The US Supreme Court ruled in Clark v. Rainmaker that inherited IRAs (Individual Retirement Accounts) are not protected from creditor claims under Federal Bankruptcy Law. The Supreme Court reached its decision by finding that inherited IRAs are not “retirement funds” based on three factors: [Read more…] about INHERITED IRAs ARE NOT PROTECTED
Archives for August 2014
IRS CHANGES FORM 1099 BACKUP WITHHOLDING PROCEDURES
If you own your own business, and regardless of whether you operate as a sole proprietorship, LLC, partnership or corporation, you are required to issue Form 1099-MISC to independent contractors and the IRS if you paid the contractor $600 or more in the preceding calendar year for services performed by the contractor for your business.
If you work closely with your tax professional for tax preparation and tax planning services, you are aware that it is a best practice to procure Form W-9 from the contractor before services are performed, and definitely before payment is made for those services. Why? Once the contractor is paid, he has less motivation to provide you with a complete and accurately prepared Form W-9. This W-9 form can be found on the IRS website, www.irs.gov.
What does the IRS do with the Form 1099-MISC [Read more…] about IRS CHANGES FORM 1099 BACKUP WITHHOLDING PROCEDURES
STOCKS HAVE ZERO COST BASIS
A recent court case (Hoang, U.S. Court of Appeals, 11th Circuit, May 6, 2014) illustrates that if a taxpayer cannot substantiate cost of securities (stocks, bonds, etc.) sold, then the cost basis is zero. If a taxpayer works closely with his/her tax professional and uses the tax pro for tax planning services in addition to tax preparation services, the taxpayer can begin the process of substantiating the cost basis of securities sold to withstand an IRS challenge.
In Hoang, the taxpayer was found to owe the IRS $5.1 million based on his $14.8 million of capital gains. Hoang’s only support for his cost basis was a one-page Scottrade Composite Substitute 1099 Statement, and a one-page supplemental information statement from Scottrade showing a cost basis of $12.6 million. The court found the taxpayer’s these documents to be incomplete and unauthenticated. There was no itemization of what securities were in the lump-sum cost basis, nor any support as to what each security was sold for and what each security cost. The taxpayer’s documentation prevented the IRS from matching how much Hoang paid for each security sold. The court found that the documentation fell far short of providing cost basis evidence sufficient to rebut the presumption of correctness enjoyed by the IRS. Unfortunately, a bad case can be used by the IRS as precedent. Now whenever a taxpayer is found to lack proper documentation to support the tax basis of stock sold, the IRS agent will cite Hoang and propose that the entire sales proceeds be treated as gain.
If you want to learn more about your personal tax situation, we invite you to call 610-594-2601 today to make an appointment at our Exton PA CPA officeto discuss your situation. You can also schedule a consultation at Click Here.
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CERTIFICATES OF DEPOSIT (CD) IRA ROLLOVERS
Many senior citizens invest in certificates of deposits (CDs) as part of their retirement nest egg. When a CD matures in an IRA account, some seniors will search for the bank that is paying the highest interest rate and then rollover the maturing CD to the new bank. The rollover was done by receiving a check from the “old bank” and investing those monies in a CD with the “new bank”. This practice may now result in a taxable event! Why? [Read more…] about CERTIFICATES OF DEPOSIT (CD) IRA ROLLOVERS
IS YOUR TAX PROFESSIONAL SITTING BY YOUR SIDE WHEN YOU ARE MAKING FINANCIAL DECISIONS?
Does this type of thinking apply to your individual financial decisions? Could you improve your decision-making to maximize your financial wealth and security? Can you learn from the mistakes of senior financial executives of major corporations? [Read more…] about IS YOUR TAX PROFESSIONAL SITTING BY YOUR SIDE WHEN YOU ARE MAKING FINANCIAL DECISIONS?