Hadas Stein CPA, Inc.

Tax Diversification Are you familiar with strategies that are available to help you spread your investments across taxable, tax-deferred and tax-free accounts? The subject of "diversification" is often discussed when topics such as mutual funds, stocks, bonds, real estate and other investment classes are on the table. However, what about tax diversification?... The primary reason for developing a tax diversification strategy is it’s impossible to know precisely what your tax rate will be throughout your retirement years, especially if retirement is still many years away for you. Putting all of your investments in only one type of account is unlikely to be the most tax- efficient strategy. Tax diversification can help protect your investments and minimize risk from significant tax rate changes. Talk to your personal tax professional or distribution specialist about this to make sure your investments are set up the way you want!

Are You Responsible for a Gift Tax? If you give a non-spouse a gift valued more than the annual exclusion amount, you could be subject to a gift tax. For 2019, the annual federal gift tax exclusion amount for gifts to a non-spouse is... $15,000 per person, per year. If you are married, you and your spouse may give up to $30,000, per person, per year, free from federal gift tax. Although there are no immediate tax concerns for the recipient of a gift because federal gift tax is imposed upon the donor, the recipient could be liable for capital gains tax in the future. Highly appreciated gifts such as real estate or stocks will render the recipient liable for capital gains tax when he or she decides to sell the gift at a later date. The general rule from the IRS is that the recipient’s basis in the gifted property is the same as the basis of the donor. The IRS provides this example: If you were given stock that the donor had purchased for $10 per share (which was also his/her basis) and you later sold it for $100 per share, you would pay tax on a gain of $90 per share. See more

Prohibited Transactions and IRAs A prohibited transaction is an impermissible transaction under the Internal Revenue Code that occurs between an IRA and a disqualified person. Disqualified persons include the IRA owner, the owner’s spouse, the owner’s lineal descendants (and... their spouses), IRA beneficiaries and any IRA fiduciary. If you engage in a prohibited transaction, under IRS rules, your entire IRA will lose its status as an IRA. Your tax-deferred IRA will then be treated as though the assets were distributed to you as of the first day of the year the prohibited transaction occurred. Ordinary income tax will be due on the distributed amount and if you are under age 5912 you will also be subject to a 10% early distribution penalty. Below are just a few common examples of traditional IRA prohibited transactions: The sale, exchange or leasing of property involving your IRA Borrowing money from or lending money to your IRA Receiving personal benefits or payments from your IRA Using your IRA as collateral for a loan A transfer of your IRA plan income or assets to, or use of the assets by or for the benefit of, a disqualified person Strategy Tip: If you are unsure whether the transaction you wish to participate in with your IRA is prohibited (a lot of self-directed IRA owners have faced this problem) you may want to consider splitting your IRA prior to the transaction. You will essentially carve out the amount you want to use from your original IRA, creating a separate IRA specifically for the questionable transaction. This way, if it turns out that the transaction you wish to engage in is in fact a prohibited transaction, it will only impact this second IRA and you avoid destroying your entire original IRA.

What a Will, Will and Will Not Do Sound confusing? Many Americans are confused by what can and what cannot pass by their will. Many also assume that a will takes care of everything. There are several situations in which a will does not control the transfer of an asset. Disposition of property may be determined by state law, federal law or a private contract, depending on the form of ownership of an asset. For example, IRA assets pass to heirs via beneficiary designation forms..., not a will. Regardless of how perfect and well drafted a last will and testament may be, the terms of your will do not override the terms of your insurance policies, IRA or 401(k) custodial agreement. It is critical to make sure all beneficiary designation forms are up to date. If you made a beneficiary designation mistake, it could be too late to fix it some errors cannot be corrected. Do a beneficiary review at least once per year and any time a life changing event occurs such as a birth, death, marriage, divorce or other event that impacts your assets. Here are just a few common assets that do not pass through a will: IRA Joint Tenancy Property 401(k) POD Account Pension Plan Totten Trust Annuity Community Property with Right of Survivorship Life Insurance Policy