CPA Blog

All income investments aren’t alike when it comes to taxes

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Published: Thursday, 03 December 2015 08:56

Written by Phillip Strickler, CPA.CITP

The tax treatment of investment income varies, and not just based on whether the income is in the form of dividends or interest. Qualified dividends are taxed at the favorable long-term capital gains tax rate (generally 15% or 20%) rather than at the applicable ordinary-income tax rate (which might be as high as 39.6%). Interest income generally is taxed at ordinary-income rates. So stocks that pay qualified dividends may be more attractive tax-wise than other income investments, such as CDs and taxable bonds.

But there are exceptions. For example, some dividends aren’t qualified and therefore are subject to ordinary-income rates, such as certain dividends from:

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Accounting for digital assets in your estate plan

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Published: Monday, 30 November 2015 16:09

Written by Phillip Strickler, CPA.CITP

If you die without addressing your digital assets (such as online bank and brokerage accounts) in your estate plan, your loved ones or other representatives may not be able to access them without going to court — or, worse yet, may not even know they exist.

The first step in accounting for digital assets is to conduct an inventory, including any computers, servers or handheld devices where these assets are stored. Next, talk with your estate planning advisor about strategies for ensuring that your representatives have immediate access to these assets in the event something happens to you.

Although you might want to provide in your will for the disposition of certain digital assets, a will isn’t the place to list passwords or other confidential information, because a will is a public document. One solution is writing an informal letter to your executor or personal representative that lists important accounts, website addresses, usernames and passwords. Another option is to establish a master password that gives the representative access to a list of passwords for all your important accounts, either on your computer or through a Web-based “password vault.”

What you need to know before donating collectibles

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Published: Wednesday, 25 November 2015 10:12

Written by Phillip Strickler, CPA.CITP

If you’re a collector, donating from your collection instead of your bank account or investment portfolio can be tax-smart. When you donate appreciated property rather than selling it, you avoid the capital gains tax you would have incurred on a sale. And long-term gains on collectibles are subject to a higher maximum rate (28%) than long-term gains on most long-term property (15% or 20%, depending on your tax bracket) — so you can save even more taxes.

But choose the charity wisely. For you to receive a deduction equal to fair market value rather than your basis in the collectible, the item must be consistent with the charity’s purpose, such as an antique to a historical society.

Properly substantiating the donation is also critical, and this may include an appraisal. If you donate works of art with a collective value of $5,000 or more, you’ll need a qualified appraisal, and if the collective value is $20,000 or more, a copy of the appraisal must be attached to your tax return. If an individual item is valued at $20,000 or more, you may also be required to provide a photograph of that item.

If you’re considering a donation of artwork or other collectibles, contact us for help ensuring you can maximize your tax deduction.

© 2015

Act soon if you want to help your child buy a home

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Published: Tuesday, 24 November 2015 09:09

Written by Phillip Strickler, CPA.CITP

Mortgage interest rates are still at historically low levels, but they’re expected to go up by year end. So if you’ve been thinking about helping your child — or grandchild — buy a home, consider acting soon. There also are some favorable tax factors that will help:

0% capital gains rate. If the child is in the 10% or 15% tax bracket, instead of giving cash to help fund a down payment, consider giving long-term appreciated assets such as stock or mutual fund shares. The child can sell the assets without incurring any federal income taxes on the gain, and you can save the taxes you’d owe if you sold the assets yourself. As long as the assets are worth $14,000 or less (when combined with any other 2015 gifts to the child), there will be no federal gift tax consequences — thanks to the annual gift tax exclusion.

Low federal interest rates. Another tax-friendly option is lending funds to the child. Now is a good time for taking this step, too. Currently, Applicable Federal Rates — the rates that can be charged on intrafamily loans without causing unwanted tax consequences — are very low by historical standards. But these rates are also expected to increase by year end.

If you have questions about these or other tax-efficient ways to help your child or grandchild buy a home, please contact us.

© 2015