SECURE ACT OF 2020: IRA's, RMD's and Other Changes for Retirement Plans

 News on Retirement Accounts:  In December of 2019, Congress passed the painfully named Setting Every Community Up for Retirement Enhancement Act of 2019, so that they could shorten it to the SECURE Act.  The Act is concerned with the fact that Americans don’t have a lot of significant retirement assets, and are too reliant on Social Security – which was always intended as a supplement for retirement and not the sole retirement income.  So the Act encourages employers to open up simpler plans, extend participation to part-timer workers, and make certain changes regarding IRA’s.  The whole bill would take an upper level tax seminar to fully understand.  I wanted to go through several changes significant to my age group – the folks heading into retirement.  I find it helpful to write about complicated matters to make them easier to understand – for me and for you.

If you keep working, you can keep putting money into your IRA:  Before the Act, once you turned 70 ½, you could no longer make contributions to an IRA.  In fact, you were then required to start withdrawing money each year.  The Act recognizes that people are working longer and living longer – so as long as you are earning income (not passive investment income), then you can continue to contribute to your IRA past the age of 70 ½.  If you work until you are 100, you can keep socking away your annual IRA contribution.  But you still must take the Minimum Required distribution by age 72. 

Required Minimum Distributions Deferred to 72:  Before the Act you were required to begin taking a Minimum Required Distribution (RMD) of your tax-deferred retirement funds at age 70 ½.  The annual amount was calculated based on your life expectancy.  You could always take more – you can take all of the money out of your IRA at any time after age 59 1/5, but after 70 ½, you had to take at least the minimum.  That starting age has now been extended:  you have to begin taking the required minimum by age 72.  And when you take that money out (unless it is a Roth IRA on which you have already paid income tax), then you recognize taxable income that year.  That is why they force you to take the money – because this is untaxed income – you took a deduction for it in the year that you earned it - and they want their tax share in your lifetime. 

Inherited IRA’s & RMD’s.  If you die, what becomes of your IRA and how is it taxed?  Recall that this is untaxed income, and so the Government wants its share, even after you are gone.  Before the Secure Act, the IRA would go to your designated beneficiaries, who could then take all the money and pay the tax that year, or could instead roll the money into an inherited IRA account, and take the Minimum Required Distribution each year based on their life expectancy.  This was called the “Stretch” – because the same money would have been paid over the life of the account owner, but since they died, the payments could now be  s—t—r—e--t—c—h—e--d  over the life expectancy of the new owner – in most cases in the next generation.  And so the government had to wait a much longer time for their cut.  If they shorten that period, then they get their share sooner, and so can in effect pay for some of the other benefits they are giving out.  And so that is exactly what they did in the SECURE Act. 

So now, if you inherit an IRA in 2020 and afterwards, and you are a surviving spouse or minor child or certain other favored categories, the old rules apply, and you have to take your RMD calculated with reference to your life expectancy.  However, for virtually everyone else who inherits an IRA in 2020 and later, you must take the Minimum Required Distribution over the next ten years.  You can take it (and pay taxes) all at once, or in one year but not another, or all in the last year, or whatever else is convenient to you.  If you have a low income year that drops you into a lower tax bracket, you may want to take your withdrawal then.  So there are still opportunities for tax planning, but not the same benefit as before when the well to do could take only the minimum during their lifetime, and then pass along the remaining balance which could then be spread over the lifetimes of their presumably much younger beneficiaries. 

Summary:  There are a host of other changes in the Secure Act.  I sat in a seminar with other tax and estate planning attorneys and as always, the complexity and ambiguity in every extensive new tax law was mind-boggling.  So, if you think you are going to be passing along, or inheriting, an IRA or other retirement plan, the alarm bells should go off and you should make an appointment with your financial advisor to talk about what your options may be.  The downside to not taking a timely RMD?  You will owe the tax on what you should have taken that year, plus you will pay the government 50% of what you were required to take that year, as a penalty. 

CORONAVIRUS LEGISLATION UPDATE (March 27, 2020):  As part of the Government’s massive legislative response to the Coronavirus pandemic in Spring of 2020, the proposed Act waives the requirement for anyone taking an RMD in 2020.  You don’t have to withdraw the minimum in year 2020 – though if your income is severely impacted, you may want to take the minimum or more this year, to pay your bills, or take the payment in a year when you are paying a lower tax rate. 

French lesson of the day: Force Majeure

force ma*jeure\ n [F, superior force] (1883) 1 : superior or irresistible force 2 : an event or effect that cannot be reasonably anticipated or controlled; compare act of god.

The Situation:  As we all huddle at home with our families, not going to work or social events on pain of arrest, and listening to the news reports of more victims and area deaths, are we currently experiencing some kind of superior force that could not be reasonably anticipated or controlled?  

Welcome to the world of “Force Majeure”. 

What is Force Majeure?  Force Majeure is a legal buzzword, used to describe one of a variety of boilerplate clauses that a thorough lawyer puts in every contract that he drafts.  They are the clauses that no one every reads, until there is an act of terrorism or earthquake or war or perhaps a pandemic, and one or both of the parties are having difficulty honoring a particular obligation under their contract.  For example, a landlord is obligated to get the leased space ready for a tenant – but can’t get the carpet delivered, can’t get a contractor to perform the work, isn’t even allowed to work in the work place.  Is the landlord in default under the lease?   It may depend on whether there is a force majeure clause in the lease.  If the clause is there, it will likely say that either party is excused from performing when they cannot do so by reasons of force majeure.  The operation of that clause does not necessarily cancel the whole contract, unless of course the event makes the whole contract unenforceable – such as all of the leases and service contracts in the World Trade Tower buildings.  Or the hotel room contracts in New Orleans during Hurricane Katrina.  In the cases where the event is expected to be more temporary, than the clause can excuse the timeliness of performance until the event that caused the lack of performance has resolved.  In the case of the landlord, once the carpet can be delivered, and the labor force is free to travel and work, then “game on” under the contract.

What if we disagree?  Like all contract clauses, this one is just words on paper – and so if the cause and effect are unclear, in the minds of one party or both, then the situation only resolves itself when the parties agree on how to move forward, or when they take the issue to a judge who then tells them what he thinks.  The second way costs a lot more money than the first way.  In cases like we are experiencing, it is better to work with your other contracting parties, and be the epitome of the law’s “reasonable man”.  Because if a judge must some day decide who was reasonable in the situation, you don’t want to be seen as the party who was hitting the other party over the head with the legal boilerplate in your contract, while your other party was home with their children or aged parents, dealing as best they could with everything else that must be handled in an emergency. 

That clause is not in my contract!  And if you have no “force majeure” clause in your contract?  There are a variety of other legal doctrines that will excuse performance in the hard cases, including  impossibility of performance, commercial impracticability, and frustration of purpose.  I can’t lease you space in a building that does not exist.  I can’t install carpet in space that no longer exists.  I can’t come to your workplace and perform contract obligations when the governor has declared a state of emergency and requires me to quarantine at home.  I can’t host your birthday celebration in my restaurant because I have been ordered to close that night.  The law does not require a party to do the impossible. 

On the other hand, if you can still perform your end of the bargain while at home – such as a lawyer, accountant, engineer, web designer, or anyone that can still perform in front of a screen at home rather than at a fixed location such as an office or retail store or warehouse or in an airplane or on a train, then you cannot simply use the existence of a public emergency to take the time off and ignore your contractual obligations.  The game is still “on” for you.

Conclusions?  If you have legal disputes arising from the current pandemic, you are at some point going to be judged on your behavior, whether in the court of public opinion or by a judge.  If you are seen as trying to take advantage of the situation, using power to benefit yourself at the expense of someone with less power, putting money ahead of people, asking others to take risks in a risky environment, you are unlikely to find a sympathetic ear.  So in your dealings with your contracting parties, do the “right thing”, whether because you live your life that way anyway, or you simply want to avoid the adverse consequences.  They will both get you to the right place.

Bastards, Illegitimate Children and Non-Marital Children

For most of our English common law history, children born out of wedlock were disfavored. In feudal days, the first born male was entitled to the manor, and so succession to wealth and entitlement all depended on the children being “legitimate” children of a legitimate marriage. It has taken years for that system to be eroded by changes in the law. And the recent headlines in the newspaper now highlight how that can matter.

Michael Morgan Taylor was a bond broker who was in the World Trade Center when it collapsed, killing him along with so many others. Some of his remains were recovered and buried. At the time, he had a paternity suit pending against him by a woman who claimed that he had fathered her son. I am not sure what took so long, but I just read today that the court has ordered the remains to be DNA tested to determine the paternity issue. DNA testing has taken a lot of the guesswork out of that issue; and in fact is dispositive of the issue in most cases. And so the law has had to catch up.

Every state has its own laws on this issue, so I am going to look only at New York for this note. Like the others, New York had once disfavored illegitimate children - because it was difficult to prove a paternity case unless you had some type of admission from the father. Absent that proof, a child who claimed but could not prove paternity was left where he started, with no rights to the father’s estate.

New York decided in 2010 that it was unfair to penalize a child for the circumstances of his birth, and so changed its laws. First, it recognized that the term “illegitimate” was a bad starting point - it cast the child in a poor light by using this term. So these children in New York are now “Non-Marital Children”. Second, it recognized that DNA testing has made huge advances, and so permits a child to claim paternity in one of two ways: either by “clear and convincing evidence” of kinship (which DNA testing can furnish) or evidence that the father held them out as his own child through “open and notorious” means.

So, the putative son of Michael Morgan Taylor has been given the right to exhume the remains of Taylor to do DNA testing. As gruesome as that sounds, it is the right result. No matter how horrific his death, if he is survived by a son, then the son should be entitled to the rights granted to a son.

If Taylor died with a will in place that named specific people but not others, then his will would likely be honored; and so the non-marital child would likely not inherit under the will. But if Taylor, 42 years old and not expecting death, died without a will, then the laws of intestacy generally provide for either all or a large share of the estate to go to the surviving children of the deceased (depending upon whether a spouse survives or not). In that case, proving paternity leads to the right result.

The son’s mother has been criticized for being a gold-digger, but in addition to her specific memories of her relationship with Taylor, which in the past would probably not be enough to prove the case, she may have science on her side. If the DNA test proves paternity, then the son is likely entitled to his share of his father’s estate. He is no longer a bastard, or illegitimate; he is the much improved 21st century version, the non-marital child. While I don’t care much for wholesale revisions of language done in the name of political correctness, this change corrects an historical injustice done to children whose only sin was being born to the wrong people at the wrong time. It will be interesting to see how the rest of the case plays out.

Reminder: Check your credit report

Here is an easy new year's resolution to keep:  check your credit report to help keep your credit in good repair.  Like checking your car's oil or tire pressure, or the batteries in your home smoke alarms, or your heart rate and blood pressure, there are some simple life hacks that you should do to be pro-active in life rather than letting it rise up and bite you when you don't expect it.  Checking your credit reports is easy, and free, and if you play your cards right, you can do this three times a year and be better off for it. 

What is a credit report?  It is a record, compiled through both publicly available records and voluntary reporting by lenders and credit card companies of how you are handling your credit card and loan payments.  Why is that important?  It provides a history of your credit use to enable other lenders to decide whether they are going to give you a new car loan, a new credit card, a new home improvement or mortgage loan.  If you show a history of late payments, they are going to be less interested in loaning money to you.  And with reason.  When you have bad credit history, you are likely a bad credit risk.  You would not continue to lend money to a friend or family member who you know is slow to pay you back, who always has to be reminded of it, who always has an excuse for late payments.  The community of lenders feel the same way.  When they are evaluating your loan application, they look at your credit history as part of the process. 

There are three companies that monitor your credit:  Transunion, Experian and Equifax.  You can find them at the following websites:

• Experian:  https://www.experian.com/
• Equifax:  https://www.equifax.com/personal/
• Transunion:  https://www.transunion.com/

Each of them is required by federal law to give you one free credit report a year.  Rather than get them all at once, I spread them out so that every four months I get a new one.  I have the reminder on my calendar, and I follow through.  It takes all of 5-10 minutes.  The credit reports list personal information - your past residences, your past places of employment, your social security number; and all of the open credit accounts you may have, and past histories for each.  It shows each late payment - a good reminder of the importance of paying on time - and your current and average balances.  It is also a reminder of accounts that you may have that you thought you closed.  I am currently dealing with a client who thought a joint account with her ex-husband was closed, and is finding out the hard way that it was not - and that she may still be obligated for debts he ran up on it.  

How do they compare you to others in their data base?  There is a whole scoring system that they use to rank us according to our creditworthiness.  There is no one standardized system, but rather each credit company uses its own system - though they all look the same to those of us on the outside of the scoring system.  The most widely known score is called the FICO score - because it was developed by the Fair Isaac Corporation.  You don't necessarily need to know what goes into the score, but you want to know what your score is, and if you are interested in obtaining a loan at some point in the future, then you might want to understand where you rank, and take steps to improve on it when you can. 

Credit scores are typically not given out for free - you must pay a small fee to obtain it.  But I have noticed that several credit card companies are now offering it for free, and my Quicken program is doing that for me as well.  So be on the lookout for something that you can get for free rather than paying for it.  And then educate yourself on what you need to do to be proactive about protecting and improving on it. 

So which credit company should you start with?  Normally it does not matter, but in 2017, Equifax experienced a "Cybersecurity Incident".  Hackers got into their data base and stole personal information on up to 170 million of us.  As a result, if your personal information was potentially in the data that was stolen, then they are offering free services that they would usually charge for:  identity theft protection and credit file monitoring.  

So I recommend starting 2018 by going to their site - address given above - and doing the search to see if you were potentially victimized, and if so, then sign up for their free services.  And then get your credit report and begin to become familiar with what it says about you.  All three companies maintain a site, https://www.annualcreditreport.com/index.action, that you can use to launch into any one of your reports.  They will offer to do them all at once - don't do it - spread it out!

If you have late payments, they can stay on your report for up to 7 years.  One late payment on occasion does not disqualify you from ever receiving credit in the future.  They are looking for patterns here - and so if they see your late payments perhaps occurred in the past, when you first opened your account and did not realize the importance of paying on time, they will take that into consideration.  And checking your reports allows you to correct any errors that may have been made in reporting on your payments.  

There are sites online that give hints on what else you can do.  Here are several of those hints:

1.  Dispute the late payment if it is inaccurate.  If you can prove that you were not late, or give some other excuse - an automatic payment gone awry, a situation where they credited it to the wrong account - then your creditor should be willing to remove it.  

2. You can request a "Goodwill Adjustment" from the creditor to remove late payments - if they see that perhaps the late payments were out of character, or you can tell them a sad tale about your hospitalization, or give them some other good reason to do so.   

2. Offer your creditor to sign up for automatic payments, which they love, in return for removing late payments from your credit history.  

You would never know any of this unless you checked your credit report on a regular basis.  So this year, 2018, put 3 reminders on your calendar, for January 1, May 1, and September 1, to check your credit report.  Keep a written record of which one you checked each time, and then spend a little time looking it over to understand what they have on you - and correct anything that is wrong.  This year I had them remove an address for me that they had in Richmond, a lovely city but one that I have never lived in.  If it appears on the report, and an identity thief has items delivered to a Richmond address, the theft may go undetected for a while.  By being proactive, I guard against this as best I can.  I also had them delete an alternative social security number that they listed for me - again - not sure why it was there but after submitting the correction, the risk has been lowered.  (And for those of you who don't want to give them your social security number, be assured - they already have it.  So better to make sure that they have the correct one, and no others.  Particularly if your name is John Smith or Mary Jones.  You want to stand out from the crowd rather than be mixed up with it.)

If you truly want a happy new year, then be proactive about it.  Do the simple things that we all should regularly do in this complicated world we live in.  Check your credit report!

Gift Tax - the annual exclusion and lifetime exemption

A client - a married couple - wants to help their daughter and her husband to buy a house. They can give a gift this year of $56,000 without tax consequences - if they write four checks. If they write one check, there could be gift tax consequences. Why? 

Under Federal tax law, each person is allowed to give away up to $14,000 per year to as many people as they want – the “annual gift tax exclusion”. This can be done without tax consequences or tax returns. 

Actually, each person is allowed to give more than that – in fact over your lifetime you are allowed to give away over $5.49 million without tax consequences. But when you are doing so, you have to keep a running tally with the IRS – by filing a gift tax return each year showing that you gave more than the annual exclusion amounts that year. At your death, your estate is entitled to the first $5.49 million – free of federal tax. You only pay the federal estate tax on the excess. (Ignoring state death taxes for another day.) 

But that lifetime exemption amount of $5.49 million is reduced by reportable gifts made during your life. Whether you are giving it away now, or giving it away then, a running tally is kept, so that each person has the same $5.49 million exemption at death. 

But the $14,000 per year gifts are not reportable – and so they do not eat into your lifetime exclusion amount. That’s the beauty of those gifts – there are no tax consequences or reporting requirements.

So, to avoid having to file a return for the proposed gift to the children to help with their house, the father and the mother each give the daughter and the son in law a check for $14,000. Four checks, each for the annual exclusion amount. In doing so, they qualify for the annual exclusion on all 4 gifts, and they don’t have to file a gift tax return. And they don’t eat into their lifetime exemption amounts.

Could you do with one check what you do with four - and argue with the IRS about whether in fact it is essentially the same transaction and result? If you like to argue with the IRS, and want to pay an attorney to do so, then you can choose the convenience of one check and then pay a lot of money to battle on principle. I think writing 4 checks is the easier option.

W-2? 1099? And now, introducing the 1095-C!

Every year in late winter and early spring, you receive formal looking statements from various sources that are either paying money to you or receiving money from you in payment of certain types of expenses, such as mortgage interest and taxes.  Now with the next stage of the Obamacare regulations, if you are an employee you will be receiving a new IRS form - the 1095-C.  Everyone is required to obtain health insurance.  If you do not do so, you may have to pay a "individual shared responsibility payment", which is the bureaucratic doublespeak for a penalty. Here is the IRS Tax Tip that explains what this form does and what you need to do when you receive it:

Here’s What You Need to Do with Your Form 1095-C

This year, you may receive one or more forms that provide information about your 2015 health coverage.  These forms are 1095-A, 1095-B and 1095-C. This tip is part of a series that answers your questions about these forms.

Form 1095-C, Employer-Provided Health Insurance Offer and Coverage Insurance, provides you with information about the health coverage offered by your employer.  In some cases, it may also provide information about whether you enrolled in this coverage.

Here are the answers to questions you’re asking about Form 1095-C:

Will I get a Form 1095-C?

• You will receive a Form 1095-C – which is a new form this year – if you were a full time employee working for an applicable large employer last year. An applicable larger employer is generally an employer with 50 or more full-time employees, including full-time equivalent employees.
• Even if you were not a full time employee, you will receive form 1095-C if your employer offered self-insured coverage and you or a family member enrolled in that coverage.
• You might get more than one Form 1095-C if you worked for more than one applicable large employer last year.

How do I use the information on my Form 1095-C?

• This form provides you with information about the health coverage offered by your employer and, in some cases, about whether you enrolled in this coverage.
• If you enrolled in a health plan through the Marketplace, the information in Part II of Form 1095-C could help determine if you’re eligible for the premium tax credit. If you did not enroll in a health plan through the Marketplace, this information is not relevant to you.
• If there is information in Part III of Form 1095-C, review this information to determine if there are months when you or your family members did not have coverage. If there are months you did not have coverage, you should determine if you qualify for an exemption from the requirement to have coverage. If not, you must make an individual shared responsibility payment.
• You are not required to file a tax return solely because you received a Form 1095-C if you are otherwise not required to file a tax return.
• Do not attach Form 1095-C to your tax return - keep it with your tax records.

What if I don’t get my Form 1095-C?

• You might not receive a Form 1095-C by the time you are ready to file your 2015 tax return, and it is not necessary to wait for it to file.
• The information on these forms may assist in preparing a return.  However, you can prepare and file your return using other information about your health insurance.
• The IRS does not issue and cannot provide you with your Form 1095-C. For questions about your Form 1095-C, contact your employer. See line 10 of Form 1095-C for a contact number. 

Depending upon your circumstances, you might also receive Forms 1095-A and 1095-B. For information on these forms, see our Questions and Answers about Health Care Information Forms for Individuals.

Your Social Security Benefits May be Taxable

Passing along another Tax Tip from the IRS:

When are your Social Security Benefits taxable?

If you receive Social Security benefits, you may have to pay federal income tax on part of your benefits. These IRS tips will help you determine if you need to pay taxes on your benefits.

• Form SSA-1099.  If you received Social Security benefits in 2015, you should receive a Form SSA-1099, Social Security Benefit Statement, showing the amount of your benefits.
• Only Social Security.  If Social Security was your only income in 2015, your benefits may not be taxable. You also may not need to file a federal income tax return. If you get income from other sources you may have to pay taxes on some of your benefits.
• Free File.  Use IRS Free File to prepare and e-file your tax return for free. If you earned $62,000 or less, you can use brand-name software. The software does the math for you and helps avoid mistakes. If you earned more, you can use Free File Fillable Forms. This option uses electronic versions of IRS paper forms. It’s best for people who are used to doing their own taxes. Free File is available only by going to IRS.gov/freefile.
• Interactive Tax Assistant.  You can get answers to your tax questions with this helpful tool and see if any of your benefits are taxable.  Visit IRS.gov and use the Interactive Tax Assistant tool.
• Tax Formula.  Here’s a quick way to find out if you must pay taxes on your Social Security benefits: Add one-half of your Social Security to all your other income, including tax-exempt interest. Then compare the total to the base amount for your filing status. If your total is more than the base amount, some of your benefits may be taxable.
• Base Amounts.  The three base amounts are:
• $25,000 – if you are single, head of household, qualifying widow or widower with a dependent child or married filing separately and lived apart from your spouse for all of 2015
• $32,000 – if you are married filing jointly
• $0 – if you are married filing separately and lived with your spouse at any time during the year

Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your TaxpayerBill of Rights. Explore your rights and our obligations to protect them on IRS.gov.
Additional IRS Resources:

• Social Security Income - Frequently Asked Questions
• Publication 915, Social Security and Equivalent Railroad Retirement Benefits

IRS YouTube Videos:

• Is Social Security Taxable? - English | Spanish | ASL

REMINDER TO EMPLOYERS: REPORT NEW HIRES TO STATE

Here is a reminder to all Pennsylvania employers from the state Department of Labor and Industries about your obligation to report the hiring of new employees:

The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 along with Pennsylvania's Act 58 of 1997 requires all employers to report certain information on their newly-hired employees to a designated state agency. As an employer, you are a key partner in ensuring financial stability for many children and families across the Commonwealth.

New Hire Reporting is designed to increase child support collections from non-custodial parents and parents who change jobs frequently, thus securing a better life for children. As an employer, your role of reporting newly-hired employees is critical to the success of the program. By reporting your newly-hired employees within 20 days of hire, you aid the Commonwealth of Pennsylvania in speeding up the child support income withholding order process, locating non-custodial parents to expedite collection of child support and in many cases, establishing paternity.

The New Hire program has experienced not only significant increases in child support collections from non-custodial parents but also savings in unemployment compensation, workers' compensation and public assistance programs through fraud detection. As a result, Pennsylvania is committed to this endeavor and expects continued diligence from the employer community to aid in this endeavor. For more information on this law, please visit the Pennsylvania State Law.

If you are a custodial or non-custodial parent needing information on Pennsylvania legislation and programs, please follow the link here to the PA Child Support Program website within the Pennsylvania Department of Human Services.

There are multiple ways to report your new hires to the Pennsylvania New Hire Reporting Program. The preferred method is through timely and secure electronic reporting.

Electronic Reporting:

Please use one of the two secure electronic methods listed below for reporting new hires to the Program.

Through the Pennsylvania CareerLink^® website, www.pacareerlink.state.pa.us.

Scroll down the page to the “Report New Hires” box (or press the “Online Services” link at the top menu navigation bar to go directly to the box) and press the link “Report New Hires Now,” to proceed to the Program homepage.

Through Secure File Transfer Protocol (SFTP) to the Pennsylvania Department of Labor & Industry server at https://dliftp.state.pa.us.

If interested in using SFTP, please notify the Pennsylvania New Hire Reporting Program by submitting an email to the Program at RA-LI-CWDS-NewHireSF@pa.gov, subject line: “SFTP Credentials – PA”.

Data File Format:

Data files must adhere to the layout specification for each respective file type listed at the Pennsylvania CareerLink^® website’s New Hire Reporting Program Information page. At that page, press “Examples and Instructions” under the “Choosing the Best Method for Reporting New Hires as a PA CareerLink^®-Registered Employer” section of the page, to view the data file specifications.

For more information on timely and secure new hire reporting, please visit www.pacareerlink.state.pa.us, or call the Pennsylvania New Hire Reporting Program at 1.888.724.4737 or 800-932-0211.

Do Your 2015 Federal Taxes for Free

Passing this along from our friends at the IRS -

Do Your Federal Taxes for Free

You can prepare and electronically file your federal taxes for free using IRS Free File. It is fast, safe and easy to use. IRS Free File does the hard work for you with either brand-name tax software or online fillable forms.

Here are six facts that you should know about Free File.

1. Free Options for All. If you make $62,000 or less – as do 70 percent of Americans – you can choose easy-to-use software to do your taxes and e-file for free. If you make more than $62,000 can use FreeFile Fillable Forms, the electronic version of IRS paper forms. Either way, it’s free.

2. Free File Does the Hard Work. IRS Free File is a partnership between the IRS and tax software manufacturers that make their products available for free. You don’t need to be a tax expert. The software will help find tax breaks you may be able to claim but might overlook, such as the EarnedIncome Tax Credit. The software asks the questions; you provide the answers. It will choose the right tax forms and do the math for you. Free File can also help with the healthcare law tax provisions.

3. Free File on IRS.gov. Access IRS Free File on IRS.gov/freefile to avoid any charges for preparing or e-filing your federal tax return. Once you choose a Free File company, you’ll go to their website to prepare, print and e-file your federal tax return.

4. All Forms and Schedules are Free. Whether you file Form 1040 EZ, Form 1040A or Form 1040, all are free. If you have a mortgage interest deduction, children in college or made money in the stock market, the Free File software will complete the forms and schedules you need.

5. Free Extensions. If you can’t make the April 18 deadline (April 19 if you live in Maine or Massachusetts), you can use Free File to request an automatic six-month extension. Making the request is easy and free through IRS Free File. Just look for “free extensions for anyone” in the company offers. Remember, this is a six-month extension of time to file your tax return, not to pay your tax. If you think you owe, make an estimated payment with your extension request. Tax software will help you make this payment, or you can view other paymentoptions at IRS.gov.

6. Use IRS E-file. Remember, the fastest way to get your refund is to combine e-file with directdeposit. If you owe taxes, you can e-file now and set up an automatic payment on any day until the due date. To view your payment options visit IRS.gov/payments.

Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your TaxpayerBill of Rights. Explore your rights and our obligations to protect them on IRS.gov.

IRS YouTube Videos:

• Welcome to Free File - English

Tis the Season - Charitable Giving

"Freedom from Want", Norman Rockwell (1943)

Thanksgiving and Christmas both put people in the frame of mind for giving - for giving thanks for what they may be blessed to have, and giving to others who might not be as blessed this year.   And while generally those feelings are not tax-driven, certain gifts can be deductible, if you color within the lines drawn by the IRS and the tax code. In that spirit, I am passing along this week's IRS Tax Tips, with advice on charitable giving.  May it inspire you to give generously to those in need, now and throughout the year.

IRS Tax Tips for Deducting Gifts to Charity

The holiday season often prompts people to give money or property to charity. If you plan to give and want to claim a tax deduction, there are a few tips you should know before you give. For instance, you must itemize your deductions. Here are six more tips that you should keep in mind:

1. Give to qualified charities. You can only deduct gifts you give to a qualified charity. Use the IRS Select Check tool to see if the group you give to is qualified. You can deduct gifts to churches, synagogues, temples, mosques and government agencies. This is true even if Select Check does not list them in its database.

2. Keep a record of all cash gifts.  Gifts of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction. You must have a bank record or a written statement from the charity to deduct any gift of money on your tax return. This is true regardless of the amount of the gift. The statement must show the name of the charity and the date and amount of the contribution. Bank records include canceled checks, or bank, credit union and credit card statements. If you give by payroll deductions, you should retain a pay stub, a Form W-2 wage statement or other document from your employer. It must show the total amount withheld for charity, along with the pledge card showing the name of the charity.

3. Household goods must be in good condition.  Household items include furniture, furnishings, electronics, appliances and linens. These items must be in at least good-used condition to claim on your taxes. A deduction claimed of over $500 does not have to meet this standard if you include a qualified appraisal of the item with your tax return.

4. Additional records required.  You must get an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. Additional rules apply to the statement for gifts of that amount. This statement is in addition to the records required for deducting cash gifts. However, one statement with all of the required information may meet both requirements.

5. Year-end gifts.  Deduct contributions in the year you make them. If you charge your gift to a credit card before the end of the year it will count for 2015. This is true even if you don’t pay the credit card bill until 2016. Also, a check will count for 2015 as long as you mail it in 2015.

6. Special rules.  Special rules apply if you give a car, boat or airplane to charity. If you claim a deduction of more than $500 for a noncash contribution, you will need to file another form with your tax return. Use Form 8283, Noncash Charitable Contributions to report these gifts. For more on these rules, visit IRS.gov.

Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights. Explore your rights and our obligations to protect them on IRS.gov.

Additional IRS Resources:

• Tax Topic 506, Charitable Contributions
• Publication 526, Charitable Contributions.
• Publication 561, Determining the Value of Donated Property
• Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes

Tis the season to file taxes!

Now that you've had time to digest your holly jolly holiday, you should be receiving your W-2 and 1099 statements from the IRS showing your income for 2014.  Time to start thinking about doing your tax returns.  There will be a new wrinkle this year as you need to report whether you have health insurance coverage or not; and if not, whether you you qualify for an exemption, or instead may have to pay a penalty; and then there will be a complex calculation of the penalty based on your particular circumstances.  Rather than trying to explain all of that in all its permutations, I am going to suggest, for you folks who still don't do your taxes online or with software, that you make this the year to E-file with the IRS.  And here is the IRS to explain the many reasons why this makes sense.

Top Five Reasons to E-file

Are you still using the old school method of doing your taxes? Do you still mail paper forms to the IRS? If so, make this the year you switch to a much faster and safer way of filing your taxes. Join the nearly 126 million taxpayers who used IRS e-file to file their taxes last year. Here are the top five reasons why you should file electronically too:

1. Accurate and easy.  IRS e-file is the best way to file an accurate tax return. The tax software that you use to e-file helps avoid mistakes by doing the math for you. It guides you every step of the way as you do your taxes. IRS e-file can also help with the new health care law tax provisions. The bottom line is that e-file is much easier than doing your taxes by hand and mailing paper tax forms. 

2. Convenient options.  You can buy commercial tax software to e-file or ask your tax preparer to e-file your tax return. You can also e-file through IRS Free File, the free tax preparation and e-file program available only on IRS.gov. You may qualify to have your taxes filed through the IRS Volunteer Income Tax Assistance or Tax Counseling for the Elderly programs. In general, VITA offers free tax preparation and e-file if you earned $53,000 or less. TCE offers help primarily to people who are age 60 or older.

3. Safe and secure.  IRS e-file meets strict security guidelines. It uses secure encryption technology to protect your tax return. The IRS has safely and securely processed more than 1.3 billion e-filed tax returns from individuals since the program began.

4. Faster refunds.  In most cases you get your refund faster when you e-file. That’s because there is nothing to mail and your return is virtually free of mistakes. The fastest way to get your refund is to combine e-file with direct deposit into your bank account. The IRS issues most refunds in less than 21 days.

5. Payment flexibility.  If you owe taxes, you can e-file early and set up an automatic payment on any day until the April 15 due date. You can pay electronically from your bank account. You can also pay by check, money order, debit or credit card. Visit IRS.gov/payments for more information.
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IRS YouTube Videos:

• Welcome to Free File – English

Estate Planning: Having the Conversation

When I was first practicing law in the 1980's, the term "estate planning" conjured up visions of lawyers in expensive suits and large offices sitting down with the DuPonts and the Pews and figuring out ways to keep their fortunes intact through the next ten generations.  Estate planning meant avoiding taxes through intricate schemes and legal gymnastics that most of the people I knew didn't need.  Today, the federal estate tax only applies to estates over $5,340,000 [as of 2014].  Only the wealthiest 2% of the population needs to be concerned with planning for federal taxes.  But I have lived more life since then, I have seen loved ones become ill and pass away, and I have gone to their homes and sorted through their things, and discovered more about what estate planning really means.  It is about planning, about organizing, about confronting your own mortality, and most of all about having "the Conversation". 

People shy away from thinking and talking about the various events of life that can change their day to day routine so quickly:  about accidents, illness and disease, aging and death.  They are events that we cannot control, but they are events that we can plan for.  Having the conversation starts with talking to yourself:  what is your contingency plan if you are hospitalized, if you have a lingering illness, if you cannot make your wishes known to your doctors and loved ones.  Who do you want to make those decisions when you can’t?  The law in its infinite wisdom provides the method for all of the people who do not plan for these events.  If you cannot take care of yourself, the law permits a guardian to be appointed, in a process involving lawyers, a judge, hearings, time and expense.  If you have not made your wishes known through a living will, then the law provides the same process:  lawyers, a judge, hearings, perhaps Congressional hearings and political battles as well (remember Terri Schiavo?), all to determine what you might have decided if you had been competent to decide the issue of your own life and death, and if you had taken the time to let your loved ones know your wishes.  A little thoughtful planning, a discussion with your family a little expense, and you can provide for these situations, you can decide the issues that only you should really decide, you can document them, and then you have done all you can.  You have bought a relatively inexpensive form of insurance for the situation.  But most important, you have had the conversation, first with yourself, and then with your loved ones.  You have made a plan.

Estate planning today means having a durable financial power of attorney that designates one or more trusted loved ones to take charge of your financial affairs when you are unable to do so.  It means having a living will - also called a medical directive - that expresses what you would want done if you are in an end-stage medical condition, and selecting the person or people who you want making those decisions when you can't.  It means having a will that provides for your loved ones and appoints the person you want to handle your affairs.  It means considering making gifts while you can enjoy the giving; checking to make sure your insurance beneficiary designations are up to date; putting your records together in one safe place, writing notes to explain your affairs, list your various passwords, and even attending to your genealogy, and putting the names of the people on the back of the old family pictures.  It means telling your loved ones that you love them, writing them letters to be opened when you are gone, and showing them how much you love them by the thoughtful way in which you have prepared for that day.  By having the conversation, first with yourself, and then with your loved ones, and then putting an estate plan in place, you do not ward off the events of life, but you have done everything in your power to prepare for them.  So start today, in the morning over coffee or tea, and have the conversation.

©2014  Douglas P. Humes

Doug Humes has been a practicing attorney in Pennsylvania since 1980.  He has experience in real estate, community, corporate and small business law, and estate planning.  In 2003, he opened his private general practice at the Millridge Manor House in Bryn Mawr, Pennsylvania.  Doug is also a Pennsylvania notary public and offers that service as an accommodation to clients and Millridge residents.  You can contact him at 610-525-7150, or via email at humeslaw@verizon.net).

MURDER? SUICIDE? BUYER BEWARE!

There is a murder/suicide in a home.  The home is later put up for sale.  Must the seller disclose to potential buyers that the tragedy took place in the home? 

To answer that question, some background is in order.  In the beginning, there was caveat emptor – Buyer Beware!  While the saying is written in Latin, it apparently did not come down from Roman law – but made its first appearance in about 1534 in English law, a case on horse trading, when Fitzherbert set down in his Boke of Husbandrie: "If he be tame and have ben rydden upon, then caveat emptor."  

The seller owns the merchandise or property being sold.  He knows all of its secrets.  If you are considering buying it, then you need to do your homework, ask questions, protect yourself in the legal document.  If the seller represents that something is true, then put this promise into a binding legal agreement.  If you want to find out about the property, create a period of time, a “due diligence” period, when you are granted access to the property, ask for records, talk to neighbors, have your inspector out there inspecting things.  Because once you have bought property, then you own it, warts and all.  The roof leaks?  The basement is wet?  Termite damage?  Once you have bought the property, you have bought those issues as well.  (With some exceptions – if the Seller has lied, or hidden items from you, that can change the result). 

This was a good workable rule for feudal and early American society. 

But as government has become more protective of its citizenry, it has passed more and more consumer protection laws such as implied warranty and disclosure laws that seek to level the playing field a bit.  In 1996, the Pennsylvania legislature followed the majority of states in adopting a seller disclosure law for real estate.  The law requires the disclosure of certain specific items, with a required form, and also reaches further to cover “material defects”, which are defined as:

“A problem with the property or any portion of it that would have a significant adverse impact on the value of the residential real property or that involves an unreasonable risk to people on the land.”

The law, even in its infinite wisdom, cannot conceive of every which way that human interaction can produce chaotic results.  And so we have trial courts to sort it all out in the first place, and then appellate courts, to decide what cases fall within and without of the broad lines that the legislature uses to sketch out the laws. 

So in 2014, what happens if there is a murder/suicide in a home?  Must that be disclosed to potential buyers?  

The Pennsylvania Supreme Court just addressed that subject.  A husband had killed his wife and then himself in the home, and the crime was well publicized.  Buyer No. 1 bought the house from the Estate, put in several thousand dollars of renovations, and then put the property up for sale.  When you sell a property, you need to fill out and give a Seller Disclosure form.  Buyer No. 1 asked the realtor, and an attorney, did this murder have to be disclosed?  Both did their homework, and found that there was no law in Pennsylvania on the subject.  The Seller did not disclose the murder.  Buyer No. 2, an out of state buyer, bought the property.  When she found out about the murder from her new neighbors, she sued the seller and the real estate agents. 

Disclosure of murder is not specifically covered by the Seller Disclosure law.  But it could conceivably be covered by the catchall provision if a court found that a murder was a “ … problem with the property or any portion of it that would have a significant adverse impact on the value of the residential real property …” 

In a thoughtful opinion, the court explored this issue and the larger issue - whether “psychological stigmas” are material defects in a property.  If a murder had to be disclosed, then the court asked “How would one treat other violent crimes such as rape, assault, home invasion, or child abuse? What if the killings were elsewhere, but the sadistic serial killer lived there? What if satanic rituals were performed in the house?” 

Requiring a seller to find out and disclose the entire realm of events that occurred in, or were associated with, the property, and that some people might find objectionable, would be too great a task for sellers.  The court concluded that “(t)he occurrence of a tragic event inside a house does not affect the quality of the real estate, which is what seller disclosure duties are intended to address.”  The unanimous court held that “… purely psychological stigmas are not material defects of property that sellers must disclose to buyers.”  

So now you know.  Buyer Beware! 

[To read the court’s full opinion, go here: http://www.pacourts.us/assets/opinions/Supreme/out/J-87-2013mo%20-%201018811082429662.pdf?cb=1 .]