Author: Maria T. Rollins

Maria T. Rollins, CPA, MST

Estate Planning for Those Under 40

The earlier you start planning, the more choices you’ll have

Get started on estate planning while you're young saves hassles laterWe all live as if we have decades ahead of us, dealing with the present — we can’t know the future. And that’s why now is a great time to get a jump on estate planning.

Do your family and loved ones know what accounts you have, where your financial information is and what your wishes are? Now is the time to tell them. If you start now, your plan will help keep your loved ones from becoming stressed if you suddenly become disabled or pass away.

Learning about estate planning

You can begin to educate yourself about estate planning. For instance, what should you be looking for in an estate planning attorney? You can interview several to see whom you feel most comfortable with. You can also explore estate planning strategies: Some organizations have free small-group events to share an understanding of the basics of estate planning.

You can start formulating how you’d want to be memorialized — how about creating a recording to share with your loved ones to help them by making the tough decisions in advance?

Getting started on your plan

Estate planning isn’t just for wealthy people — you don’t have to wait until you build up more savings. You may have a child or spouse who is financially dependent on you, so you don’t want to ignore your estate plan. Take these steps to be proactive:

  • Designate beneficiaries.
  • Designate a health care proxy to make medical decisions for you if you can’t.
  • Review asset titling — titling assets jointly with rights of survivorship is an easy way to ensure that your property passes to your heirs without delay.
  • Consider establishing a trust — in many ways these can be even more effective tools than wills.
  • Do some tax planning — although the federal estate tax affects only the wealthiest people, there are other tax issues, including state estate taxes.
  • Select guardians to care for minor children.
  • Plan ahead — an accident can result in an inability to make legal decisions; a durable power of attorney will name someone to act in your place if you are incapacitated.

Documents for your plan

Among the documents that are part of an estate plan, consider a will, life insurance, and a power of attorney. You can think of a will as a road map outlining how your property will be distributed if you’re disabled or die. Meet with an attorney and tell her or him what your assets are, who you want to leave them to, and that you want it all to be simple.

In crafting a will, name a trusted friend or family member as the executor to help shepherd your estate through any court-supervised process, such as probate. You may want to consider life insurance, particularly because you haven’t accumulated lots of money yet. You’d want your family to have assets to live on. You can choose a less expensive option such as a term policy for a set number of years.

We’ve got your back on estate planning

It’s never too early to start thinking about estate planning. KRS CPAs offers unbiased financial and tax guidance to help you realize your specific goals and vision. Contact KRS managing partner Maria Rollins at [email protected] or 201.655.7411 to discuss your situation.

IRAs to Charity: A Useful Estate Planning Technique

Make your favorite charity a beneficiary of your IRAsSave taxes with this smart estate planning strategy

If you’re like many people, you have a great deal of your wealth tied up in traditional IRA accounts. Why? The tax-free benefits have motivated you. But there’s going to come a time when you—or your heirs—will have to pay taxes on this money. Instead of worrying about what you’re going to do about that, you can follow a tax-saving strategy that considers designating your favorite charity or charities as beneficiaries of all or a portion of your IRAs. Then you can leave other assets to family members and other heirs.

IRAs and estate taxes

Your IRAs are considered part of your estate when you die, which means they are subject to estate taxes. Although very few people are subject to the federal estate tax, some states have lower thresholds for estate taxes. Also, your heirs will have to eventually withdraw the funds, and typically will pay income tax. This could be substantial, if your heirs are already in a high bracket.

Fortunately, there’s a tax-smart solution: leave some or all of your IRA to charitable beneficiaries while leaving other assets to heirs of your choice. Leaving money directly to charities by designating them as account beneficiaries is very tax-efficient. First, it avoids estate tax, since the IRA is removed from your estate. Second, there’s no federal income tax due on IRA money. (You may get a state tax break too.) No income taxes are due when your favorite tax-exempt charities make withdrawals from the IRAs.

This strategy allows you to leave more to your favorite charities and more to your loved ones while keeping as much as possible from the IRS.

Leave Roth IRAs to your loved ones

One final word, however. This strategy generally applies to traditional IRAs. Naming a charity as the beneficiary of your Roth IRA is generally inadvisable. Leave Roth balances to your loved ones by designating them as account beneficiaries. Why? As long as your Roth IRA has been open for more than five years before withdrawals are taken, all withdrawals will be federal income tax-free since the money went in after taxes. But if you leave Roth IRA money to charity, this tax break is wasted. (Roth IRA inheritance rules differ from the rules for traditional IRAs in several key ways.)

Looking at the Big Picture

Of course, this is just part of your estate plan, and there are lots of complexities. A giving strategy that makes sense for one family may not be appropriate for another. Also, the new tax law has changed the scenario for many.  Finally, there are various limits and provisions you should be aware of before you proceed.

The bottom line? Talk to a qualified financial professional about your charitable goals and any traditional or Roth IRAs you have in order to take care of both your family and your designated nonprofits in as efficient a way as possible.

We’ve got your back on estate planning

It’s never too early to start thinking about estate planning. KRS CPAs offers unbiased financial and tax guidance to help you realize your specific goals and vision. Contact KRS managing partner Maria Rollins at [email protected] or 201.655.7411 to discuss your situation.

What Is Tax-Efficient Investing?

Keep taxes in mind when investing

Tax Efficient InvestingAvoiding taxation should not be the only goal, or even the main goal, of your investment strategy.

Still, you always have to keep taxes in mind to make sure you’re not unnecessarily sending too much of your money to the government.

Managing Your Investments

Keep on top of your tax losses. No one likes to see their investments fail, but there are hidden tax savings there. Tax-harvesting strategies take advantage of losses for tax benefits when you rebalance your portfolio if you comply with IRS rules on the tax treatment of gains and losses.

Note that losses can offset up to $3,000 in taxable income in realized investment gains annually. If losses exceed deduction limits in the year they occur, you may be able to carry them forward to offset gains in future years.

Also watch out for capital gains. Securities held for more than 12 months and sold at a profit are taxed as long-term gains, with a top federal rate of 23.8%. For short-term gains, the tax rate can hit 40.8%. Timing can be everything.

Consider tax-exempt securities. Municipal bonds typically are exempt from federal taxes and may receive preferential state tax treatment. However, choose carefully before jumping into them. If you have a low tax rate in retirement, for example, it may not be necessary or even wise to concentrate so heavily on avoiding taxes.

Managing Your Taxes

Sometimes it’s better to pay taxes later rather than now. For example, 401(k)s, 403(b)s, IRAs, and tax-deferred annuities let you postpone your taxes until you are retired and thus likely in a lower bracket. Contributions you make may reduce your taxable income if you meet income eligibility requirements, and typically, investment growth is tax-deferred.

On the other side of the coin are Roth IRAs, which don’t give you an immediate tax break, since you use after-tax dollars. But this can help you later. For example, you may be in a low tax bracket now, so you put money into a Roth IRA. Investment gains are tax-deferred. When you withdraw the money, you don’t have to pay taxes at what could be a higher rate.

Reduce Taxes through Charity

If you itemize, you can deduct the value of your charitable gift from taxable income, but be aware that limits apply. Consider contributing appreciated stock, which may help you avoid capital gains taxes. Also try a donor-advised fund in a high-income year. These funds let you make a donation, take an immediate deduction and spread the giving over a period of time.

Of course, this is just an introduction to a complex topic — there are limits and exceptions to these strategies. Tax law is detailed, especially when it comes to investments, and a slight miscalculation on your end can lead to an unexpected tax bill down the line.

We’ve got your back on tax efficient investing

Taxes are a key part, but not the only part, of an investment strategy and you need to work with tax and financial professionals to make sure your strategies are aligned with your goals.Contact KRS managing partner Maria Rollins at [email protected] or 201.655.7411 to discuss your situation.

The Final Responsibility: Being an Executor

An executor of a will carries out the last wishes of someone close who has died.

The executor ensures that the rules that govern the administration of a probate estate are followed.

Here are three things you need to know about this important job.

The Final Responsibility: Being an ExecutorExecutors can get help

A lot of responsibility is involved in being an executor. Gathering paperwork tops the list. You’ll need to find all the assets of the estate. You have to report to the probate court with jurisdiction. There will be complex technical and legal language to decipher, as well as finding ways to communicate with grief-stricken family members at a time when they’re least able to rationalize. You’ll need to spend many hours where the deceased person lived, even if that means a lot of travel.

Fortunately, you can get professionals to help you. You can hire lawyers, accountants and other professional advisors on behalf of the estate to assist with tasks like preparing the final income and estate tax returns, and ensuring that the financial assets are invested properly during the probate process. As executor, you’re not expected to know everything about the process, but you should know when you need help.

Be aware of all accounts, even those you don’t control

You never need to exercise control for accounts that have beneficiaries, like retirement accounts and insurance policies. And property held in joint tenancy with rights of survivorship pass directly to the survivor. However, you still need to be aware of these assets and potentially account for them. The estate might owe taxes on these proceeds — you as executor have to collect a prorated share of any taxes due from those who inherit the policy benefit. Being aware of all this is crucial to doing a complete and thorough job.

Dealing with family battles

If the deceased person specifically wanted unequal amounts of property to go to different people, resentment bubbles up. You may find yourself in the epicenter of such a contentious debate. But the role of executor is separate — you treat family members fairly and defend the rights of heirs. It’s a hard line to walk, so professionals can help in dealing with any turmoil to keep you out of trouble.

Being the executor of a will is an important job and needs to be done well. Keeping this in mind, you’ll do your best to make sure that your loved one’s wishes are met and that the person’s heirs receive what the decedent intended.

We’ve got your back with an estate executor’s checklist

Being an executor of a will can be challenging. KRS CPAs can help. Visit our estate planning and administration page and download our helpful executor’s checklist. Then contact us for assistance.

What Changes With the New Taxpayer First Act?

The Taxpayer First Act of 2019 is redesigning how the IRS works with taxpayers, even though it may take a while for many of the provisions to take effect.What Changes With the New Taxpayer First Act?

Some experts have highlighted the following aspects of the bill as especially important:

An independent appeals process. Taxpayers and small businesses will be able to challenge the IRS’ position without undertaking the cost and expenses of court. IRS Appeals will be an independent unit that grants taxpayers access to case files. Taxpayers will be able to protest if denied an appeal.

Innocent spouse treatment. The new law requires the U.S. Tax Court to take a fresh look at innocent spouse cases without taking previous decisions into account.

Modification of procedures for issuance of third-party summons. This is an important protection for taxpayers, especially small-business owners. It discourages the IRS from bypassing the taxpayer and contacting third parties — such as financial institutions — instead for information. The IRS should give taxpayers a meaningful opportunity to provide the information it is seeking prior to its contacting third parties. In practice, the IRS should provide the taxpayer with an understanding of what the issue is, what information is being requested and how the requested information relates to the issue.

Office of the National Taxpayer Advocate. The Taxpayer First Act has taken a strong approach with the Advocate’s issuance of Taxpayer Advocate Directives, which focus on systemic problems taxpayers deal with. Once they are issued by the Advocate, the IRS should comply within 90 days. The Advocate Annual Report will identify any TAD that is not honored by the IRS.

Credit card payments. The IRS is now allowed to directly accept credit and debit card payments for taxes; the taxpayer must pay any processing fees. The Act also requires the IRS to try to minimize processing fees when entering into contracts with the credit card companies.

Whistle blower reforms. The Act provides protections from retaliation and allows for better communication with whistle blowers about the status of their claims.

Cyber-security and identity protection. The IRS will now have to let taxpayers know whether it suspects there is evidence of identity theft. The Agency will explain to taxpayers how to file a report with police and how to protect themselves against additional harm resulting from the identity theft.

Taxpayer Act levels the playing field

Rep. Kevin Brady, R-Texas, ranking member of the Ways and Means Committee, was quoted as saying the Act “levels the playing field to ensure taxpayers have the same information as the agency, better protects our taxpayers’ information, and reins in past IRS abuses to guarantee families and local businesses never have to fear having their accounts and property seized without fair and due process.”

As with many new laws, it will take some time to see what specifically the effects are. The legal provisions are complex and will require interpretation over time. We’ll be keeping an eye on the developments.

We’ve got your back

The new tax code is complex and every taxpayer’s situation is different – so don’t go it alone! Contact KRS managing partner Maria Rollins at [email protected] or 201.655.7411 to discuss your situation.

Capital Gains and Losses: How Do They Work?

Selling a capital asset results in a gain or loss and impacts your income taxes.

How do capital gains and losses work?A capital gain is a profit made when you as an individual or business sell a capital asset — investments or real estate, for instance — for a higher cost than its purchase price. A capital loss is incurred when there’s a decrease in the capital asset value compared with its purchase price. Almost everything you own and use for personal or investment purposes is a capital asset: a home, personal-use items like furnishings, and collectibles.

A capital gain may be short term (one year or less) or long term (more than a year). The capital gain must be claimed on income taxes. While capital gains are generally associated with stocks and mutual funds due to their volatility, a capital gain can occur on any security sold for a higher price than the price that was paid for it. Unrealized gains and losses, sometimes referred to as paper gains and losses, reflect an increase or decrease in an investment’s value but haven’t yet triggered a taxable event.

The profit you realize when you sell a capital asset at a profit is your gain over basis paid. Basis is often defined as the original price plus any related transaction costs; basis also may refer to capital improvements and cost of sale. Capital losses are used to offset capital gains of the same type: short-term losses are deducted against short-term gains, for example.

Capital gains and losses for businesses

A business may gain or lose money in two ways: It can make a profit on its sales activities or lose money by spending more than it brings in from sales. And, of course, it can gain or lose money based on its investments or sales of assets — items of value that the business owns.

Each type is taxed differently. Profits are taxed as ordinary income and at regular business or personal tax rates. Gains or losses on investments or the sale of assets are taxed as capital gains or losses, but it can depend on the type of business. When expensive equipment is involved, businesses have to consider depreciation, which takes into account the equipment’s declining value over its useful lifetime.

Capital gains and losses can come into play when a business writes off an asset, taking it off its balance sheet. That might be the case with accounts receivable when a debt is owed to the business but is unlikely ever to be paid.

Individual shareholders or business owners who sell their capital shares or owner’s equity in a business also incur capital gains or losses from those sales. Note the following distinction: Operating profits and losses result from the ongoing operations of the business; sometimes called net operating losses for tax purposes, they result from day-to-day operations.

We’ve got your back

Whether you’re buying or selling as an individual or as a business, be sure to keep track of your sales and discuss them with a qualified financial professional. The experts at KRS can help you determine whether you have a gain on loss and its tax implications. Contact managing partner Maria Rollins at [email protected] or 201.655.7411 for a complimentary initial consultation.

Audits, Reviews and Compilations: A Summary

Which financial statement overview you need from your CPA depends on your business and financing needs

Audits, Reviews and Compilations: A SummaryYou will want to prepare your financial statements in accordance with an accounting framework that’s appropriate for your business. Most of the time, you’ll opt for a CPA to produce your financial statements. Getting an accountant’s blessing is especially useful when you are applying for more credit from a bank.

Financial statements are intended to give you current information on your business’s financial standing so you can make more informed decisions. There are three levels of overview you can choose to take — compilation, review or audit — and what you select will have a lot to do with what your objective is.

The Compilation

According to guidance from the American Institute of CPAs, a compilation is suitable for use by lenders and other outside parties who may appreciate the business’s association with a CPA. There is no assurance here, but the CPA will read the financial statements in light of the financial reporting framework being used and consider whether the financial statements appear appropriate in form and are free from obvious material misstatements.

It may be appropriate when a company is seeking only relatively minor levels of financing and may have significant collateral.

The Review

The next level is a review. According to the AICPA, the review is designed to provide lenders and other outside parties with a basic level of assurance on the accuracy of financial statements. The CPA performs analytical procedures, inquiries and other procedures to obtain limited assurance on the financial statements to provide a user with a level of comfort on their accuracy.

A review might be the right move for companies seeking larger levels of financing and have more complex credit needs.

The Audit

The highest level of assurance is an audit. The CPA performs procedures to obtain “reasonable assurance” (defined as a high but not absolute level of assurance) about whether the financial statements are free from material misstatement, according to the AICPA. The CPA is required to obtain an understanding of your business’s internal control and to assess fraud risk. Your CPA is also required to corroborate the amounts and disclosures included in your financial statements by obtaining audit evidence through inquiry, physical inspection, observation, third-party confirmations, examination, analytical procedures and other procedures.

An audit is an annual requirement for publicly held companies and may be advisable for other companies seeking high levels of finance and opening themselves to outside investors.

Required Frequency

How often will you want your CPA to peruse your finances? Overviews can be done in any frequency that is useful to you and your business — monthly, quarterly or annually. Some folks say that your financial statements are more than snapshots of your business but can be seen as resources to tell you where your risks and opportunities are. Financial statements can help you identify and solve potential problems before they compromise the health of your business.

We’ve got your back

Rather than guessing at audit, reviews and compilations, why not let the experts at KRS CPAs help? Learn more about our accounting and assurance services, then contact managing partner Maria Rollins at [email protected] or 201.655.7411 for a complimentary initial consultation.

The IRS and Private Tax Debt Collection

To collect unpaid taxes, the IRS is turning to private companies.

IRS Using Debt Collection AgenciesThe growing backlog of debt has proved too much for the agency, which continues to use four debt collection companies to round up outstanding payments from taxpayers who’ve been contacted numerous times and still haven’t coughed up any cash.

The new private debt collection program originally started slowly, with just a few hundred taxpayers a week receiving mailings and subsequent calls. But now it’s in full swing, with thousands of people being contacted.

Taxpayers with long-overdue tax bills who’ve received several collection notices from the IRS through the mail are now being informed that their accounts have been transferred to private collectors. The collection agencies send letters of their own, clearly identifying themselves in all communications as working for the IRS.

Collectors Follow the Fair Debt Collections Practices Act

Of course, these new debt collectors need to follow the Fair Debt Collection Practices Act, which spells out when they can call, whom they can call, and what they can and cannot say. The IRS has told the collectors not to use robocalls to contact taxpayers.

The new private debt collection program comes straight from Congress, which required this action, noting that it’s a way to fund road improvement projects for the Fixing America’s Surface Transportation Act, which was passed in 2015.

The four collection agencies are CBE Group, ConServe, Performant and Pioneer Credit Recovery. These agencies explain how they work. For example, Performant notes on its website how they work and lists official government sites for more information.

Protecting Yourself from Scammers

A problem jumps into anyone’s mind: how to tell the official debt collectors from the scammers. The IRS has noted that the it is urging taxpayers to be on the lookout for scammers who might use this program as a cover to trick people. One sign is payment: Performant notes, for example, that it tells taxpayers to make checks out to the federal government, and not to the private agency.

So, how can taxpayers protect themselves from new scams? There are some simple ways to tell whether the call is legitimate or from a fraudster. It’s a scam if the caller does any of the following:

  • Is very aggressive or threatens you in any way with arrest or someone coming to your house.
  • Tries to pressure you to make immediate payment.
  • Asks for your credit or debit card information.
  • Requests payment via gift cards, including Amazon and iTunes, prepaid debit cards, or a wire transfer.

More information is available on the U.S. Treasury site.

We’ve got your back

Legitimate private debt collection firms will instruct taxpayers to send a check, made out to the U.S. Treasury, directly to the IRS. It’s always a good idea to check with us to keep up to date with the new program and the new scams that come from it. Of course, if you have an outstanding debt to the IRS, contact us immediately so we can help you with the process of paying the government what you owe. Don’t go it alone! Contact KRS managing partner Maria Rollins at [email protected] or 201.655.7411 for a complimentary initial consultation.

Medical and Dental Expenses: What Can You Deduct?

Can you deduct medical and dental expenses? That’s a complicated question.

Medical and Dental Expenses: What Can You Deduct?To start with, your deductions must exceed 7.5 percent of your adjusted gross income. And they have to fall into an IRS-approved category.

Deductible medical expenses may include, but aren’t limited to the following:

  • Payments of fees to doctors, dentists, surgeons, chiropractors, psychiatrists, psychologists and nontraditional medical practitioners.
  • Payments for inpatient hospital care or residential nursing home care, if the availability of medical care is the principal reason for being in the nursing home, including the cost of meals and lodging charged by the hospital or nursing home. However, if medical care isn’t the principal reason for the nursing home stay, then the deduction is limited to medical care costs only.
  • Payments for acupuncture treatments or inpatient treatment at a center for alcohol or drug addiction, for participating in a smoking-cessation program, and for drugs to alleviate nicotine withdrawal that require a prescription.
  • Payments to participate in a weight-loss program for a specific disease or diseases diagnosed by a physician, including obesity; but not ordinarily payments for diet food items or the payment of health club dues.
  • Payments for insulin and payments for drugs that require a prescription.
  • Payments made for admission and transportation to a medical conference relating to a chronic disease that you, your spouse, or your dependents have (if the costs are primarily for and essential to necessary medical care). However, you may not deduct costs of meals and lodging while attending a medical conference.
  • Payments for false teeth, reading or prescription eyeglasses or contact lenses, hearing aids, crutches, wheelchairs, and for a guide dog or other service animal to assist the visually impaired or hearing-disabled person, or for a person with other physical disabilities.
  • Payments for transportation primarily for and essential to medical care that qualifies as medical expenses — payments of the actual fare for a taxi, bus, train, ambulance or for transportation by personal car to include the amount of your actual out-of-pocket expenses, gas, oil, etc. Standard mileage rate for medical expenses, plus the cost of tolls and parking apply as well.

Caveats for long-term care insurance

Payments for insurance policy premiums that cover medical care or for a qualified long-term care insurance policy are both deductible, but there are some caveats:

  • If you’re an employee, don’t include in medical expenses the portion of your premiums treated as paid by your employer under its sponsored group accident, health policy or qualified long-term care insurance policy.
  • Don’t include premiums that you paid under your employer-sponsored policy under a premium conversion policy (pre-tax), paid by an employer-sponsored health insurance plan (cafeteria plan), or any other medical and dental expenses unless the premiums are included in box 1 of your Form W-2, Wage and Tax Statement.

Only include medical expenses paid during the year and use the expenses only once on the return. Reduce your total deductible medical expenses by any reimbursement, whether you receive the reimbursement directly or it’s paid on your behalf to doctors, a hospital or other medical provider.

Finally, note that the threshold rises to 10 percent for 2019.

We’ve got your back

This is just a summary of a complicated series of rules.Rather than guessing at the IRS rules and requirements, why not let the KRS CPAs tax experts help? We will help you determine which expenses you can safely deduct. Contact us at 201.655.7411 to get started.

Using Financial Reports to Manage Your Business

Your financial reports can be far more useful than just a report on the state of your business.

You can use these reports to manage your business, diagnosis what’s going right and wrong, and set goals for how to grow and add to your bottom line.

What are financial reports?

Financial reports are issued at set intervals and go to shareholders, partners, investors, and potential lenders.Using Financial Reports to Manage Your Business They describe your company’s financial strengths and weaknesses and typically contain the following:

  • Balance sheet: includes statement of liabilities, assets, and business capital
  • Income statement: reports on a company’s financial performance, how it gets revenue, and how and incurs expenses
  • Cash flow statement: shows how the changes in the balance sheet affect cash and cash equivalents that flow in and out of the company

Clearly, these financial statements are essential to run your company on financial fact, not hopes and prayers. Keeping these records thoroughly is the first step in running a successful business, being prepared at tax time to pay the IRS, and accurately valuing your company should you decide to sell. Any lender or investor will want to see your financial report before deciding whether they want to hitch their money to your star.

Why GAAP is a smart move

Although some companies generate their own financial statements, many turn to their accountant to formalize their statements according to GAAP, Generally Accepted Accounting Principles. It’s a smart move; here’s why:

  • Accountants can present your numbers so they are easy to read and understand.
  • If you’re a public company, accountants can provide audited financials that are certified by an independent entity.
  • Accountants can professionally format your numbers, give the statement a fancy cover, and state that an independent accountant has accepted your numbers.

Hidden gold in financial statements

Financial statements are a great tool to help you answer questions about your company and to manage money and priorities. At a glance, these statements can help you determine critical expenses as well as evaluate whether your financial position is getting better or worse, whether your staff is contributing enough to the bottom line, and whether you’re meeting set benchmarks.

We’ve got your back

We can help you compile and analyze your financial statements. Rather than guessing at financial statements, why not let the experts at KRS CPAs help? Contact us at 201.655.7411 for a complimentary initial consultation.