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Our client portal will be unavailable from 9PM MST, April 26 until 9PM MST April 28th due to a scheduled maintenance.
Office alert – Friday March 15th, 2024.
Due to the road conditions, majority of our staff will be working remotely today.
We want you to be safe, we have a drop off at COS on 3rd floor. If you are planning to come by the Denver and Springs office please make contact with your SKR contact first.
Our client portal will be unavailable from 9PM MST, April 26 until 9PM MST April 28th due to a scheduled maintenance.
Office alert – Friday March 15th, 2024.
Due to the road conditions, majority of our staff will be working remotely today.
We want you to be safe, we have a drop off at COS on 3rd floor. If you are planning to come by the Denver and Springs office please make contact with your SKR contact first.
The Roth IRA is widely considered one of the greatest gifts the U.S. Congress has ever given to taxpayers. With a Roth IRA, contributions are made with after-tax dollars and, therefore, we do not receive an upfront tax deduction for the contribution. In return for not getting a tax deduction, the taxpayer gets something more significant – qualified distributions can be withdrawn tax free. Qualified distributions are distributions that occur after a five-year waiting period has elapsed and a triggering event has occurred. The triggering events are either the attainment of age 59½, death, disability, or a first time home purchase. Not only are your initial contributed amounts withdrawn tax free but all of the future appreciation in the Roth IRA account value escapes taxation as well.
There is a little known provision in the Internal Revenue Code that can provide a huge income tax advantage for certain taxpayers in the right circumstances. Although conventional wisdom tells us to roll over our retirement account assets to a rollover IRA account when we leave an employer or retire, the availability of the Net Unrealized Appreciation (NUA) tax strategy requires very careful consideration before we roll over these assets.
With contributions from Penny Sayre, CPA, Tax Manager
The federal government encourages your generosity by allowing you to deduct your gifts to charities on your income tax return if you itemize deductions. However, you must follow the IRS’s reporting and substantiation rules to assure your charitable deduction is allowed. While all contributions must be substantiated, there are numerous and overlapping requirements.
For a contribution of cash, check, or other monetary gift, regardless of amount, you must maintain a bank record or a written communication from the donee organization showing its name, plus the date and amount of the contribution. Any other type of written record, such as a log of contributions, is insufficient.
For a contribution of property other than money, you generally must maintain a receipt from the donee organization that shows the organization's name, the date and location of the contribution, and a detailed description (but not the value) of the property. If circumstances make obtaining a receipt impracticable, you must maintain a reliable written record of the contribution. The information required in such a record depends on factors such as the type and value of property contributed.
If the contribution is worth $250 or more, stricter substantiation requirements apply. No charitable deduction is allowed for any contribution of $250 or more unless you substantiate the contribution with a written receipt from the donee organization. You must have the receipt in hand when you file your return (or by the due date, if earlier) or you won't be able to claim the deduction. If you make separate contributions of less than $250, you won't be subject to the written receipt requirement, even if the sum of the contributions to the same charity total $250 or more in a year.
The receipt must set forth the amount of cash and a description (but not the value) of any property other than cash contributed. It must also state whether the donee provided any goods or services in return for the contribution, and if so, must give a good faith estimate of the value of the goods or services. If you received only “intangible religious benefits,” such as attending religious services, in return for your contribution, the receipt must say so. This type of benefit is considered to have no commercial value and so doesn't reduce the charitable deduction available.
In general, if the total charitable deduction you claim for non-cash property is more than $500, you must attach a completed Form 8283 (Noncash Charitable Contributions) to your return or the deduction is not allowed. In general, you are required to obtain a qualified appraisal for donated property with a value of more than $5,000, and to attach an appraisal summary to the tax return. However, a qualified appraisal isn't required for publicly-traded securities for which market quotations are readily available. A partially completed appraisal summary and the maintenance of certain records are required for (1) nonpublicly-traded stock for which the claimed deduction is greater than $5,000 and no more than $10,000, and (2) certain publicly-traded securities for which market quotations are not readily available. A qualified appraisal is required for gifts of art valued at $20,000 or more. IRS may also request that you provide a photograph.
As we begin the new tax year of 2015, a review of a 2014 Tax Court Memorandum Decision (TC Memo 2014-203, Thad D. Smith v. Commissioner) provides a reminder that the IRS and the courts take the charitable contribution rules seriously and that good tax documentation is required to support a deduction for noncash charitable contributions. Here’s a summary of the take-away lessons from the Smith case regarding documentation of noncash charitable contributions:
If you receive goods or services, such as a dinner or theater tickets, in return for your contribution, your deduction is limited to the excess of what you gave over the value of what you received. For example, if you gave $100 and in return received a dinner worth $30, you can deduct $70. But your contribution is fully deductible if:
If you made a contribution of more than $75 for which you received goods or services, the charity must give you a written statement, either when it asks for the donation or when it receives it, that tells you the value of those goods or services. Be sure to keep these statements.
You can substantiate a contribution that you make by withholding from your wages with a pay stub, Form W-2, or other document from your employer that shows the amount withheld for payment to the charity. You can substantiate a single contribution of $250 or more with a pledge card or other document prepared by the charity that includes a statement that it doesn't provide goods or services in return for contributions made by payroll deduction.
The deduction from each wage payment is treated as a separate contribution for purposes of the $250 threshold.
Although you can't deduct the value of services you perform for a charitable organization, some deductions are permitted for out-of-pocket costs you incur while performing the services. You should keep track of your expenses, the services you performed and when you performed them, and the organization for which you performed the services. Keep receipts, canceled checks, and other reliable written records relating to the services and expenses.
As discussed earlier, a written receipt is required for contributions of $250 or more. This presents a problem for out-of-pocket expenses incurred in the course of providing charitable services, since the charity doesn't know how much those expenses were. However, you can satisfy the written receipt requirement if you have adequate records to substantiate the amount of your expenditures, and get a statement from the charity that contains a description of the services you provided, the date the services were provided, a statement of whether the organization provided any goods or services in return, and a description and good-faith estimate of the value of those goods or services.
Please call us if you have any questions about these rules. Together we can make sure that you'll get all the deductions to which you are entitled when we prepare your 2014 tax returns.
A recent U.S. Tax Court decision has challenged a long-accepted understanding of how the 60-day IRA rollover rules work. In Bobrow v. Commissioner, the court ruled that the once-per-year rollover rule applies in aggregate to all of a taxpayer’s IRA accounts and not on an account by account basis. This position is inconsistent with the IRS’ own Publication 590 and proposed regulations written better than 30 years ago. Due to the significance of this decision, we felt it important to highlight the key points you need to know to steer clear of problem areas with IRA rollovers going forward.
Withdrawals from IRA accounts are normally taxable but the standard rollover rule of IRC Sec. 408(d)(3)(A) stipulates that as long as the funds are rolled over within 60 days, the distribution will not be taxable. To prevent abuse, IRC Sec. 408(d)(3)(B) applies a limitation whereby the 60-day rollover rule cannot be utilized more than once in a one-year period (measured as 365 days from the date that the first distribution occurred).
Historically, this rollover rule has been applied on an account-by-account basis. For example, if an individual has two IRA accounts and takes a distribution from IRA # 1 that is rolled over into a new IRA account (IRA # 3), then no further rollovers can occur from IRA # 1 or IRA # 3 during the next year since both accounts have already participated in one rollover in a one-year period. The rollover from IRA # 1 into IRA # 3, however, has never prevented a taxpayer from making a tax-free rollover from IRA # 2 into any other traditional IRA, during this same one-year period – at least until the Bobrow decision.
The IRS issues Publication 590 annually to assist taxpayers in preparing their individual income tax returns. The example cited above has been in Publication 590 for better than 20 years and is based on language in IRS proposed regulations introduced in 1981. Soon after the court’s decision, the IRS issued Announcement 2014-15 which adopted this less taxpayer-friendly interpretation of the IRA rollover rules. The IRS also announced that they plan to revise Publication 590 in the near future.
The IRS has acknowledged that because this was a significant departure from the standard view on the IRC Sec. 408(d)(3)(B) rollover limitation – including the IRS’ own position – no new regulations will take effect before January 1, 2015. In addition, the IRS has declared that it will not pursue the Bobrow interpretation for any rollover that involves an IRA distribution occurring before January 1, 2015.
Why did the tax court decide the Bobrow case the way it did? Most likely, it was to prevent taxpayers from using IRA funds as a form of temporary loan – one that could be chained together through a sequence of IRA rollovers. The prior interpretation of the IRA rollover rules could have provided taxpayers with several different IRA accounts the ability to stretch their IRA loans out over extended periods of time. Tax-free use of a taxpayer’s IRA funds was certainly not the original intent of Congress when IRA accounts were first introduced back in 1974. It is likely the IRS felt the rollover limitation rule of IRC Sec. 408(d)(3)(B) was being abused by the taxpayers in the Bobrow case enabling them to use their various IRA accounts for multiple short-term loans. The taxpayers were, in essence, attempting to “game” the system.
The bottom line for taxpayers is that beginning on January 1, 2015 the IRA rollover rule will now apply aggregated across all IRA accounts of the taxpayer. This means the once-per-year rollover limitation is not just a per-IRA limitation but a per-taxpayer limitation (i.e., a taxpayer can only do one rollover across any/all of his IRA accounts during a 365-day period).
If a taxpayer attempts to make more that one IRA-to-IRA rollover within a 365-day period, the consequences could be severe. The second (third, fourth, etc.) rollover within the 365-day period will be considered a distribution which, for traditional IRAs, will generally be subject to income tax and, if the IRA owner is under 59 ½ years of age, the 10% penalty. For Roth IRAs, the distribution may be subject to income tax and/or the 10% penalty. And if that’s not bad enough, subsequent distributions erroneously “rolled over” during the 365-day period could result in excess contributions in the receiving account, subject to the 6% excess contribution penalty for each year they remain in the account.
a) Trustee-to-Trustee IRA Transfers – This is the best way for IRA money to be moved from one IRA to another. The funds go directly from one custodian to another without the account owner having an opportunity to use the funds while they are outside the IRA. When IRA funds are moved this way, there is no 60-day deadline and the once-per-year rule does not apply. IRA owners may make as many trustee-to-trustee transfers as they desire, and at any time.
b) Plan-to-IRA Rollovers – The once-per-year rollover rule is an IRA-to-IRA and Roth IRA-to-Roth IRA rule. So, if a taxpayer makes a rollover that is not between two IRAs or two Roth IRAs, it does not count as a rollover for purposes of the once-per-year rule. For example, if a taxpayer rolls over money from their 401(k) to an IRA on January 25th of year 1 and then rolls that money via a 60-day rollover to another IRA on March 10th of the same year, the once-per-year rule has not been violated.
c) IRA-to-Qualified Plan Rollovers – Similar to the Plan-to-IRA rollover exclusion outlined above, IRA-to-Qualified Plan rollovers also do not count as rollovers for purposes of the once-per-year rollover rule.
d) Roth IRA Conversions – If money is converted from an IRA or employer plan to a Roth IRA, the conversion – which is technically a rollover – does not count as a rollover for purposes of the once-per-year rule.
If you are considering an IRA rollover, make sure it will meet the applicable rules and survive IRS scrutiny. We are here to assist you in determining the best course of action and to answer any questions. Contact us at (719) 630-1186.
For a contribution of cash, check, or other monetary gift, regardless of amount, you must maintain a bank record or a written communication from the donee organization showing its name, plus the date and amount of the contribution. Any other type of written record, such as a log of contributions, is insufficient.
For a contribution of property other than money, you generally must maintain a receipt from the donee organization that shows the organization’s name, the date and location of the contribution, and a detailed description (but not the value) of the property. If circumstances make obtaining a receipt impracticable, you must maintain a reliable written record of the contribution. The information required in such a record depends on factors such as the type and value of property contributed.
If the contribution is worth $250 or more, stricter substantiation requirements apply. No charitable deduction is allowed for any contribution of $250 or more unless you substantiate the contribution with a written receipt from the donee organization. You must have the receipt in hand when you file your return (or by the due date, if earlier) or you won’t be able to claim the deduction. If you make separate contributions of less than $250, you won’t be subject to the written receipt requirement, even if the sum of the contributions to the same charity total $250 or more in a year.
The receipt must set forth the amount of cash and a description (but not the value) of any property other than cash contributed. It must also state whether the donee provided any goods or services in return for the contribution, and if so, must give a good faith estimate of the value of the goods or services. If you received only “intangible religious benefits,” such as attending religious services, in return for your contribution, the receipt must say so. This type of benefit is considered to have no commercial value and so doesn’t reduce the charitable deduction available.
In general, if the total charitable deduction you claim for non-cash property is more than $500, you must attach a completed Form 8283 (Noncash Charitable Contributions) to your return or the deduction is not allowed. In general, you are required to obtain a qualified appraisal for donated property with a value of more than $5,000, and to attach an appraisal summary to the tax return. However, a qualified appraisal isn’t required for publicly-traded securities for which market quotations are readily available. A partially completed appraisal summary and the maintenance of certain records are required for (1) nonpublicly-traded stock for which the claimed deduction is greater than $5,000 and no more than $10,000, and (2) certain publicly-traded securities for which market quotations are not readily available. A qualified appraisal is required for gifts of art valued at $20,000 or more. IRS may also request that you provide a photograph.
If you receive goods or services, such as a dinner or theater tickets, in return for your contribution, your deduction is limited to the excess of what you gave over the value of what you received. For example, if you gave $100 and in return received a dinner worth $30, you can deduct $70. But your contribution is fully deductible if:
If you made a contribution of more than $75 for which you received goods or services, the charity must give you a written statement, either when it asks for the donation or when it receives it, that tells you the value of those goods or services. Be sure to keep these statements.
You can substantiate a contribution that you make by withholding from your wages with a pay stub, Form W-2, or other document from your employer that shows the amount withheld for payment to the charity. You can substantiate a single contribution of $250 or more with a pledge card or other document prepared by the charity that includes a statement that it doesn’t provide goods or services in return for contributions made by payroll deduction.
The deduction from each wage payment is treated as a separate contribution for purposes of the $250 threshold.
Although you can’t deduct the value of services you perform for a charitable organization, some deductions are permitted for out-of-pocket costs you incur while performing the services. You should keep track of your expenses, the services you performed and when you performed them, and the organization for which you performed the services. Keep receipts, canceled checks, and other reliable written records relating to the services and expenses.
As discussed earlier, a written receipt is required for contributions of $250 or more. This presents a problem for out-of-pocket expenses incurred in the course of providing charitable services, since the charity doesn’t know how much those expenses were. However, you can satisfy the written receipt requirement if you have adequate records to substantiate the amount of your expenditures, and get a statement from the charity that contains a description of the services you provided, the date the services were provided, a statement of whether the organization provided any goods or services in return, and a description and good-faith estimate of the value of those goods or services.
Please call us if you have any questions about these rules. Together we can make sure that you’ll get all the deductions to which you are entitled when we prepare your 2013 tax returns..