Archives for June 2015

DO BROKER FEES CAUSE YOUR IRA TO BECOME IMMEDIATELY TAXABLE?

June 30, 2015 by Frank

We recently came across an article written by Michael Kitces, CFP, that discusses possible tax issues associated with AUM (asset under management) fees charged by financial planners. While the article does not raise any new issues, it does serve as a valuable reminder that our tax system is complex and why working with an experienced tax professional before making financial decisions is so important.

Mr. Kitces discussed that with the rise of comprehensive wealth management, it is increasingly common for clients to pay a single bundled AUM fee that covers not only deductible investment management services, but also non-deductible planning expenses. Technically, he says that those clients should probably only be deducting a portion of the AUM fee, not the entire amount — at least where the AUM fee covers a material amount of planning services. He notes that financial planning fees not specifically attributable to investment management or tax planning are non-deductible, and are treated as a personal non-tax deductible expense.

Mr. Kitces states that the issue is especially concerning when it comes to retirement accounts such as IRAs, where paying a personal financial planning fee with retirement assets could trigger [Read more…] about DO BROKER FEES CAUSE YOUR IRA TO BECOME IMMEDIATELY TAXABLE?

AUTO EXPENSES – ACTUAL VS. STANDARD MILEAGE RATE

June 23, 2015 by Frank

There are two methods to compute the amount of tax deductible vehicle (auto) expense. A taxpayer can deduct actual auto expenses or use the standard mileage rate. While the taxpayer is free to choose either method, both methods require that the deduction be properly substantiated.

Regardless of which method is used, the taxpayer must maintain a contemporaneous mileage book to substantiate the business use of the vehicle. Thus for those taxpayers who want to use actual vehicle expenses, a mileage log book is required to compute the business percentage of the expenses incurred.

The simplest method of computing deductible auto expenses for an employee or self-employed person is [Read more…] about AUTO EXPENSES – ACTUAL VS. STANDARD MILEAGE RATE

IRS DESIGNATED PRIVATE DELIVERY SERVICES

June 16, 2015 by Frank

Taxpayers have the burden of proving that tax returns and tax payments are made. For those taxpayers who mail their returns and tax payments (rather than remit their returns and tax payments electronically), we recommend that they mail tax returns and significant tax payments using the USPS’s registered mail service or its certified mail with a return receipt requested. Some taxpayers prefer to use a private delivery service such as United Parcel Service (UPS) or Federal Express to name two of these services.

Regardless of which service is used, it is very important that the taxpayer complete all the information on the mailing slips and also show on the taxpayer’s receipt what was mailed to the Internal Revenue Service (or other tax jurisdiction).

If a private delivery service is used, it is important that the taxpayer know [Read more…] about IRS DESIGNATED PRIVATE DELIVERY SERVICES

UPDATE OF PA UNREIMBURSED EMPLOYEE EXPENSES

June 10, 2015 by Frank

At a recent conference, a representative of the PA Department of Revenue (“DOR”) shared with the attending tax practitioners some reasons as to why PA disallows unreimbursed expenses claimed by taxpayers on PA Form UE-1.

Why is the PA DOR challenging your unreimbursed expenses reported on Form UE-1? One reason [Read more…] about UPDATE OF PA UNREIMBURSED EMPLOYEE EXPENSES

REAL ESTATE PROFESSIONAL – NEED A LOG BOOK?

June 2, 2015 by Frank

A rental real estate activity is subject to the passive loss limitation rules. Thus losses from this type of activity may be restricted, meaning that a taxpayer often cannot use the losses to offset non-passive income from sources such as wages, interest, and dividends. One exception to this rule is when the taxpayer qualifies as a real estate professional.

A real estate professional is a taxpayer who [Read more…] about REAL ESTATE PROFESSIONAL – NEED A LOG BOOK?