The expansion of Roth accounts marches on as the Thrift Savings Plan (affectionately known as the TSP), serving some 3.3 million employees of the federal government, announces it has completed the work to make Roth accounts available in this plan. Some agencies and services will need to reconfigure their payroll software before they can make these accounts available to their employees, but the TSP is ready when they are.
Coming Clean on Wash Sales
May 10, 2012by Kaye Thomas
This tax season — the one that just ended for those lucky enough to have filed on time, and the one still painfully dragging on for those who filed for an extension — is the first for which brokers are required to report cost basis, in addition to gross proceeds, on Form 1099-B. An important part of the requirement is that brokers must apply the wash sale rule, which prevents you from claiming a loss on a sale of shares if you buy identical shares within 30 days before or after. Anyone who does a lot of buying and selling might wonder whether the broker applied this rule correctly. You may be surprised to learn that there’s no way to be sure. The wash sale rule is a lot more complicated than it appears, and there are unanswered questions about some aspects of its workings. Read the rest of this entry »
Trusted but Discredited
May 10, 2012by Kaye Thomas
In a brief summary opinion (PDF) the Tax Court held that an individual who otherwise qualified for the first-time homebuyer credit would not be allowed to claim it because he bought the home from a family trust that was a “related person” for purposes of these rules. The taxpayer argued that the credit should be allowed where the trustee and the homebuyer are not the same individual, but the court rejected that argument.
IRS Loosens up on Local Lodging
May 4, 2012by Kaye Thomas
The IRS has issued proposed regulations that would make it easier to deduct “local lodging” costs — in other words, staying overnight when not away from home. The new rules provide a safe harbor for certain local lodging at a business meeting, conference, or other activity or function. Other local lodging expenses may be deductible as business expenses depending on the facts and circumstances. Although these rules will officially take effect when final regulations are published, the IRS says taxpayers can rely on them now, including on returns that have already been filed but for which the statute of limitations for claiming a refund has not expired (generally returns for years 2009 or later).
Resource: Proposed regulation in the Federal Register (PDF)
Delay in Reporting Requirement for Options and Debt Instruments
May 2, 2012by Kaye Thomas
The requirement for brokers to report the basis of financial instruments is being rolled out in three stages. Basis reporting for sales of stock took effect in 2011, the first year for mutual fund shares and dividend reinvestment plans is 2012, and basis reporting for options and debt instruments was set to begin in 2013. This last piece is the most complicated, and the IRS has announced a one-year delay, so that basis reporting for options and debt instruments will begin in 2014, not 2013.
Text: IRS Notice 2012-34 (PDF)
Fairmark Wrapup
April 26, 2012by Kaye Thomas
Here’s a summary of the top news, features and other items of interest relating to taxes and investing published recently at Fairmark.com.
The Fairmark Wrapup is also published as a free email newsletter. Click here to sign up. Read the rest of this entry »
Uncertainty in ISO Strategies
April 26, 2012by Kaye Thomas
Planning for incentive stock options always involves a level of uncertainty. A typical strategy involves holding at least some of the shares for a year or more after exercising the option, while sweating out the possibility that a decline in the stock price will wipe out the tax benefit and then some. This year option holders face an unusual level of uncertainty in the tax law as well. We’re dealing with at least five significant variables.
New Look at S Corp Payroll Tax
April 25, 2012by Kaye Thomas
Owners of an S corporation can receive business profits in the form of wages, which are subject to Social Security and Medicare tax, or dividend distributions, which are not. Naturally they prefer the latter because of the lower tax cost. The IRS can challenge the tax treatment if wage payments are unreasonably low, particularly where business profits are highly dependent on the services or reputation of the owner. Enforcement is difficult, however, and the use of S corporations to avoid paying employment taxes appears to be widespread. Financial disclosures of presidential candidates Newt Gingrich and John Edwards indicate that both of them used this technique.
The idea of closing this loophole has been floating around for some time. For example, California Democrat Pete Stark introduced a bill called the Narrowing Exceptions for Withholding Tax Act (or NEWT Act). The idea hasn’t had much momentum, but may have taken on new life as Democrats have attached a different version of this proposal (without the snarky title) to legislation that would prevent the impending increase in student loan rates. Blocking the increase in student loan rates appears to be a popular idea that has bipartisan support, but it remains to be seen whether the cost will be funded by this particular loophole-closer.
Roth IRA Can’t Hold S Corp Stock
March 26, 2012by Kaye Thomas
We like the idea of funding retirement accounts with traditional investments, such as publicly traded stocks, bonds and mutual funds. Some people think they can do better if they set up a “self-directed” IRA, often with unfortunate results. A recent case involving a transfer of S corporation stock to a Roth IRA is a case in point.
Some Refunds Delayed by a Week
January 27, 2012by Kaye Thomas
The IRS has announced some taxpayers will receive their refunds about a week later than originally projected. “The one-week delay for some refunds relates to fine-tuning IRS systems to adjust for new safeguards put in place this tax season to provide stronger protection against refund fraud,” the agency explained.
