Tax Guide for Investors

Tax Extenders Law Signed

December 20, 2014

On December 19, President Obama signed the law passed by the lame duck Congress to extend expired tax provisions through the end of 2014. As previously reported, the law retroactively restores provisions that expired at the end of 2013, such as the deduction for state and local sales tax. These provisions are extended only through the end of 2014, so further action from the new Congress will be necessary to make them available in 2015 or later years.

The legislation also includes technical corrections to earlier legislation and provisions making it possible for states to offer ABLE accounts, similar to 529 accounts but used to cover expenses of certain individuals with disabilities.

New Rule for 529 Account Investments

December 17, 2014

College savingsThe college savings plans known as 529 accounts have advantages but also some disadvantages, including a rule that restricts how often you can change your investments. The tax law passed by Congress at the end of its 2014 lame duck session includes a provision that loosens up that restriction as of 2015.

details: Changing 529 Account Investments

2014 Tax Extenders Move

December 4, 2014

Seal of the U.S. CongressUpdate: The Senate passed this bill on December 16, sending it to President Obama for his signature.

It’s not a done deal yet, but Congress appears to be heading toward a one-year extension, through 2014, of various tax provisions that expired at the end of 2013. Many extenders are included in various categories including business and energy. Here are the extenders for individuals:

  • Tax-free distributions from IRAs for charitable purposes
  • Deduction of state and local sales tax
  • Above-the-line deduction for qualified tuition
  • Mortgage insurance premiums treated as interest
  • Parity for employer-provided mass transit and parking
  • Exclusion of income from discharge of certain mortgage debt
  • Contributions of real property for conservation purposes
  • Deduction for certain teachers’ expenses

The House passed the bill 378-46 but the Senate has yet to act and the Senate has now passed it as well.

Investing: All You Need to Know

November 24, 2014

PennyIs it possible to say all you really need to know about investing in 100 words? Judge for yourself.

details: Investing in 100 Words

Another Change in the Rollover Rules

November 13, 2014

We have further guidance from the IRS on another change in the rollover rules. This one has to do with the rule saying you have to wait a year after doing a 60-day rollover from one IRA to another before you do another. The IRS announced earlier this year that it would apply a stricter interpretation of the rule beginning in 2015. A November 2014 announcement clarifies the earlier guidance.

details: One Rollover Per Year

Big Change in the 401k Rollover Rules

September 23, 2014

We don’t often get a change this big in an area as important as 401k rollovers. The IRS released guidance completely revising the way we treat rollovers when your 401k or similar account includes after-tax dollars. Ed Slott, author of Ed Slott’s 2014 Retirement Decisions Guide, praised the guidance, saying, “The IRS has made it easier for many people to make their retirement savings more tax-efficient.”

What’s the big deal? Previously it was difficult to separate pre-tax dollars from after-tax dollars when taking money from an employer plan. Now it’s a snap, which means you can send pre-tax dollars to a traditional IRA for a tax-free rollover while sending after-tax dollars to a Roth IRA for a tax-free conversion. This is a big win for people with retirement savings. Use the link below for a full explanation

details: Isolating Basis for a Roth Conversion

Inflation Adjustments for 2015

September 22, 2014

inflation-rate-of-changeThe August inflation numbers, which came out September 17, are the last ones needed to adjust most of the tax figures that change annually, including the tax rate schedules. The IRS hasn’t published the adjusted figures, but we “did the math” and updated our Reference Room to give you an advance look at the 2015 numbers. Highlights include an increase in the personal exemption amount from this year’s $3,950 to a round $4,000. The IRA contribution limit (under age 50) will remain at $5,500. (The 401k contribution limit depends on September inflation numbers, so that information isn’t available yet.) The annual gift tax exclusion amount will be unchanged at $14,000.

Inflation for the twelve-month period ending in August was 1.7%.

Interpretation of Stock Vesting Rule

January 5, 2014

Compensation in stock and optionsThe Tax Court recently rejected an IRS attempt to treat stock as vested based on a provision in the regulations dealing with termination for cause. The court found that the employment agreement used the word “cause” with a different meaning than in the regulation.

Read the rest of this entry »

Share Identification Under Attack

January 3, 2014

Taxation of InvestorsOne of the oldest rules in the tax law allows investors to choose which shares are being sold when disposing of part of their holdings in a particular stock. Both President Obama and Dave Camp, Republican Chair of the House Ways and Means Committee, have proposed doing away with this important rule. Our new article in the Journal of Taxation of Investments (subscription required) explains why repeal of share identification would be a policy blunder, accomplishing nothing and creating unnecessary problems for investors. Why aren’t more people objecting to these proposals?

read more: In Defense of Share Identification

Clergy Housing Allowance Exemption Unconstitutional

December 30, 2013

Court rulingsSection 107 of the Internal Revenue Code provides a tax exemption for a housing allowance provided to a “minister of the gospel.” In a decision virtually certain to be overturned, a federal judge has found the exemption unconstitutional.

Read the rest of this entry »