September, 2014 - Doherty & Associates

Roth IRA’s

Roth IRA’s

Roth IRA’s are individual retirement accounts that are subject to the same rules as a traditional IRA with some major distinctions.

Roth IRA contributions are not deductible.
Qualified distributions are not taxable.
You can continue to make contributions after you reach age 70½.
There are no required minimum distributions.

Who can contribute?

You can open and contribute to a traditional IRA if:

You have taxable compensation, and
Your modified adjusted gross income is less than

o $188,000 if you are married and filing a joint return

o $127,000 if you are single, head of household or married filing separate and did not live with your spouse at any time during the year.

o $10,000 if you are married filing separately and you lived with your spouse at any time during the year.

How much can I contribute?

The maximum contribution for 2014 is the lesser of $5,500 ($6,500 if you are 50 or older at the end of the tax year) or the amount of your taxable compensation. If you contribute to both a traditional IRA and a Roth IRA, your total contribution is limited to $5,500 ($6,500) total for both plans. The amount that you can contribute depends on your income.

If you are single, head of household or married filing separate and did not live with your spouse at any time during the year, your allowable contribution begins to phase out when your modified adjusted gross income reaches $112,000. Once your modified adjusted gross income exceeds $127,000, you are not allowed to make a contribution.
If you are married filing a joint return, your allowable contribution begins to phase out when your modified adjusted gross income reaches $178,000. Once your modified adjusted gross income exceeds $188,000, you are not allowed a contribution.
If you are married filing a separate return and did not live with your spouse at any time during the year and covered at work, your contribution completely phases out when your modified adjusted gross income reaches $10,000.

When can I contribute?

Contributions must be made by the due date of your tax return, not including extensions. This is usually April 15^th.

Distributions

A qualified distribution is not included in your taxable income. To be considered a qualified distribution, the payments must meet certain requirements.

It must be made after the five year period that begins when you make the first contribution to your Roth IRA account, and

o You have reached age 59½, or

o You are disabled, or

o It is paid after you death, or

o It meets the requirements for a first home purchase.

As always, this is only meant as a brief overview. If you feel that we can be of further assistance to you, please contact our office to set up an appointment.

Email us at: info@dohertyandassociates.com

Call us at: 302-239-3500

Visit our website: http://dohertyandassociates.com

– Doherty & Associates Team

September 12, 2014/0 Comments/by Joe Lumi

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Repairs or Improvements – the new tangible property regulations for small business.

The IRS has released the final regulations, effective January 1, 2014, that govern when you must capitalize and when you can deduct expenses related to tangible property.

Here we will discuss some of the provisions for small businesses (generally those without audited financial statements).

Generally you should assume that all tangible property, except inventory, must be capitalized and depreciated. However, as usual, there are exceptions to that rule.

Materials & Supplies

The final regulations define materials and supplies as tangible property that is used or consumed in the taxpayer’s business operations that is not inventory and is generally used or consumed within 12 months and costs less than $200. Items that meet these safe harbor criteria may be deducted instead of capitalized.

Repairs & Maintenance

Under the new routine maintenance safe harbor rules, payments are deductible if they are for recurring expenditures that keep an item in efficient operating condition. The activities are considered routine if you plan to perform the activities more than once during the class life of the item. This safe harbor also applies routine maintenance on buildings if you plan to perform this maintenance at least twice during a ten year period.

Amounts Paid for the Acquisition of Tangible Property

Under the new safe harbor rules, businesses without an applicable financial statement can elect to deduct up to $500 per item. This is an all or nothing proposition. If the cost of an item exceeds $500, the entire amount must be capitalized and depreciated. If your business has an applicable financial statement, this threshold can rise as high as $5,000.

Amounts paid for the Improvement of Tangible Property

The final regulations continue to require that improvements to tangible property be capitalized and depreciated. Improvements are defined as, betterments, restorations, and adapting the unit of property to a different use. There is an exception for small taxpayers who own buildings. Under this exception, you are not required to capitalize improvements if the total amount spent for maintenance, repairs, and improvements does not exceed the smaller of $10,000 or 2% of the buildings original cost. In order to take advantage of this exception, an annual election must be made on a timely filed (including extensions) tax return.

The new regulations are extremely complex and this summary just scratches the surface. If you would like to discuss how these regulations affect your business, please contact our office to set up an appointment.

Email us at: info@dohertyandassociates.com

Call us at: 302-239-3500

Visit our website: http://dohertyandassociates.com

– Doherty & Associates Team

September 12, 2014/0 Comments/by Joe Lumi

Blog

How are Children Taxed? The Kiddie Tax on Investment Income.

There are a set of rules that apply to the taxation of children and investment income. This set of rules is known as the Kiddie Tax. The Kiddie Tax applies to children with investment (unearned) income who are under age 19 or under age 24 and a full-time student. For purposes of this discussion, we will ignore other types of income, such as wages, which are taxed under the same rules that apply to everyone.

The Kiddie Tax is essentially a 3-tiered structure.

The first $1,000 of investment income is tax free.
The next $1,000 is taxed at the child’s rate.
Any investment income over $2,000 is taxed at the parent’s rate. This computation is made on Form 8815.

If the child’s investment income is less than $10,000, the parents can elect to report the child’s income on their personal income tax return. This is done by completing Form 8814. The tax calculations should be run both ways to assure that the lowest possible tax is paid. One note of caution; including the child’s income on the parent’s return may result in a loss of deductions and/or credits due to various phase outs as income increases.

As always, this is only meant as a brief overview. If you feel that we can be of further assistance to you, please contact our office to set up an appointment.

Email us at: info@dohertyandassociates.com

Call us at: 302-239-3500

Visit our website: http://dohertyandassociates.com

– Doherty & Associates Team

September 12, 2014/0 Comments/by Joe Lumi

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