Monthly Archives: December 2013

Qualified Charitable Deductions

Scarsdale accountant Paul Herman has all the answers to your personal finance questions! IRA owners and beneficiaries who have reached age 70 1/2 are permitted to make donations to IRS-approved public charities directly out of their IRAs. charity donation tax tips from scarsdale cpaThese so-called qualified charitable distributions, or QCDs, are federal-income-tax-free to you, but you get no charitable deduction on your tax return. But, that is fine because the tax-free treatment of QCDs is the same as an immediate 100% deduction without having to worry about restrictions that can delay itemized charitable write-offs. QCDs have other tax advantages, too.

A QCD is a payment of an otherwise taxable distribution made by your IRA trustee directly to a qualified public charity. The funds must be transferred directly from your IRA trustee to the charity. You cannot receive the funds yourself and then make the contribution to the charity. However, the IRA trustee can give you a check made out to the charity that you then deliver to the charity. You cannot arrange for more than $100,000 of QCDs in any one year. If your spouse has IRAs, he or she has a separate $100,000 limitation. Unfortunately, this taxpayer-friendly provision is set to expire at year-end unless extended by Congress.

Before Congress enacted this beneficial provision, a person wanting to donate money from an IRA to a charity would make a withdrawal from his or her IRA account, include the taxable amount in gross income, donate the cash to charity, and then claim an itemized charitable donation.

QCDs are not included in your adjusted gross income (AGI) on your federal tax return. This helps you remain unaffected by various unfavorable AGI-based phase-out rules. It also keeps your AGI low for computation of the 3.8% NIIT. In addition, you don’t have to worry about the 50%-of-AGI limitation that can delay itemized deductions for garden-variety cash donations to public charities. QCDs also count as payouts for purposes of the required minimum distribution (RMD) rules. Therefore, you can donate all or part of your 2013 RMD amount (up to the $100,000 limit on QCDs) and thereby convert otherwise taxable RMDs into tax-free QCDs. Individuals can arrange to simply donate amounts that they would normally be required to receive (and pay tax on) under the RMD rules.

Note that the charity must provide you with a record of your contribution. Also, you cannot receive any benefit from the charity in return for making the contribution. If the donor receives any benefit from the charity that reduces the deduction under the normal rules, tax-free treatment is lost for the entire distribution.

Our Scarsdale tax preparers here at Herman & Company CPA’s are here for all your financial needs. Please contact us if you have questions about these provisions or any other tax compliance/planning issues, and to receive your free personal finance consultation!

Herman and Company CPA’s proudly serves Armonk NY, Bedford NY, Chappaqua NY, Katonah NY, Scarsdale NY, White Plains NY, Tarrytown NY, Stamford CT and beyond.

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Itemized Medical Deductions

Scarsdale accountant Paul Herman has all the answers to your personal finance questions!

Before this year, you could claim itemized deductions for medical expenses paid for you, your spouse, and your dependents to the extent those expenses exceeded 7.5% of your adjusted gross income (AGI).

itemized medical tax deduction tips from scarsdale accountant

From surgical procedures to your annual check-up, tax-related medical deductions have changed since last year.

But the rules have changed for the worse in 2013 and beyond.

Due to the 2010 Affordable Care Act, the old 7.5%-of-AGI hurdle is now 10% for most taxpayers in 2013. An exception applies for taxpayers, or their spouse if married, who are age 65 or older on December 31. They can still use the 7.5%-of-AGI threshold through 2016.

Many individuals have flexibility regarding when certain medical expenses will be incurred. They may benefit from concentrating expenses in alternating years. That way, an itemized medical expense deduction can be claimed every other year instead of lost completely if it doesn’t exceed the threshold.

Medical expenses paid for a taxpayer’s dependent, such as a parent or grandparent, can be added to the taxpayer’s own expenses for itemized medical expense deduction purposes. For a person (other than a qualified child) to be the taxpayer’s dependent, the taxpayer must pay more than half of that person’s support for the year. If that test is passed, the taxpayer can include medical expenses paid for the supported person—even if the taxpayer cannot claim a dependency exemption for that person. While the taxpayer must still clear the applicable AGI threshold to claim an itemized medical expense deduction, including a supported person’s expenses in the computation can really help.

Our Scarsdale tax preparers here at Herman & Company CPA’s are here for all your financial needs. Please contact us if you have questions about these provisions or any other tax compliance/planning issues, and to receive your free personal finance consultation!

Herman and Company CPA’s proudly serves Bedford Hills NY, Mt. Kisco NY, Rye Brook NY, Purchase NY, Mamaroneck NY, Scarsdale NY, Bronxville NY, Greenwich CT and beyond.

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Record Keeping for Taxes: FAQs

Scarsdale accountant Paul Herman has all the answers to your personal finance questions! The following are FAQs our Westchester accounting firm regularly receives regarding record keeping for taxes.
▼ What do I need to keep for tax reasons?

It is a good idea to keep all of your receipts and any other records that you may have of your income and expenses.

Tax Record Keeping Tips from Scarsdale Accountant

Get to know these quick tips to make sure your tax records are in perfect order!

 

 

These will come in very handy if you are audited. It is best to hold on to these records for at least 7 years.

▼ How should I separate and organize these?

 

It is advantageous to categorize your expenses:

  • Income
  • Exemptions
  • Medical Expenses
  • Taxes
  • Business Expenses
  • Education
  • Travel
  • Auto
▼ How long should I hold onto these documents?

It is recommended that you keep these documents for three to four years. Check the Retention Guide on this site for additional details.

 How long should I keep old tax returns?

If you are audited, it is very likely that the auditor will ask to see the last few tax returns. It is recommended to keep these tax returns forever.

An added benefit of keeping your tax returns is that you can see what you claimed last year, allowing you to adjust for the current year.

▼ What other records should I keep?

If you purchased goods that you plan to sell later, you should keep the receipts to calculate your gain or loss on it correctly.

  • Anything regarding the property you own and any fixes and repairs that you perform.
  • Receipts for any jewelry or other valuable collector’s items
  • Records for capital assets, stocks, bonds and such
▼ What recordkeeping system should I have?

If you are an employee of a company, your system needn’t be complex – you can keep your records separated in folders.

If you are a business owner, you may want to consider hiring a bookkeeper or accountant.

Our Scarsdale tax preparers here at Herman & Company CPA’s are here for all your financial needs. Please contact us if you have questions about these provisions or any other tax compliance/planning issues, and to receive your free personal finance consultation!

Herman and Company CPA’s proudly serves Bedford NY, Bedford Hills NY, Chappaqua NY, Katonah NY, Larchmont NY, Pound Ridge NY, Purchase NY, Rye NY, Bronxville NY, Greenwich CT and beyond.

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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.