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The ABCs of IRAs by Nancy M. Valdes, CPA

Posted on October 11, 2018 by Nancy Valdes

Individual Retirement Arrangements, or IRAs, are financial accounts that taxpayers may set up with an IRS-approved financial advisor, financial institution or life insurance company to save money for retirement.  However, because not all IRAs are created equally, taxpayers should take the time to learn the following terms and definitions.

contribution is the money individuals put into their IRAs, whereas a distribution is the amount of money that taxpayers withdraw from these accounts. Each type of IRA has different rules for eligibility and the tax treatment of contributions and distributions, and taxpayers who take distributions before they reach retirement age may be subject to tax and penalties on those amounts.

There are four types of IRA’s: Traditional IRAs, Roth IRAs, Simplified Employee Pensions (SEP-IRAs) and Savings Incentive Match Plan for Employees (SIMPLE IRAs).

Traditional IRAs allow individuals to take an immediate tax deduction for the full amount of their contribution in the years they make those contributions. The amount taxpayers can take as a deduction on contributions depends on various factors, including annual income and the taxpayer’s access to an employer’s retirement plan. Earnings grow tax-deferred until account owners turn 59½ years of age, at which point withdrawals are subject to tax. After age 70 ½, account owners must annually take required minimum distributions (RMDs) from their traditional IRAs.

In contrast, contributions to Roth IRAs are taxable in the years they are made, and account owners receive the benefit of tax-free withdrawals during their retirement years, as long as they are at least 59 ½ years old and owned the account for a minimum of five years. With Roth IRAs, owners are not subject to RMDs; they may take tax-free withdrawals of any sum, or they may instead leave their savings in the Roth IRAs to pass onto their spouses or other family members.

For 2018, annual contributions to Traditional IRAs and Roth IRAs are limited to $5,500 of earned income (plus an additional $1,000 when taxpayers are age 50 or older). These amounts are indexed annually for inflation.

Savings Incentive Match Plans for Employees (SIMPLE IRAs) are retirement savings plans set up by small businesses for the benefit of their employees, in which employees and employers make contributions to a traditional IRA. They are ideal for small businesses that do not have a significant number of employees and do not have the resources to manage a more complex qualified plan.

Simplified Employee Pensions (SEP-IRAs) allow owners of small businesses, such as sole proprietorships, partnerships, limited liability companies, S corporations and C corporations, to make contributions toward their own retirement and that of their employees’ without the costs and complexity of managing a qualified plan. Each employee owns and controls his or her own SEP-IRA. Self-employed business owners can contribute to SEP-IRAs as much as 20 percent of their net income, up to $55,000 in 2018. The rules for withdrawals are similar to those for traditional IRAs in that taxpayers must be at least 59 ½ to take avoid penalties and RMD will be required after taxpayers turn 70 ½.

On a final note, taxpayers should meet with experienced advisors and accountants to understand the rules for transferring and/or rolling over withdrawals from one IRA into another and how the IRS treats IRAs that a taxpayer inherits from a deceased family member.

About the Author: Nancy M. Valdes, CPA, is a senior manager with Berkowitz Pollack Brant’s Tax Services practice, where she works with U.S. and foreign-based entrepreneurs and closely held businesses to manage cash flow, protect assets and maintain tax efficiency.  She can be reached at the CPA firm’s Miami office at (305) 379-7000 or via email at

Information contained in this article is subject to change based on further interpretation of tax laws and subsequent guidance issued by the Internal Revenue Service.



Strategies for Minimizing Long-Term Capital Gains Taxes under Tax Reform by Adam Slavin, CPA

Posted on September 17, 2018 by Adam Slavin

Thanks to the equity market’s wild bull market run since bottoming out in 2009, many investors’ portfolios look rather rosy. However, with these impressive returns come taxes on capital gains. While the Tax Cuts and Jobs Act retains the 0%, 15%, and 20% tax rates on qualified dividends and long-term capital gains resulting from the sale of assets held for more than one year, the new law changes the income brackets that apply to these rates. For 2018 through 2025, the following rates will apply based on an individual’s taxable income and filing status:


Tax Rate Single Filers Married Filing Jointly
0% $0 to $38,600 $0 to $77,200
15% $38,601 to $425,800 $77,200 to $479,000
20% $425,801 and above $479,001 and above


Taxpayers should note that these brackets apply only to long-term capital gains and dividends, which may also be subject to the 3.8 percent Net Investment Income Tax (NIIT) for high-income earners. Conversely, the tax rates for short-term capital gains resulting from the sale of assets held for one year or less will continue to be tied to the seven ordinary income tax brackets, which beginning in 2018 are reduced to 10%, 12%, 22%, 24%, 32%, 35% or 37%.

Although these changes under the new law will result in many taxpayers owing less to the federal government, it is important for high-income taxpayers, in particular, to meet with their advisors and accountants and implement strategies that could reduce their long-term capital gain tax liabilities even further.

For example, taxpayers may take advantage of the TCJA’s higher standard deduction, which nearly doubles in 2018 to $12,000 for single filers and $24,000 for married filing jointly, in order to reduce their taxable income (including long-term gains and dividends) to a lower threshold and qualify for a lower tax rate.

Another strategy available to taxpayers is to remove appreciated assets and any related capital gains from their investment portfolios. One option is to donate appreciate assets held for more than one year to a charity or a donor-advised fund. The assets can continue to grow tax-free to the charity and provide the taxpayers with an immediate charitable deduction, subject to limitations. Alternatively, taxpayers may remove appreciated assets from their taxable income by gifting them to family members. In fact, in 2018, individuals may gift up to $15,000 in cash or assets to as many people as they choose without incurring gift taxes. When the taxpayer is married, he or she can annually gift as much as $30,000 per recipient tax-free. The amount of this gift tax exclusion is adjusted annually for inflation.

Finally, the tried and true method of harvesting capital losses to offset capital gains may be difficult to employ since many investors will be hard-pressed to find losses after the recent market run-ups. Yet it is critical for investors to pay attention to their capital gains and be prepared to take action if, and when, the amount of their resulting tax liability is beyond their budget.

About the Author: Adam Slavin, CPA, is a senior manager with Berkowitz Pollack Brant’s Tax Services practices, where he provides tax planning and consulting services to high-net-worth individuals and closely held business. He can be reached at the CPA firm’s Boca Raton, Fla., office at (561) 361-2000 or via email at



Tax Attributes Prove to be a Valuable Tool in Post-Mortem Income Tax Planning for Decedents and Survivors by Jeffrey M. Mutnik, CPA/PFS

Posted on August 21, 2018 by Jeffrey Mutnik

Under U.S. tax laws, the losses, credits and adjustments that a taxpayer is entitled to claim on his or her tax returns are unique to that specific individual, regardless of whether or not he or she is married and/or annually files joint tax returns with his or her spouse. Therefore, the tax attributes that an individual may use to reduce gross income and federal tax liabilities will not automatically transfer to a surviving spouse or the beneficiary of a decedent’s estate. One example of this concerns business losses.

The services that a business owner performs on a daily basis ultimately influence the overall success and profitability of that company. If the owner is unable to work due to illness, injury or death, it is likely that the business will suffer and generate losses. When businesses are structured as sole proprietorships or pass-through entities, such as partnerships or S Corporations, the owners, or partners, will report these losses on their federal tax returns.

When a business’s losses exceeded taxpayers’ income in 2017 or prior, taxpayers created Net Operating Losses (NOLs) that they could carry backwards to claim refunds on taxes already paid during the two preceding tax years. If a taxpayer died in the year of the NOL, he or she was able to transfer the carryback refunds to his or her estate. This is no longer the case, as the Tax Cuts and Jobs Act that went into effect in 2018 eliminates NOL carrybacks.

While the new tax laws do preserve taxpayers’ ability to carry forward NOLs to offset income in future years, this benefit does not typically apply to taxpayers who pass away in 2018 or later, as they will not file any additional tax returns in the years following their deaths. Moreover, because those losses are unique to the deceased taxpayer, they are not transferrable to the decedent’s estate or to his or her surviving spouse to use in the future. However, all is not lost. In fact, there are a few opportunities for taxpayers to absorb some or all of their spouses’ NOLs in the year of their spouses’ deaths, which could essentially create tax-free income for their heirs.

To take advantage of such losses, a surviving spouse should choose to file federal income tax returns as “married filing jointly” for the year in which his or her spouse passes away. Doing so will allow the survivor to use the decedent’s unused NOL (either from current or prior years) to offset the couple’s combined reportable income for the year. After December 31 in the year of the decedent’s death, however, those losses will disappear and no longer be available to the decedent’s heirs. Therefore, it behooves a surviving spouse to meet with tax advisors as soon as possible after the death of a husband or wife in order to project taxable income for the year and analyze the efficacy of recognizing income by year-end.

One way that a surviving spouse may make use of the NOL of a late husband or wife is to create income by withdrawing money from a retirement account. If the surviving spouse does not need the cash from a retirement plan distribution, he or she can roll over the distribution into a Roth account. It even makes sense for a surviving spouse to take a retirement plan distribution that exceeds the amount of the decedent’s NOL for three reasons:

  1. The NOL will eliminate the surviving spouse’s tax liability on the bulk of the income generated by the distribution, leaving the remaining amount subject to tax at the lowest level(s) of the graduated tax rates;
  2. An individual can avoid tax on a voluntary retirement plan withdrawal that is not a required minimum distribution (RMD) when they return the withdrawn amount to his or her retirement account within 60 days; and
  3. Withdrawing cash from a retirement account will lower the asset base of the survivor’s deferred income, thereby lowering the amount of future RMDs.

Another way that individuals may use deceased spouses’ NOLs is to create income in the year that their husbands or wives pass away by selling appreciated assets that the decedents did not own. The NOL would essentially eliminate the taxable gain that such a sale typically would trigger. Nonetheless, it is important for survivors to know that the wash-sale rules do not apply to assets sold for a gain. As a result, they can repurchase the sold asset(s) immediately and receive the benefit of new, stepped-up tax basis.

As a final option, taxpayers may rely on the tried-and-true methods of accelerating income and/or deferring deductions to absorb a decedent’s loss that would otherwise go unused.

It is common for individuals to overlook the importance of tax attributes during a chaotic year in which a loved one passes away. Working with advisors who have the knowledge and experience in these matters can yield significant tax benefits.


About the Author: Jeffrey M. Mutnik, CPA/PFS, is a director of Taxation and Financial Services with Berkowitz Pollack Brant Advisors and Accountants, where he provides tax- and estate-planning counsel to high-net-worth families, closely held businesses and professional services firms. He can be reached at the CPA firm’s Ft. Lauderdale, Fla., office at (954) 712-7000 or via email at



Tax Reform Exempts More High-Net-Worth Families from the Dreaded Estate Tax by Rick Bazzani, CPA

Posted on August 15, 2018 by Rick Bazzani

While the Tax Cuts and Jobs Act (TCJA) signed into law in December of 2017 did not make many adjustments to the existing gift, estate and generation-skipping transfer tax regimes, what it did do beginning on Jan. 1, 2018, is significant.

Doubles the Estate and Generation-Skipping Transfer Tax Exemption

Under the new law, fewer taxpayers will need to worry about paying federal estate tax. In 2018, the exemption doubles from $5.6 million in 2017, to $11.18 million for single-filing taxpayers, and $22.36 million for married couples filing joint tax returns. The amount of the exemption will be indexed for inflation until 2026, when it is set to return to its 2017 pre-tax reform limit.

What this means is that individual taxpayers may transfer up to $11.18 million in assets to their heirs in 2018 (or up to $22.36 million for married couples filing jointly), either during life or at death, without incurring federal estate taxes. Anything above the excluded amounts is subject to the same 40 percent flat tax rate that has been in effect since 2013.

Retains Step-Up Basis for Assets Transferred at Death

Beneficiaries who inherit the assets of a deceased taxpayer between 2018 and 2026, when the estate tax provisions of the TCJA are set to expire, will continue to receive a step-up in the value of those assets. Therefore, a beneficiary’s costs basis in an inherited asset will be readjusted upward to the asset’s fair market value at the time of the benefactor’s death. This allows beneficiaries to minimize or even eliminate their exposure to capital gains tax when they sell inherited assets in the future.

Maintains Annual Gift Tax Exclusion

Giving gifts allows taxpayer to shield their wealth from future estate tax liabilities by removing assets and their future appreciation value from their taxable estates. Under the new tax laws, taxpayers may annually gift up to $15,000 in cash or assets to as many people as they choose free of transfer taxes as well as an unlimited amount of gifts in the form of tuition and medical expenses paid directly to a qualifying institution on behalf of another individual. For married couples, the gift tax exclusion in 2018 is $30,000. Any gifts above these amounts will be subject to 40 percent tax rate.

 Reduces Income Tax Brackets for Trusts and Estates

In addition to lowering the existing seven income tax brackets, the TCJA also reduces the top bracket for estates and trusts to 37 percent on taxable income in excess of $12,500.

Warnings and Planning Opportunities

Despite the generous provision relating to the estate tax, the new law currently calls for the increased exemptions to expire on Dec. 31, 2025, and revert to their 2017 limits in 2026.

Without the ability to look into a crystal ball and know what Congress will do over the next eight years, high-net-worth families must plan appropriately under the guidance of experienced financial advisors and tax accounts. This may include establishing trusts, if none already exists, and maximizing gifts to these estate planning vehicles. These gifts effectively transfer assets out of an individual’s taxable estate to family members or other named beneficiaries and allow grantors to use trust assets to fund life insurance policies or, in some instances, pay income tax liabilities while they are alive.


About the Author: Rick D. Bazzani, CPA, is a senior manager with Berkowitz Pollack Brant’s Tax Services practice, where he provides individuals with a broad range of tax-efficient estate-, trust- and gift-planning services. He can be reached at the CPA firm’s Ft. Lauderdale, Fla., office at (954) 712-7000, or via email at


Information contained in this article is subject to change based on further interpretation of tax laws and subsequent guidance issued by the Internal Revenue Service

Tax Reform Provides Senior Citizens with Opportunities to Maximize Tax Benefits of Charitable Giving by Adam Cohen, CPA

Posted on August 08, 2018 by Adam Cohen

It is estimated that less than half the number of taxpayers who previously claimed deductions for charitable contributions will continue to do so beginning in 2018, when the rationale for itemizing deductions may no longer make fiscal sense. However, the passage of the Tax Cuts and Jobs Act (TCJA) does provide an opportunity for taxpayers age 70 ½ and older to continue to maximize the benefits of their philanthropic giving when they plan ahead.

Charitable Deduction Limits Under Tax Reform

Tax reform under the TCJA, allows taxpayers to continue to claim their charitable contributions as itemized deductions that they may subtract from their taxable income. Nonetheless, the law also limits the deductibility of several itemized expenses, eliminates many of the miscellaneous deductions that taxpayers previously used to reduce their tax liabilities while also doubling the standard deduction that is available to all taxpayers. As a result, more taxpayers will opt to simply claim the standard deduction and potentially lose any tax benefit from their charitable efforts. That is, unless they are retirees receiving required minimum distributions (RMDs) from their Individual Retirement Accounts (IRAs).

Converting RMDs into Charitable Contributions

The Internal Revenue Code requires U.S. taxpayers to begin taking annual RMDs from their traditional IRAs by April 1 in the year after they turn 70 ½, or risk significant penalties. The amount of the taxable RMD is calculated separately for each IRA a taxpayer owns, but the actual aggregate amount he or she receives may be paid out of one of more of his or her IRA accounts.

Individuals over the age of 70 ½ seeking to reduce their tax liabilities in a given year may transfer up to $100,000 of their annual RMD directly to a qualifying charity and exclude that amount from their taxable income. By making these qualified charitable distributions (QCDs), qualifying taxpayers meet their annual RMD requirements, avoid including distributed amount in their taxable income and allow those funds to further their philanthropic goals and support a charitable organization in need.

It is important to remember that while QCDs can yield significant tax savings, especially for high-earning taxpayers, they are neither considered income nor may they be claimed as deductions on an individual’s federal tax return. Moreover, special care should be taken to ensure the QCD is transferred directly by the IRA trustee to a qualifying charitable organization. If the IRA owner hands a check to the charity, the payment will not qualify for QCD treatment, even if the check comes from the IRA and is made payable to a charitable organization.
While the TCJA will make it harder for taxpayers to maximize the value that itemizing deductions once provided to them, philanthropic-minded individuals will continue to give to charity and some may even eke out a tax benefit.


About the Author: Adam Cohen, CPA, is an associate director of Tax Services with Berkowitz Pollack Brant, where he works with closely held businesses and non-profit charities, hospitals and family foundations to maintain tax efficiency and comply with federal and state regulations. He can be reached at the CPA firm’s Ft. Lauderdale, Fla., office at (954) 712-7000 or via e-mail at


Information contained in this article is subject to change based on further interpretation of tax laws and subsequent guidance issued by the Internal Revenue Service.

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