Money Saving Tips

New Law Creates Tax-Favored Savings Accounts for Disabled Taxpayers

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation! 

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As part of the larger tax extender legislation passed on Tuesday, Congress approved the Achieving a Better Life Experience (ABLE) Act of 2014 (H.R. 647), which will allow disabled individuals to save money to pay for their disability expenses in tax-favored accounts, called ABLE accounts. The House of Representatives passed the measure on Dec. 3, by a vote of 404–17, and it now goes to President Barack Obama for his signature.

The purpose of the bill is “[t]o encourage and assist individuals and families in saving private funds for the purpose of supporting individuals with disabilities to maintain health, independence, and quality of life” and “[t]o provide secure funding for disability-related expenses on behalf of designated beneficiaries with disabilities that will supplement, but not supplant, benefits provided through private insurance,” Medicaid, and other sources (H.R. 647, §101).

The bill adds a new Sec. 529A to the Code, under which a qualified ABLE program will be exempt from taxation (except for unrelated business income tax). A qualified ABLE program is a program run by a state that allows a person to make contributions for a tax year, for the benefit of an eligible individual, to an ABLE account established for the purpose of meeting the qualified disability expenses of the designated beneficiary of the account. A state’s ABLE program must limit designated beneficiaries to one account and must allow accounts to be opened only for residents of that state or a contracting state.

Eligible individuals must file a disability certification with the IRS or meet certain criteria for blindness or disability under the Social Security Act (42 U.S.C. §1382).

Contributions must be made in cash, and the program must limit annual contributions to the amount of the annual gift tax exclusion in effect for that tax year.

The ABLE program must provide separate accounting for each designated beneficiary, and designated beneficiaries and contributors must not be able to direct the investment of contributions or earnings in the account.

Distributions from the account will not be included in the designated beneficiary’s gross income as long as they do not exceed the beneficiary’s qualified disability expenses. If they do exceed the beneficiary’s qualified disability expenses, the amount otherwise includible in gross income will be reduced by an amount bearing the same ratio to that amount as the expenses bear to the distributions.

Funds in ABLE accounts will also be disregarded for purposes of various federal means-tested programs.

Once signed by the president, the bill will take effect for tax years beginning after Dec. 31, 2014

Herman and Company CPA’s proudly serves Bedford Hills NY, Chappaqua NY, Harrison NY, Scarsdale NY, White Plains NY, Mt. Kisco NY, Pound Ridge NY, Greenwich CT and beyond.

Seniors age 70 1/2+: Take your required retirement distribution

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation! 

The tax laws generally require individuals with retirement accounts to take annual withdrawals based on the size of their account and their age beginning with the year they reach age 70½. Failure to take a required withdrawal can result in a penalty of 50% of the amount not withdrawn.

If you turned age 70½ in 2014, you can delay your 2014 required distribution to 2015. Think twice before doing so, though, as this will result in two distributions in 2015 — the amount required for 2014 plus the amount required for 2015, which might throw you into a higher tax bracket or trigger the 3.8% net investment income tax. On the other hand, it could be beneficial to take both distributions in 2015 if you expect to be in a substantially lower tax bracket in 2015.

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Herman and Company CPA’s proudly serves Bedford Hills NY, Chappaqua NY, Harrison NY, Scarsdale NY, White Plains NY, Mt. Kisco NY, Pound Ridge NY, Greenwich CT and beyond.

Eight Tips for Deducting Charitable

If you are looking for a tax deduction, giving to charity can be a “win-win” situation. It’s good for them and good for you. Here are eight things you should know about deducting your contributions to charity:DeathtoStock_Creative Community7

1. You must donate to a qualified charity if you want to deduct the contribution. You can’t deduct contributions to individuals, political organizations, or candidates.

2. To deduct your contributions, you must file Form 1040 and itemize deductions.

3. If you get a benefit in return for your contribution, your deduction is limited. You can only deduct the amount of your contribution that’s more than the value of what you received in return. Examples of such benefits include merchandise, meals, tickets to an event, or other goods and services.

4. If you give property instead of cash, the deduction is usually that item’s fair market value. Fair market value is generally the price you would get if you sold the property on the open market.

5. Used clothing and household items generally must be in good condition to be deductible. Special rules apply to vehicle donations.

6. You must file Form 8283, “Noncash Charitable Contributions,” if your deduction for all noncash contributions is more than $500 for the year.

7. You must keep records to prove the amount of the contributions you make during the year. The kind of records you must keep depends on the amount and type of your donation. For example, you must have a written record of any cash you donate, regardless of the amount, to claim a deduction. It can be a canceled check, a letter from the organization, or a bank or payroll statement. It should include the name of the charity, the date, and the amount donated. A cell phone bill meets this requirement for text donations if it shows this same information.

8. To claim a deduction for donated cash or property of $250 or more, you must have a written statement from the organization. It must show the amount of the donation and a description of any property given. It must also say whether the organization provided any goods or services in exchange for the contribution.

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.