• Want to Reduce Required Minimum Distributions and Extend Your Retirement Benefits?

    11 May 2017
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    Do you find that your required minimum distributions (RMDs) from qualified plans and IRAs are providing unneeded income and a high tax bill? Or, are you afraid that the government’s RMD requirements will leave too little in your retirement plan for your later years? If you answered yes to either of these, good news! You can now use a qualified longevity annuity contract (QLAC) to reduce your RMDs and extend the life of your retirement distributions.

    The government allows individuals to purchase QLACs with their retirement funds, thus reducing the value of those funds (subject to the RMD rules) and in turn reducing the funds’ annual RMDs.

    A QLAC is a deferred-income annuity that begins at an advanced age and that meets the stringent limitations included in the tax regulations. One benefit of a retirement-planning strategy involving QLACs is that they provide a form of longevity insurance, allowing taxpayers to use part of their retirement savings to buy an annuity that helps protect them from outliving their assets.

    The tax-planning benefits of QLACs are twofold:

    • Because the QLAC is purchased using funds from a qualified retirement plan or IRA, that plan’s year-end balance (value) is lowered. This causes the RMDs for future years to be less than they otherwise would be, as the RMD is determined by dividing the account balance (from 12/31 of the prior year) by an annuity factor that is based on the retiree’s age.

    Example: Jack is age 74, and the annuity table lists his remaining distribution period as 23.8 years. The balance of his IRA account on 12/31/2016 is $400,000. Thus, his RMD for 2017 would be $16,807 ($400,000 / 23.8). However, if Jack had purchased a $100,000 QLAC with his IRA funds during 2016, his balance would have been $300,000, and his 2017 RMD would be $12,605 ($300,000 / 23.8). By purchasing the $100,000 QLAC, Jack would have reduced his RMD for 2016 by $4,202 ($16,807 – $12,605). This reduction would continue for all future years. Later, the $100,000 QLAC would provide retirement benefits, likely beginning when Jack reaches age 85.

    (2) Tax on the annuity will be deferred until payments commence under the annuity contract.

    A deferred-income annuity must meet a number of requirements to be treated as a QLAC, including the following:

    Limitation on premiumsWhen buying a QLAC, a taxpayer can use up to the lesser of $125,000 or 25% of his or her total non-Roth IRA balances. The dollar limitation applies to the sum of the premiums paid on all QLAC contracts.

    When distributions must commence Distributions under a QLAC must commence by a specified annuity starting date, which is no later than the first day of the month after the taxpayer’s 85th birthday.

    For additional details about how QLACs might fit into your retirement strategy, please give Dagley & Co. a call.

     

     

     

     

     

     

     

     

     

     

     

     

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  • QuickBooks Tip: Receiving Customer Payments

    5 May 2017
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    We’ve put together step-by-step instructions of how to receive payments from a customer using your QuickBooks account:

    QuickBooks was designed to make your daily accounting tasks easier, faster, and more accurate. If you’ve been using the software for a while, you’ve probably found that to be true. Some chores, of course, aren’t so enjoyable. Like paying bills. Reconciling your bank account. Or anything else that has the potential to reduce the balance in your checking accounts.

    The process of receiving customer payments is one of your more enjoyable responsibilities. You supplied a product or service that someone liked and purchased, and you’re getting the money due you.

    Depending on the situation, you’ll use one of multiple methods to record customer payments. Here’s a look at some of your options.

    A Familiar Screen

    If you’re like many businesses, you send invoices to customers to let them know what they owe and when their payment is due. So one of the most commonly used ways to record payments is by using the Receive Payments window. To open it, click the Receive Payments icon on the home page or click Customers | Receive Payments.

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    You’ll use QuickBooks’ Receive Payments screen when you record a payment made in response to an invoice.

    The first thing you’ll do, of course, is choose the correct customer by clicking the down arrow in the field to the right of RECEIVED FROM. The outstanding balance from that customer will appear in the upper right corner, and invoice information will be displayed in the table below. Enter the PAYMENT AMOUNT and make sure the DATE is correct. (The next field, REFERENCE #, changes to CHECK # only if the CHECK option is selected.)

    Next, you’ll need to ensure that the payment is applied to the right invoices. If it covers the whole amount due, there will be a checkmark in every row in the first column of the table. If not, QuickBooks will use the money received to pay off the oldest invoices first. To change this, click Un-Apply Payment in the icon bar and click in front of the correct rows to create checkmarks.

    Several Options

    You’ll then want to tell QuickBooks what payment method the customer is using. Four options are displayed. The possibilities that are visible here are:

    • CASH
    • CHECK
    • CREDIT DEBIT (A specific card type may be shown here if you’ve indicated the customer’s preferred payment method in his or her record.)
    • e-CHECK

    If the desired payment method isn’t included in those four, click the down arrow under MORE. If it’s still not there, click Add New Payment Method. This window will open:

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    The New Payment Method window

    Click OK. When you choose your new payment method from the list, a window opens containing fields for the card number and expiration date. Click Done after you’ve entered it, and you’ll be returned to the Receive Payments screen. If you’re satisfied with your work there, click Save & Close or Save & New.

    Haven’t gotten set up to accept credit and debit cards yet? We can get you going with a merchant account to make this possible. You’re likely to find that some customers pay faster with this option. Your customers will be able to click a link in an emailed invoice and make their payments.

    Instant Sales

    Depending on the type of business you have and its physical location, there may be times when customers will come in and buy something on the spot. You’ll need to give them a Sales Receipt. Click Create Sales Receipts on the home page or open the Customers menu and select Enter Sales Receipts to open this window:

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    The Enter Sales Receipts window

    You’ll complete this form much like you entered data in the fields of the Receive Payments window. As you can see, you can print the mail for the customer and/or email it.

    After all the hard work you’ve done to make your sales, the last thing you want to do is record a payment incorrectly so it isn’t processed and you don’t get paid. Though QuickBooks makes the mechanics of receiving payments simple enough, you still should understand the entire process involved in getting income into the correct accounts. Dagley & Co. is available to help with this and any other areas of QuickBooks.

     

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  • Tax Filing Deadline Is Around the Corner

    29 March 2017
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    REMINDER: April 18, 2017 is the due date to file your return(s), pay any taxes owed, or file for a six-month extension. It is important to know that with this extension you will end up paying the tax you estimate to be due.

    In addition, this deadline also applies to the following:

    • Tax year 2016 balance-due payments – Taxpayers that are filing extensions are cautioned that the filing extension is an extension to file, 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.
    • Tax year 2016 contributions to a Roth or traditional IRA – April 18 is the last day contributions for 2016 can be made to either a Roth or traditional IRA, even if an extension is filed.
    • Individual estimated tax payments for the first quarter of 2017 – Taxpayers, especially those who have filed for an extension to file their 2016 return, are cautioned that the first installment of the 2017 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 April 18 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 2013 – The regular three-year statute of limitations expires on April 18 for the 2013 tax return.  Thus, no refund will be granted for a 2013 original or amended return that is filed after April 18. Caution: The statute does not apply to balances due for unfiled 2013 returns.

    If Dagley  & Co. 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 2017 estimated tax vouchers if needed, may be prepared.

    If your returns have not yet been completed, please call Dagley & Co. right away so that we can schedule an appointment and/or file an extension if necessary.

     

     

     

     

     

     

     

     

     

     

     

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  • December 2016 Business Due Dates

    5 December 2016
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    …And just like that it’s the first week of December! Year-end is quickly approaching, and so is the busy holiday season. Dagley & Co. has complied and easy-to-understand list of business due dates for you and your company. We reccomend adding them to you calendars ASAP. Contat us with any questions!

    December 1 – Employers

    During December, ask employees whose withholding allowances will be different in 2017 to fill out a new Form W4 or Form W4(SP).

    December 15 – Social Security, Medicare and Withheld Income Tax

    If the monthly deposit rule applies, deposit the tax for payments in November.

    December 15 – Non-Payroll Withholding

    If the monthly deposit rule applies, deposit the tax for payments in November.

    December 15 – Corporations

    The fourth installment of estimated tax for 2016 calendar year corporations is due.

    December 31 – Last Day to Set Up a Keogh Account for 2016

    If you are self-employed, December 31 is the last day to set up a Keogh Retirement Account if you plan to make a 2016 Contribution. If the institution where you plan to set up the account will not be open for business on the 31st, you will need to establish the plan before the 31st. Note: there are other options such as SEP plans that can be set up after the close of the year. Please call the office to discuss your options.

    December 31 – Caution! Last Day of the Year

    If the actions you wish to take cannot be completed on the 31st or a single day, you should consider taking action earlier than December 31st.

     

     

     

     

     

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  • Cutting the IRS Out of Your Gifts

    3 October 2016
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    If you are planning to gift money or property to family members, or others, there are some gift tax issues you should be aware of. Yes, the government even taxes gifts if they are large enough, so it is best to know the rules; otherwise you may end up making a gift of taxes to the IRS.

    The gift tax rules provide two exclusions from gift tax, the annual exclusion and the lifetime exclusion:

    Annual Exclusion – The annual exclusion is periodically inflation adjusted and is currently $14,000 per individual. Thus you can give $14,000 a year to as many individuals as you wish without any gift tax or gift tax return filing requirements.

    Lifetime Exclusion – On top of the annual exclusion, there is a lifetime exclusion that is linked to the estate tax exemption, which is also inflation adjusted, and for 2016 is $5.45 Million. Thus, in addition to the $14,000 annual per donee exclusion, there is a $5.45 Million exclusion that applies to the aggregate of all gifts in excess of the $14,000 per year per donee gifts.

    There are complications to utilizing the lifetime exclusion. You must file a gift tax return to claim the lifetime exclusion, and the amounts of the lifetime exclusion used as an exclusion from gift tax will be tracked on any gift tax return(s) filed and will reduce the estate tax exemption. So for example, if in 2016 you make a gift of $3,014,000 to your child, and you haven’t made gifts in the past that exceeded the annual per donee gift tax exclusion, you will pay no gift tax, but you will have reduced your remaining lifetime exclusion to $2.45 Million. If you make more large gifts in the future that use up your remaining lifetime exclusion, not only will you then be subject to gift tax on the excess gifts, but at your passing, and assuming the value of your estate is large enough to be subject to estate tax, you will have no estate tax exclusion left to offset the estate’s value, so it will all be subject to estate tax.

    CAUTION

    The estate tax rates and the lifetime exclusion have long been a political football. They date back to 2006, when the lifetime exclusion was $2 Million. Congress can change the current $5.45 Million exclusion at any time. In fact, Democratic presidential candidate Hillary Clinton has proposed reducing the exclusion to $3 Million and raising the top estate tax rate from 40% to 45%. She would also disconnect the gift and estate tax exclusions and limit the lifetime gift exclusion to $1 Million.

    Special Tuition/Medical ExclusionIn addition to the current $14,000 annual exclusion, a donor may make gifts that are totally excluded from the gift tax in the following circumstances:

    • Payments made directly to an educational institution for tuition. This includes college and private primary education. It does not include books or room and board.
    • Payments made directly to any person or entity providing medical care for the donee.

    In both cases, it is critical that the payments be made directly to the educational institution or health care provider. Reimbursement paid to the donee will not qualify. The tuition/medical exclusion is often overlooked, but these expenses can be quite significant. Parents and grandparents interested in estate reduction should strongly consider these gifts.

    Gift SplittingA husband and wife can each make annual exclusion gifts, thereby increasing the exclusion from the current $14,000 to $28,000 per year per couple. However, only one of the spouses may be in a financial position to make the gifts. Spouses may elect on the gift tax return to treat a gift made by one spouse as being made by both spouses. Gift splitting can be used for annual exclusion gifts, lifetime exclusion gifts, and gifts above the lifetime exclusions.

    Example – Gift Splitting – John and Jane are married and have two children. In a year when the annual exclusion limit is $14,000, they would like to exclude $56,000 ($14,000 x 2 donors x 2 donees) in gifts. Jane received a large inheritance some years back; John has only a modest estate. Jane gives the children $28,000 each. Then the couple elects to gift split so that the $28,000 gift is treated as given one-half by Jane and one-half by John (or $14,000 each). The gifts all qualify for the annual exclusion. Even if both spouses have sufficient resources to make gifts, gift splitting is useful when the husband and wife have different estate planning goals.

    For residents of community property states, if community property is given, gift splitting is not necessary. Regardless of who holds the property’s title, or who “makes” the gift, the property is owned one-half by each and is therefore given one-half by each.

    Gifts of Property – Gifts of property have some of their own circumstances to consider. For instance, where gifts are made of appreciated property such as stocks or real estate, although the donor’s gift is considered at the fair market value (FMV) for purposes of valuing the gift, the beneficiary of the gift assumes the donor’s basis. As a result, the beneficiary of the gift is assuming any taxable gain the donor would have had if he or she had sold the property instead of gifting it and will have to include as income that gain when and if the gifted property is later sold.

    Although the FMV of traded stocks is readily available, the same is not true of most other types of property, in which case a qualified appraisal will be needed to determine the value as of the date of the gift.

    Finally, keep in mind that a beneficiary inherits property at its FMV at the date of the decedent’s death as opposed to assuming the decedent’s basis, as happens in the case of a gift.

    If you are contemplating gifting money or property to an individual, it may be appropriate to consult this office in advance to minimize the impact on estate taxes and help with any gift tax filings that may be required.

     

     

     

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  • Tax Filing Deadline Rapidly Approaching

    29 March 2016
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    Sit down and get to work. Tax day is just a few weeks away! For those of you who have not yet filed their 2015 tax return, tax day is the due date to either file your 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.

    In addition, 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, 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.

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

    Individual estimated tax payments for the first quarter of 2016 – Taxpayers, 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.

    If this office 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 call Dagley & Co. right away so that we can schedule an appointment and/or file an extension if necessary.

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