Please feel free to read our client newsletter. It is provided to keep you up to date on the latest tax and accounting news.
Please feel free to read our client newsletter. It is provided to keep you up to date on the latest tax and accounting news.
Tax surprises are never fun, especially when they occur when you’re preparing a tax return. In this month’s newsletter, read about six surprising items that you may not know are taxed. Also read through several tips for improving your credit score, avoiding penalties when withdrawing from retirement accounts, and giving your brand a personal boost.
Please enjoy the information, and pass along articles of interest to all your family and friends. And as always, please call if you have questions or need help.
6 Surprising Taxable Items
If something of value changes hands, you can bet the IRS considers a way to tax it. Here are six taxable items that might surprise you:
When in doubt, it’s a good idea to keep accurate records so your tax liability can be correctly calculated and you don’t get stuck paying more than what’s required. Please call if you have any questions regarding your unique situation.
While your credit score is a three-digit number that's automatically assigned to you, this is one area of your financial life where you have quite a bit of control. The moves you make or don't make with your credit can help determine where this score falls at any time, and the impact can be dramatic.
Where good credit, a score of 670 or higher, can mean having access to financing with the best rates and terms, a low credit score can mean paying higher interest rates and more loan fees — or even being denied financing altogether. Bad credit can also mean having trouble getting an apartment or a job if your employer asks to see your credit report for hiring purposes.
The following steps can help you improve your credit this year and beyond:
You don’t have to live with a low credit score for another year, especially since so many things can help you improve it. By never missing a payment, paying down debt, checking over your credit reports and getting creative when it comes to building new credit, you can end 2024 in much better shape.
Retirement accounts that provide tax breaks have very specific rules that must be followed if you want to enjoy the financial rewards of those tax breaks.
One of these rules defines WHEN you're allowed to pull money from your retirement accounts. If you pull money too soon, you're at risk of being levied with a penalty by the IRS. There are several exceptions to this rule, such as paying for qualified higher education expenses or paying for expenses if you become permanently disabled. In general, though, if you withdraw retirement funds before you reach age 59½, you'll be hit with a 10% penalty in addition to regular income taxes. In the April 2023 court case Magdy A. Ghaly and Laila Ryad v. Commissioner, the taxpayers learned this rule the hard way.
In 2018, Mr. Ghaly took two distributions from his retirement account.
Distribution #1: Withdrawal
Mr. Ghaly was laid off from his job, and in 2018, he withdrew money from his retirement account to provide for his family. He requested and received a withdrawal of $71,147 from his retirement account. His retirement company provided him with a Form 1099-R indicating the withdrawal was taxable.
Distribution #2: Deemed Distribution
In 2015, Mr. Ghaly took a loan from his retirement account. Because the loan followed certain IRS-approved guidelines, it was not considered a taxable distribution from his account that year. However, when Mr. Ghaly failed to repay that loan when it came due in 2018, it became a taxable distribution. His retirement company provided him with a 1099-R tax form for the deemed distribution.
Mr. Ghaly had not yet reached age 59½ before either amount was distributed.
In an attempt to restore those distributions to his account to avoid both the tax on the distributions and the early withdrawal penalty, he opened two retirement accounts in 2020 and made the maximum contributions allowed for each account.
The Tax Court ruled against the taxpayers, stating that the contributions Mr. Ghaly made in 2020 were irrelevant when determining if his 2018 distributions were taxable. Mr. Ghaly was required to pay income taxes on the amounts withdrawn (to the extent those distributions were taxable) and was assessed an additional 10% early withdrawal penalty.
If you are planning an early withdrawal from a retirement account, understand before making the withdrawal whether the 10% penalty applies to you. In Mr. Ghaly's case, he could have explored the substantially equal periodic payment exception or withdrawn money penalty free if used as hardship to pay for his health insurance while unemployed. The lesson: please call if you have questions about an early withdrawal you may be planning before you make it!
The idea of building a personal brand might seem intimidating, but the benefits can be career altering. Not only does your brand promote you to the entire market, it solidifies your standing within your network where most new career opportunities come from. Here are some steps to consider for building a brand that promotes your strengths and showcases your value.
Building a brand is a lifelong process, so keep at it and don’t be afraid to evolve as you go and learn. And who knows, you might even learn something about yourself in the process.
Surprise #1: Hidden treasure. In 1964, a married couple discovered $4,467 in a used piano they purchased seven years prior for $15. After reporting this hidden treasure on their 1964 tax return, the couple filed an amended return that removed the $4,467 from their gross income and requested a refund. The couple filed a lawsuit against the IRS when the refund claim was denied. The Tax Court ruled that the hidden treasure should be reported as gross income on the couple's 1964 tax return, the year when the hidden treasure was found.
While your credit score is a three-digit number that's automatically assigned to you, this is one area of your financial life where you have quite a bit of control. The moves you make or don't make with your credit can help determine where this score falls at any time, and the impact can be dramatic.
Retirement accounts that provide tax breaks have very specific rules that must be followed if you want to enjoy the financial rewards of those tax breaks.
Do a personal evaluation. Start by reflecting on your personal and career experiences. Write down a list of traits and accomplishments that are good portrayals of the value you bring to people and organizations. Ask yourself questions such as, “How would others describe me?” or “In what situations would people look to me for help?” Also take an inventory of your social network presence. You can even try googling yourself to see what comes up. Understanding the current state of your brand, both online and offline, is imperative before taking the next step.