Monthly Archives: May 2013

Roth IRA Conversions

Scarsdale CPA Paul Herman of Herman & Company CPA’s has all the answers to your personal finance questions!

Just because you qualify to make contributions to a Roth IRA does not mean you are also entitled to convert your plain-vanilla IRA into a Roth. Unfortunately, the income limit for conversions is slightly lower – $100,000 of modified adjusted gross income for both joint filers and singles – than the income limits for contributions. However, if you qualify to convert, there are situations where you should.

Find out from Scarsdale CPA Paul Herman if a Roth IRA conversion is right for you

Converting your Roth IRA to a traditional IRA may be a good step for your retirement planning.

Besides allowing tax-free and penalty-free withdrawals of contributions, the Roth IRA enables most savers to amass a greater nest egg because withdrawals from earnings during retirement are tax-free (as long as you are over 59 1/2 and have had the account for at least five years). Should you convert? In most cases, the answer is yes. But there are some things to carefully consider before making a final decision:

Do You Have the Money to Pay the Taxes on the Conversion?

When you convert your regular IRA to a Roth, you will have to pay tax on any earnings and pretax contributions. This, in lieu of paying taxes upon later withdrawals from the Roth account. You should not withdraw from your IRA to pay the conversion tax, however. If you do so before age 59 1/2, you will generally owe a 10% penalty on that amount. Plus you will permanently give up the opportunity for tax-free Roth IRA compounding of that amount. Do not think that you can avoid the conversion tax by just rolling over an amount equal to your after-tax (nondeductible) contributions. Each dollar you roll over from a regular IRA is considered a “blended” dollar. Therefore, a percentage of the amount rolled over into the Roth account will be taxed no matter what (except in the unlikely event that your IRAs are worth less than the amount of your after-tax contributions).

Will the Rollover Disqualify You for Important Tax Benefits?

The conversion income could push you into a higher tax bracket and disqualify you from other tax benefits such as the dependent child and college tuition tax credits.

How Much Time Do You Have Until Retirement?

Generally, the older you are, the less sense it makes to convert a traditional IRA to a Roth. You’ll have less time to make up for what you lost in taxes on the conversion.

Do You Plan to Leave All of Your IRA to Your Heirs?

One case in which it makes sense for an older traditional IRA holder to transfer funds to a Roth IRA is when he or she is planning to leave the money to heirs. Why? First, unlike traditional IRAs, Roths require no minimum withdrawals during the life of the IRA owner. If the surviving spouse inherits the Roth account, he or she need not take any minimum withdrawals either. With a regular IRA, you must begin taking taxable withdrawals from that account no later than the year after you turn 70 1/2. So you lose out on the chance for that money to continue to compound without paying taxes. That can mean a lot less money for your heirs. Secondly, conversion to a Roth will reduce your taxable estate by the amount of income tax you pay to convert. This can reduce estate taxes for your heirs.

Will Your Income Tax Bracket Drop After Retirement?

The clearest case in which converting from a regular tax-deductible IRA to a Roth IRA does not make sense is when you expect to drop into a much lower income tax bracket after you retire (say, from 25% to 15%). Why? You will have to pay income tax on the conversion at your current high rate. Instead, let the money compound in your regular IRA and pay taxes at your lower rate in retirement. However, if your tax rate is only expected to drop a few points after retirement (for example, from 28% to 25%), conversion is probably still the right maneuver.

Our Westchester accounting firm is here for all your personal finance needs. Please contact us for all inquiries and to receive your free personal finance consultation!

Herman and Company CPA’s proudly serves Scarsdale NY, Katonah NY, Mount Kisco NY, Rye NY, Bedford NY and beyond.

Substantiating Charitable Contributions

Scarsdale CPA Paul Herman of Herman & Company CPA’s has all the answers to your personal finance and tax questions!

One of the most popular tax deductions for individuals is the one allowed for donations to charitable organizations - from the local church or synagogue to the Red Cross and various other national organizations. Charitable Donation Tips from Scarsdale CPA Paul HermanUnfortunately, this deduction has also been among the most abused. Thus, perhaps it is not surprising that Congress has responded to the problem by regularly enacting more rules around documenting donations.

What we’re left with is a confusing array of rules that you must comply with in order to claim a deduction. For example, donors must obtain a written acknowledgment from the charity if the value of the contribution (cash or other property) is $250 or more – a canceled check is not sufficient proof. A recent court case illustrates how easy it is to run afoul of the documentation requirements.

In the case, the taxpayers donated $22,517 to their church during the tax year. Several individual donations were made by check, each of which was in excess of $250. Although the donations were made by check and the taxpayer provided canceled checks to document the gift, the IRS disallowed the deduction because the taxpayers failed to obtain a timely receipt from their church to support the donations. Such receipt (or receipts) must be received by the time you file your return for the year of the donation (or, if earlier, by when the return is due).

In addition, it must include all of the following:

The name and address of the charity.
The date of the contribution.
The amount of cash or a description (but not an estimate of value) of any property contributed.
A list of any significant goods or services received in return for the donation (other than intangible religious benefits) or a specific statement that the donor received no goods or services from the charity.

In the case at hand, the taxpayers had a receipt from their church, but it did not contain the required statement regarding whether goods or services were provided. They tried to correct this omission by getting a new receipt from their church after the IRS challenged the deduction. By then, of course, it was too late.

While this gives you a glimpse at the substantiation requirements for charitable donations, the rules can get much more complicated, especially when you make charitable donations of property rather than cash. Please contact us to discuss the requirements for specific types of donations or with questions on other tax compliance or planning issues.

Your Rights as a Taxpayer

Scarsdale CPA Paul Herman is here to answer all your personal finance questions!

You probably don’t think of the phrase “taxpayer rights” in conjunction with the IRS. But income tax obligations are not a one-way street.

Learn Your Taxpayer Rights from Scarsdale CPA

Find out what your rights are as a taxpayer.



The IRS itself spells out your rights, and it is charged with reminding you of them during any interaction.

You have the right to:

Privacy. Unless authorized by law, the IRS will not disclose your personal/financial information.

  • Representation. You can represent yourself, or be represented by an authorized individual (CPA, attorney, enrolled agent, etc.). You can even record a meeting (with ten days’ notice).
  • Pay only the tax due under the law. No more, no less. You might be allowed to make monthly installment payments.

Ask for help in resolving disputes. Write this number down and file it: 877-777-4778. It’s the phone number for the Taxpayer Advocate Service. If you cannot see eye-to-eye with a representative of the IRS on a tax issue, call this number or write to the Taxpayer Advocate at the office that last engaged you. If a tax bill is causing you exceptional hardship, you can also work with this office.

Be relieved of certain penalties and interest. Yes, you do have that right — in some specific cases. If an IRS employee has given you erroneous information, or if you acted, “…reasonably and in good faith,” the agency will waive penalties when allowed by law. The same holds true for interest, if an IRS employee causes, “certain errors or delays”.

Appeal. Don’t think you owe the amount stated? Or feel that, “certain collection actions” were unwarranted? You can request a review of your case by the IRS Appeals Office – or a U.S. court. This step should only be taken if you kept accurate records and cooperated with the IRS.

Make sure the IRS does not violate your rights as a taxpayer. If you have any questions or would like to discuss this further, please contact us. Remember that dealing with the IRS can be a daunting process, but we are here to help.

Herman and Company CPA’s proudly serves Larchmont NY, Mount Kisco NY, Purchase NY, Scarsdale NY, White Plains NY, Bedford Hills NY, Chappaqua NY and beyond.

Any U.S. tax advice contained in the body of this website is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.