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TAX TALK: Tax Implications of Employer-provided Life Insurance

Posted by Hal Zemel, CPA, J.D., LL.M. on Aug 10, 2020 9:32:14 AM

Does your employer provide you with group term life insurance? If so, and if the coverage is higher than $50,000, this employee benefit may create undesirable income tax consequences for you.

Phantom Income

The first $50,000 of group term life insurance coverage that your employer provides is excluded from taxable income and doesn’t add anything to your income tax bill. But the employer-paid cost of group term coverage in excess of $50,000 is taxable income to you. It’s included in the taxable wages reported on your Form W-2 — even though you never actually receive it. In other words, it’s “phantom income.”

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Topics: TAX TALK

TAX TALK: Scholarships: Tax-free or Taxable?

Posted by Hal Zemel, CPA, J.D., LL.M. on Aug 3, 2020 9:20:00 AM

COVID-19 is changing the landscape for many schools this fall. But many children and young adults are going back, even if it’s just for online learning, and some parents will be facing tuition bills. If your child has been awarded a scholarship, that’s cause for celebration! But be aware that there may be tax implications.

Scholarships (and fellowships) are generally tax-free for students at elementary, middle and high schools, as well as those attending college, graduate school or accredited vocational schools. It doesn’t matter if the scholarship makes a direct payment to the individual or reduces tuition.

Tuition and Related Expenses

However, for a scholarship to be tax-free, certain conditions must be satisfied.

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Topics: TAX TALK

TAX TALK: Inheriting Property? Take Advantage of a Stepped-up Basis

Posted by Hal Zemel, CPA, J.D., LL.M. on Jul 27, 2020 9:20:00 AM

If you’re planning your estate, or you’ve recently inherited assets, you may be unsure of the “cost” (or “basis”) for tax purposes.

Fair Market Value Rules

Under the fair market value basis rules (also known as the “step-up and step-down” rules), an heir receives a basis in inherited property equal to its date-of-death value. So, for example, if your grandfather bought ABC Corp. stock in 1935 for $500 and it’s worth $5 million at his death, the basis is stepped up to $5 million in the hands of your grandfather’s heirs — and all of that gain escapes federal income tax forever.

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Topics: TAX TALK

TAX TALK: Businesses: Ready for Form 1099-NEC?

Posted by Hal Zemel, CPA, J.D., LL.M. on Jul 20, 2020 9:20:00 AM

There’s a new IRS form for business taxpayers that pay or receive nonemployee compensation. Beginning with tax year 2020, payers must complete Form 1099-NEC, Nonemployee Compensation, to report any payment of $600 or more to a payee.

Why the new form?

Prior to 2020, Form 1099-MISC was filed to report payments totaling at least $600 in a calendar year for services performed in a trade or business by someone who isn’t treated as an employee. These payments are referred to as nonemployee compensation (NEC) and the payment amount was reported in box 7.

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Topics: TAX TALK

TAX TALK: Three Considerations After Filing Your Taxes

Posted by Hal Zemel, CPA, J.D., LL.M. on Jul 13, 2020 9:20:00 AM

The tax filing deadline for 2019 tax returns has been extended until July 15 this year, due to the COVID-19 pandemic. After your 2019 tax return has been successfully filed with the IRS, there may still be some issues to bear in mind. Here are three considerations.

  1. Some tax records can now be thrown away

You should keep tax records related to your return for as long as the IRS can audit your return or assess additional taxes. In general, the statute of limitations is three years after you file your return. So, you can generally get rid of most records related to tax returns for 2016 and earlier years. (If you filed an extension for your 2016 return, hold on to your records until at least three years from when you filed the extended return.)

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Topics: TAX TALK

TAX TALK: Some are Required to Return Economic Impact Payments Sent in Error

Posted by Hal Zemel, CPA, J.D., LL.M. on Jul 6, 2020 9:20:00 AM

The IRS and the U.S. Treasury had disbursed 160.4 million Economic Impact Payments (EIPs) as of May 31, 2020, according to a new report. These are the payments being sent to eligible individuals in response to the economic threats caused by COVID-19. The U.S. Government Accountability Office (GAO) reports that $269.3 billion of EIPs have already been sent through a combination of electronic transfers to bank accounts, paper checks and prepaid debit cards.

Eligible individuals receive $1,200 or $2,400 for a married couple filing a joint return. Individuals may also receive up to an additional $500 for each qualifying child. Those with adjusted gross income over a threshold receive a reduced amount.

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Topics: TAX TALK

TAX TALK: What Qualifies as a COVID-19 Distribution from a Retirement Plan?

Posted by Hal Zemel, CPA, J.D., LL.M. on Jun 29, 2020 9:20:00 AM

As you may know, the Coronavirus Aid, Relief and Economic Security (CARES) Act allows “qualified” people to take certain “coronavirus-related distributions” from their retirement plans without paying tax.

So how do you qualify? In other words, what’s a coronavirus-related distribution?

Early Distribution Basics

In general, if you withdraw money from an IRA or eligible retirement plan before you reach age 59½, you must pay a 10% early withdrawal tax. This is in addition to any tax you may owe on the income from the withdrawal. There are several exceptions to the general rule. For example, you don’t owe the additional 10% tax if you become totally and permanently disabled or if you use the money to pay qualified higher education costs or medical expenses.

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Topics: TAX TALK

TAX TALK: Good Records - Key to Tax Deductions, Trouble-free IRS Audits

Posted by Hal Zemel, CPA, J.D., LL.M. on Jun 22, 2020 9:34:47 AM

If you operate a small business, or you’re starting a new one, you probably know you need to keep records of your income and expenses. In particular, you should carefully record your expenses in order to claim the full amount of the tax deductions to which you’re entitled. And you want to make sure you can defend the amounts reported on your tax returns if you’re ever audited by the IRS or state tax agencies.

Certain types of expenses, such as automobile, travel, meals and office-at-home expenses, require special attention because they’re subject to special recordkeeping requirements or limitations on deductibility.

It’s interesting to note that there’s not one way to keep business records. In its publication “Starting a Business and Keeping Records,” the IRS states: “Except in a few cases, the law does not require any specific kind of records. You can choose any recordkeeping system suited to your business that clearly shows your income and expenses.”

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Topics: TAX TALK

TAX TALK: Can Seniors Deduct Medicare Premiums?

Posted by Hal Zemel, CPA, J.D., LL.M. on Jun 15, 2020 9:20:00 AM

If you’re age 65 and older, and you have basic Medicare insurance, you may need to pay additional premiums to get the level of coverage you want. The premiums can be costly, especially if you’re married and both you and your spouse are paying them. But there may be a silver lining: You may qualify for a tax break for paying the premiums.

Tax Deductions for Medicare Premiums

You can combine premiums for Medicare health insurance with other qualifying health care expenses for purposes of claiming an itemized deduction for medical expenses on your tax return. This includes amounts for “Medigap” insurance and Medicare Advantage plans. Some people buy Medigap policies because Medicare Parts A and B don’t cover all their health care expenses. Coverage gaps include co-payments, co-insurance, deductibles and other costs. Medigap is private supplemental insurance that’s intended to cover some or all gaps.

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Topics: TAX TALK

TAX TALK: IRA for a Nonworking Spouse

Posted by Hal Zemel, CPA, J.D., LL.M. on Jun 8, 2020 9:20:00 AM

It’s often difficult for married couples to save as much as they need for retirement when one spouse doesn’t work outside the home — perhaps so that spouse can take care of children or elderly parents. In general, an IRA contribution is allowed only if a taxpayer has compensation. However, an exception involves a “spousal” IRA. It allows a contribution to be made for a nonworking spouse.

Under the spousal IRA rules, the amount that a married couple can contribute to an IRA for a nonworking spouse in 2020 is $6,000, which is the same limit that applies for the working spouse.

Two Main Benefits

As you may be aware, IRAs offer two types of benefits for taxpayers who make contributions to them.

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Topics: TAX TALK

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