the extent it is used to produce income (for example, managing investments that produce taxable income). However, the time the computer is used to manage investments does not count as business-use time for purposes of the 50% rule and the determination of the depreciation method.
Reporting and Recordkeeping – The IRS requires that you maintain records to prove your percentage of business use.
You might say to yourself, “Why would I want to inform the IRS of my change of address, since they will find out when I file my next year’s income tax?”
According to Ainer & Fraker, LLP, the following are important reasons for promptly notifying the IRS of your address change.
You may have a refund coming and failure to file the change of address could delay that refund from reaching you.
The IRS may send you correspondence which requires a timely response. By mailing that correspondence to your last known address, the IRS fulfills their legal notification requirements and any repercussions as a result of your lack of response becomes your responsibility, even if you never received the notice. Therefore, it is always good practice to promptly notify the IRS of an address change by filing Form 8822. Click here to access an online form fill and print version of IRS Form 8822.
If this change also affects the mailing address for your children who filed income tax returns, complete and file a separate Form 8822 for each child.
Prior Name(s) – If you or your spouse changed your name because of marriage, divorce, etc., complete line 5. Also, be sure to notify the Social Security Administration of your new name, so that it has the same name in its records as what you have on your tax return. This prevents delays in processing your return and issuing refunds. It also safeguards your future social security benefits.
P.O. Box – If your post office does not deliver mail to your street address, show your P.O. box number instead of your street address.
Foreign Address – If your address is outside the United States or its possessions/territories, enter the information in the following order: city, province or state, and country. Follow the country’s practice for entering the postal code. Please do not abbreviate the country name.
Bay Area Tax Lawyers – Change of Address Notifications? If your entire family is moving to the same address and each member has the same last name, you need to fill out only one Change of Address Order form.
For all other cases, each individual moving must fill out a separate form. Click here to enter the USPS Website online Change of Address Order Form where you can fill-in and submit your change of address through the Internet.
When To Submit Change of Address Form – Submit the change of address at least 15 days before you move, or as soon as you know your new address and the date of your move. The post office will forward your mail to the new address beginning on the “Start Date” you specified on the Change of Address Order form. Once the Change of Address is submitted, the Postal Service will send a confirmation letter to your old address, regardless of the date of your move.
If you file your change of address form timely, you should begin receiving forwarded mail at your new address within three to five days from the indicated “Start Date”.
Duration of Forwarding Order – All mail including First-Class, Priority, and Express Mail will be forwarded for 12 months at no charge, except for mail marked “Do Not Forward.” Periodicals (second-class) will be forwarded for 60 days at no charge. This includes newspapers and magazines. Generally third-class mail such as circulars, books, catalogs, and advertising mail will not be forwarded. Parcel Post Packages will be forwarded locally for 12 months at no charge. Forwarding charges will be assessed if forwarded outside the local area. This includes packages weighing 16 ounces or more not mailed as Priority Mail.
Magazine & Publisher Notification – You should let all publishers and other business mailers know at least four to six weeks before you move. Follow the publisher’s change of address instructions and those noted on billing statements you receive.
Notification Postcards – At least 30 days before you move, notify everyone of your new address and the date of your move. Many bills and statements have an area for making an address change notification. You can obtain free Notification Postcards (Form 3576) from your post office.
Mail with an Endorsement “Do Not Forward” – For permanent moves, mail marked “Do Not Forward” is returned to the sender along with your new address information. However, if your move is only “temporary” (you’ll be returning home in less than 12 months), this mail is returned to the sender without your new address information. Therefore, temporary movers need to notify their mailers directly to inform them of their new address.
With people living longer, many find themselves becoming the care provider for elderly parents, spouses and others who can no longer live independently. When this happens, questions always come up regarding the tax ramifications associated with the cost of nursing homes or in-home care.
The entire cost of nursing homes, homes for the aged, and assisted living facilities are deductible as a medical expense, if the primary reason for the individual being there is for medical care or the individual is incapable of self-care. This would include the entire cost of meals and lodging at the facility. On the other hand, if the individual is in the facility primarily for personal reasons, then only the expenses directly related to medical care would be deductible and the meals and lodging would not be a deductible medical expense.
As an alternative to nursing homes, many care providers are hiring day help or live-in employees to provide the needed care at home. When this is the case, the services provided by the employees must be allocated between household chores and deductible nursing services. To be deductible, the nursing services need not be provided by a nurse so long as the services are the same services that would normally be provided by a nurse such as administering medication, bathing, feeding, dressing etc. If the employee also provides general housekeeping services, then the portion of employee’s pay attributable to household chores would not be a deductible medical expense.
According to Bay Area Family Philanthropy Lawyers, if you volunteer your time for charity, you may qualify for tax breaks!
Although no tax deduction is allowed for the value of services performed for a charity, some deductions are permitted for out-of-pocket costs incurred while performing the services. The normal deduction limits and substantiation rules also apply. The following are some examples:
- Away-from-home travel expenses while performing services for a charity, including out-of-pocket roundtrip travel cost, taxi fares, and other costs of transportation between the airport or station and hotel, plus lodging and meals are allowed at 100%. Unlike other areas of taxes, meals are not subject to the 50% limitation. These expenses are only deductible if there is no significant element of personal pleasure associated with the travel, or if your services for a charity do not involve lobbying activities. Any “significant element of personal pleasure” negates a deduction (i.e., not even partial deduction is allowed). Significant personal pleasure is assumed if the taxpayer has only minor duties and is not required to perform any duties for the charity for major portions of the away-from-home stay.
- The cost of entertaining others on behalf of a charity, such as wining and dining a potential large contributor are allowed at 100 % (but the cost of your own entertainment or meal is not deductible).
- If you use your car while performing services for a charitable organization, you may deduct your actual unreimbursed expenses directly attributable to the services, such as gas and oil costs, or you may deduct a flat 14 cents per mile for the charitable use of your car. You may also deduct parking fees and tolls.
- You can deduct the cost of the uniform you wear when doing volunteer work for the charity, as long as the uniform has no general utility. The cost of cleaning the uniform can also be deducted.
No charitable deduction is allowed for a contribution of $250 or more unless the contribution is substantiated with a written acknowledgment from the charitable organization. To verify your contribution:
- Get written documentation from the charity about the nature of your volunteering activity and the need to pay for related expenses. For example, if you travel out-of-town as a volunteer, request a letter from the charity explaining why you’re needed at the out-of-town location.
- Submit a statement of expenses if you are out-of-pocket for substantial amounts, and preferably, a copy of the receipts to the charity. Also, arrange for the charity to acknowledge the amount of the contribution in writing.
- Maintain detailed records of your out-of-pocket expenses, including receipts and a written record of the time, place, amount and charitable purpose of the expense.