Category Archives: IRA

What You Should Know About IRA Basis

What is IRA Basis?

IRA basis is the sum of after tax contributions made to your Individual Retirement Account. This can include traditional IRAs, rollover IRAs, inherited IRAs, and Roth IRAs. Many taxpayers fail to keep track of after tax contributions to these retirement accounts. This is not a good idea because you end up paying tax twice on the money you contribute to your IRA; once on the way in and once on the way out. Continue reading


3 Reasons to Avoid the 401k Tax Spiral

Do you get eager to use your 401K or IRA money? Emergencies are certainly going to arise from time to time. When they do, people are often all too eager to use their 401k or IRA money to bridge that gap. This is a terrible idea for many reasons but I will touch upon three right now. Continue reading


Alimony Tax Issues

What alimony tax issues apply when paying or receiving alimony? After all, divorce can be difficult enough. Add to it that divorced individuals may have to pay or receive alimony just complicates issue. If this is your situation, here are some tips for how to correctly treat the payments on your tax return. Continue reading


Tax Deadline is Rapidly Approaching

When is the Tax Deadline to file my 2015 tax return?

2016_04_05 Tax DeadlineisThe tax deadline is rapidly approaching, so this article serves as a reminder to those who have not yet filed their 2015 tax return. April 18, 2016 is the due date to either file your tax return and pay any taxes owed, or file for the automatic six-month extension and pay the tax you estimate to be due. Usually April 15 is the due date, but because Friday, April 15, is a legal holiday in the District of Columbia (where the IRS is headquartered), the filing date is advanced to the next day that isn’t a weekend or holiday – Monday, April 18 – even for taxpayers not living in DC.

What other tax deadlines are there?

In addition to the tax deadline to file the 2015 tax return, the April 18, 2016 deadline also applies to the following:

Tax year 2015 balance-due payments

Taxpayers that are filing extensions are cautioned that the filing extension is an extension to file. It is NOT an extension to pay a balance due. Late payment penalties and interest will be assessed on any balance due, even for returns on extension. Taxpayers anticipating a balance due will need to estimate this amount and include their payment with the extension request.

When is the last day for contributions to a Roth or traditional IRA?

April 18th is the last day contributions for 2015 can be made to either a Roth or traditional IRA, even if an extension is filed.

When are estimated tax payments due for the first quarter of 2016?

Taxpayers (individuals), especially those who have filed for an extension, are cautioned that the first installment of the 2016 estimated taxes are due on April 18. If you are on extension and anticipate a refund, all or a portion of the refund can be allocated to this quarter’s payment on the final return when it is filed at a later date. If the refund won’t be enough to fully cover the first installment, you may need to make a payment with the April 18 voucher. Please call this office for any questions.

Individual refund claims for tax year 2012

The regular three-year statute of limitations expires on April 18 for the 2012 tax return. Thus, no refund will be granted for a 2012 original or amended return that is filed after April 18.

Caution: The statute does not apply to balances due for unfiled 2012 returns.

Note: The deadline for any of the above actions is increased by an additional day, to April 19, 2016, for taxpayers who live in Maine or Massachusetts because of a holiday observed on the 18th in Massachusetts which affects the IRS Service Center located in Massachusetts that serves these two states.

Can Worthtax get my tax return files in time?

If Worthtax is holding up the completion of your returns because of missing information, please forward that information as quickly as possible in order to meet the April 18 deadline. Keep in mind that the last week of tax season is very hectic, and your returns may not be completed if you wait until the last minute. If it is apparent that the information will not be available in time for the April 18 deadline, then let the office know right away so that an extension request, and 2016 estimated tax vouchers if needed, may be prepared. If your returns have not yet been completed, please all Alex Franch, BS EA at 781.849.7200 right away so that he can schedule an appointment and/or file an extension if necessary. You can also schedule an appointment online at



Are Social Security Benefits Taxable?

Untitled designWhether your Social Security benefits are taxable (and, if so, how much of them are) depends on a number of issues. The following facts will help you understand the tax of your Social Security benefits.

Social Security benefits, in this case, refers to the gross amount of benefits you receive, meaning the amount before reduction due to payments withheld for Medicare premiums. The tax treatment of Social Security benefits is the same whether the benefits are paid due to disability, retirement or reaching the eligibility age. Supplemental Security Income (SSI) benefits are not taxable under any circumstances. Therefore they are not included in the calculation.

How Much of Social Security Benefits Are Taxable

How much of your Social Security benefits are taxable depends on your total income and marital status. Of course, that is if any of the social security benefit is taxable.

  • If Social Security is your only source of income, it is generally not taxable.
  • If you have other significant income, as much as 85% of your Social Security benefits can be taxable.
  • If you are married and filing separately, and you lived with your spouse at any time during the year, 85% of your Social Security benefits are taxable regardless of your income. This is to prevent married taxpayers who live together from filing separately, thereby reducing the income on each return. Thus reducing the amount of Social Security income subject to tax.

How do I know if my Social Security Benefit is taxable?

The following quick calculation can be done to determine if some of your benefits are taxable:

Step 1. Add one-half of the total Social Security benefits you received to the total of your other income. Include any tax-exempt interest and other exclusions from income.

Step 2. Compare this total to the base amount used for your filing status. If the total is more than the base amount, some of your benefits may be taxable.

What Are the Base Amounts?

  • $32,000 for married couples filing jointly;
  • $25,000 for single persons, heads of household, qualifying widows/widowers with dependent children, and married individuals filing separately who did not live with their spouses at any time during the year; and
  • $0 for married persons filing separately who lived together during the year.

Taxpayers can defer their “other” income from one year to another. They may be able to plan their income so as to eliminate or minimize the tax on their Social Security benefits from one year to the next. An example of this is taking Individual Retirement Account (IRA) distributions. However, the required minimum distribution rules for IRAs and other retirement plans must be taken into account.

Those may be missing an opportunity for some tax-free withdrawals are:

  • Individuals who have substantial IRAs
  • AND who are not required to make withdrawals OR are making their post age 70.5 required minimum distributions
  • Without withdrawing enough to reach the Social Security taxable threshold.

Everyone’s circumstances are different. However, what works for one may not work for another.

Need More Information on how Social Security Benefits Affect Your Tax Return?

If you have questions about how social security benefits affect your tax returns, or if you wish to do some tax planning, call Alex Franch, BS EA at 781.849.7200 for additional information. He understands the details involved with the Earned Income Credit and the IRS requirements. Worthtax has locations in Quincy, Weymouth and Dedham.

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60-Day Rollover

60-Day Rollover rule was part of the IRA rollover rules that have been clarified. Unfortunately, they are now more heavily restricted. The IRS limits one rollover from an IRA to another IRA in any 12-month period. The difference is that the limit will now apply by aggregating all IRAs, effectively treating them as one for purposes of the one rollover per 12-month period limit.

60-day rollover, rollover change, rollover rule

60-Day rollover change affects you how?

Basically, in the past, one could theoretically have multiple IRAs and take a distribution from one IRA to contribute to another IRA.  In this way, one could theoretically string out a 60-day rollover indefinitely as long as one had enough IRAs out there.  The change now restricts one 60-day rollover per 12 month period, per taxpayer. That being said, a married couple might be able to string out a 60-day rollover over 120 days if they timed it properly between each of their IRAs.

However, if you want a happy marriage, I would never ever drag my wife into such shenanigans. Maybe you should give Alex Franch, BS EA  at Worthtax a call the next time you have a question about an IRA rollover. He just might be able to save you a whole lot of grief.


Only One IRA Rollover Every 12 Months – Period!

Withdrawal, Transfer, Conversion, Retirement, IRA rollover, This subject of only one IRA rollover every twelve months has been brought up before. Yes, we are harping on the subject because of the profound tax consequences. This is a reminder that, beginning this year, we repeat, individuals are only allowed one IRA rollover in any 12-month period. This includes SEP and Simple accounts, traditional and Roth IRAs. That is, 12 months must have elapsed from the date a rollover is completed before another rollover can be made. Failure to abide by this rule can be expensive. And the rule applies no matter how many IRAs an individual owns.


Joe makes an IRA rollover on March 1, 2015. He cannot roll over another IRA distribution, without penalties, until March 2, 2016.

If Joe, in the example, was to make another IRA rollover before March 2, 2016, that entire distribution would be treated as a taxable distribution. It would also be subject to the 10% early distribution penalty if Joe is under the age of 59-1/2 at the time of the distribution. Additionally, if Joe deposited the distributed amount into another IRA, or redeposited the funds into the same IRA, those funds are treated as an excess contribution. They are subject to a 6% penalty per year for as long as they remain in the IRA.

IRA Rollover versus IRA Transfer

That does not mean you cannot transfer funds between IRA trustees multiple times during the year. In a rollover, a taxpayer takes possession of the funds and then must redeposit them within 60 days to avoid being taxed on the distribution. In contrast, a transfer moves the funds directly from one trustee to another with the taxpayer never taking possession of the funds. Unlimited direct transfers are allowed, including moving traditional IRA funds to a Roth IRA. This is called a conversion.

What If the Trustee Makes a Mistake?

If, through no fault of yours, a trustee does not follow your instructions to make a transfer and instead distributes the funds to you, procedures are available to obtain relief. But it must be 100% an error on the part of the trustee.

Are you Planning an IRA Rollover?

If you are planning an IRA rollover, before taking the distribution, please check with your IRA trustee or call Alex Franch, BS EA  at this office a call at 781-849-7200 to ensure you are not violating the 12-month rule. A mistake could cost you a lot of money.



Charitable Contribution: Tax Plan for Potential IRA-to-Charity Provision

2015_09_03 Charity, donation3Are you are 70.5 or over? Have you not taken all or any of your 2015 required minimum distribution (RMD) from your IRA? Do you plan to but have not yet made a significant charitable contribution? Here is a tip that could save some tax dollars.

In previous years, there has been a tax provision allowing an individual age 70.5 or older to make a direct transfer of money. This transfer could be up to $100,000, from his or her IRA account to a qualified charity. That provision expired on December 31, 2014. However, Congress has extended that provision in the past. There is a good chance it may be extended again. In fact, the Senate Finance Committee working group on individual tax reform, just recently, recommended extending the provision.

What if Congress Does Not Extend the Charitable Tax Plan Contribution?

If Congress does not extend it, you will have still satisfied your minimum distribution requirement. The amount transferred to the charity will still count as a charitable contribution. If Congress does extend it, you can take advantage of the tax benefits described later in this article.

If you wait to see whether the provision will be extended, and Congress waits until the last minute, you may not have time to take action. This was the case for most taxpayers last year. You may have already taken your RMD or made that charitable contribution.

What happens if the provision is extended?

If the provision is extended, here is how it will play out on a tax return:

  1. The distribution is excluded from income;
  2. The distribution counts towards the taxpayer’s Required Minimum Distribution for the year; and
  3. The distribution does NOT count as a charitable contribution.

At first glance, this may not appear to provide tax benefits. However, by excluding the distribution, a taxpayer lowers his or her income (AGI) for other tax breaks pegged at AGI levels such as medical expenses, passive losses, taxable Social Security, etc. Those who do not itemize essentially receive the benefit of a charitable contribution to offset the IRA distribution.

Would you like more information how to maximize your tax benefit based on a charitable contribution?

If you think that this tax provision may affect you. Would you would like to explore the possibilities with some tax planning? Alex Franch, BS EA at 781-849-7200.

You can read more about the potential IRA-to-Charitable Tax plan contribution from 2014 here.

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Turning 70 1/2 this year? You may face a number of special tax issues.

If you are turning 70 1/2 this year, you may face a number of special tax issues. Not addressing these issues properly could result in significant penalties and filing hassles.

Traditional IRA Contributions

2015_03_25 are you turning 70 1-2, required minimum distributionYou cannot make a traditional IRA contribution in the year you reach the age of 70 1/2. Contributions made in the year you are turning 70 1/2 (and from then on) are treated as an excess contribution. These are subject to a nondeductible 6% excise tax penalty for every year in which the excess contribution remains in the account. The penalty, which cannot exceed the value of the IRA account, is calculated on the excess contributed and on any interest it may have earned.

You can avoid the penalty. How? By removing the excess and the interest earned on the excess from the IRA prior to April 15 of the subsequent year. Also, including the interest earned on the excess in your taxable income.

Even though you can no longer make contributions to a traditional IRA in the year you are turning 70 1/2, you can continue to make contributions to a Roth IRA. The contribution is not to exceed the annual IRA contribution limits. This is provided you still have earned income, such as wages or self-employment income, at least equal to the amount of the contribution.

If you are married to a non-working or low-earning spouse who has not yet reached age 70 1/2 and you have earned income, your earnings can still be used to qualify your spouse for a contribution to a spousal IRA. Even if you are turning 70 1/2 or older and can’t contribute to your traditional IRA, the spousal IRA would still qualify.

Required Minimum Distributions (RMDs)

Let’s face it, you have to start taking your deductions sometime. You must begin taking required minimum distributions from your qualified retirement plans and IRA accounts in the year you turn 70 1/2. The distribution for the year in which you turned 70 1/2 can be delayed to the subsequent year without penalty if the distribution is made by April 1 of the subsequent year. That means two distributions must be made in the subsequent year: the delayed distribution and the distribution for that year. In the following years, your annual RMD must be taken by December 31 of each year.

Still Working Exception

If you participate in a qualified employer plan, generally you need to start taking required minimum distributions (RMDs) by April 1 of the year following the year you turn 70 1/2. This is your required beginning date (RBD) for retirement distributions. However, if your plan includes the still working exception, your RBD is postponed to April 1 of the year following the year you retire.

Example: You are turning 70 1/2 in 2015, but you chose to continue working; you did not retire until June of 2017. Provided your employer’s plan includes the option, you can make the “still working election” and delay your RBD until no later than April 1, 2018.

Caution: This exception does not apply to an employee who owns more than 5% of the company. There is no “still working exception” for IRAs, Simple IRAs, or SEP IRAs.

Excess Accumulation Penalty

When you fail to take an required minimum deduction, you are subject to a draconian penalty called the excess accumulation penalty. This penalty is a 50% excise tax of the amount (RMD) that should have been distributed for the year.

Example: Your required minimum deduction for the year is $35,000. You only take $10,000. Your excess accumulation penalty for failing to take the full amount of the distribution for the year would be $12,500 (50% of $25,000).

The IRS will generally waive the penalty for non-willful failures to take your required minimum deduction, provided you have a valid excuse and the under-distribution is corrected.

Turning 70 1/2 Can Be Complicated

As you can see, turning 70 1/2 can complicate your tax situation. If you need assistance with any of the issues discussed here, or need assistance computing your required minimum distribution for the year, please give our office a call at 781-849-7200.

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Spousal IRA: Do Not Overlook

2015_03_10 Spousal IRASpousal IRA is one frequently overlooked tax benefit. Generally, IRA contributions are only allowed for taxpayers who have compensation (the term “compensation” includes: wages, tips, bonuses, professional fees, commissions, alimony received, and net income from self-employment). Spousal IRAs are the exception to that rule. They allow a non-working or low-earning spouse to contribute to his or her own IRA, otherwise known as a spousal IRA, as long as the spouse has adequate compensation.

The maximum amount that a non-working or low-earning spouse can contribute is the same as the limit for a working spouse ($5,500 for years 2013 through 2015). If the non-working spouse is age 50 or older, the spouse can also make “catch-up” contributions (limited to $1,000 for 2013 through 2015). This raises the overall contribution limit to $6,500. These limits apply provided the couple together has compensation equal to or greater than their combined IRA contributions.

Example: Tony is employed and his W-2 for 2015 is $100,000. His wife, Rosa, age 45, has a small income from a part-time job totaling $900. Since her own compensation is less than the contribution limits for the year, she can base her contribution on their combined compensation of $100,900. Thus, Rosa can contribute up to $5,500 to an IRA for 2015.

The contributions for both spouses can be made either to a Traditional or Roth IRA. Or, it can be split between them. This is as long as the combined contributions do not exceed the annual contribution limit. Caution: The deductibility of the Traditional IRA and the ability to make a Roth IRA contribution are generally based on the taxpayer’s income:

  • Traditional IRAs – There is no income limit restricting contributions to a Traditional IRA. However, if the working spouse is an active participant in any other qualified retirement plan, a tax-deductible contribution can be made to the IRA of the non-participant spouse. This is only if the couple’s adjusted gross income (AGI) does not exceed $183,000 in 2015 (up from $181,000 in 2014). This limit is phased out in 2015 for AGI between $183,000 and $193,000 (up from $181,000 and $191,000 in 2014).
  • Roth IRAs – Roth IRA contributions are never tax-deductible. Contributions to Roth IRAs are allowed in full if the couple’s AGI doesn’t exceed $183,000 in 2015 (up from $181,000 in 2014). The contribution is ratably phased out for AGI between $183,000 and $193,000 (up from $181,000 and $191,000 in 2014). Thus, no contribution is allowed to a Roth IRA once the AGI exceeds $193,000.

Example: Rosa, in the previous example, can designate her IRA contribution to be either a deductible Traditional IRA or a nondeductible Roth IRA because the couple’s AGI is under $183,000. Had the couple’s AGI been $188,000, Rosa’s allowable contribution to a deductible Traditional or Roth IRA would have been limited to $2,750 because of the phaseout. The other $2,750 could have been contributed to a nondeductible Traditional IRA. 

Questions About Spousal IRA or Tax Deductions?

If you would like to discuss IRAs, retirement planning or need assistance with your taxes, please contact contact us or visit any one of our locations. WorthTax uses a triple check accuracy system to make sure your taxes are done right. You may also leave your thoughts, questions or comments below or post on our FacebookGoogle+ or LinkedIn pages.

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Tax Season is Here!

Time flies – before it slips away, call Alex Franch, EA at 781-849-7200 for your appointment and learn about our client discounts here.