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Educational Savings Bonds Tax Exclusion – Paul Gaulkin CPA

education definition

A tax exclusion is provided for interest earned on U.S. savings bonds used to finance the higher education of the taxpayer, the taxpayer’s spouse, or dependents according to Code section 135. Timing of Purchase The bonds must have been purchased after December 31, 1989, and the exclusion is available only to the individual who purchased the bonds. The purchaser of the bonds must have reached the age of 24 and be the sole owner of the bonds. The bonds must … Read more

Charitable Remainder Annuity Trust Defined – Paul Gaulkin CPA

money in coins

A charitable remainder annuity trust is a trust from which a specified sum or percentage (not less than five percent of the initial fair market value of all assets actually placed in trust) is to be paid annually to one or more named individuals as income beneficiaries. Timing of Trust For transfers in trust occurring after June 18, 1997, the annual payout cannot exceed 50 percent of the initial fair market value of the trust’s assets. For transfers in trust … Read more

Health Reimbursement Arrangement Guide – Paul Gaulkin CPA

looking at medical papers

A health reimbursement arrangement is an employer established benefit plan for employees, which is different from an MSA or HSA. Under the plan, an employer reimburses a participating employees qualified medical expenses up to a maximum dollar amount specified in the HRA plan agreement for the coverage period. Unlike an MSA or HSA which require contributions and distributions to be reported on employee’s federal tax returns, there is no tax reporting requirements for an HRA. Health Reimbursement Arrangement Benefits HRAs … Read more

Health Savings Account Rules & Benefits – Paul Gaulkin CPA

couple looking at healthcare plans

The health savings account was created in 2003 and shares many characteristics of the Archer MSA program. Like MSAs, HSAs are trusts created solely to pay the qualified medical expenses of an account beneficiary and call for an individual to: 1. Buy a high deductible health insurance policy, and 2. Make tax deductible contributions to the trust Contributions made to the trust and any earnings are tax deferred for as long as they remain in the trust. HSA account holders … Read more

Annuity Income Exclusion Guidelines – Paul Gaulkin CPA

money that is locked with chain

An annuity is nothing more than a contract that pays a fixed income at set intervals for a specified period of time. The amount of income generally depends upon the premium paid, the life expectancy of the annuitant, and the number of years payments are to be received. When income is received as an annuity under an annuity, endowment, or life insurance contract, the amount received generally consists of two separate parts: 1. A nontaxable return on the investment made … Read more

Restricted Stock Plan Rules & Guidance – Paul Gaulkin CPA

wall with ticker for stocks

Stock or other property that is transferred to a taxpayer by an employer as compensation for services rendered and that same stock is subject to certain restrictions that affect its value, the stock is considered restricted and is governed by the rules contained in Code Section 83. As a general rule, the value of any property transferred in connection with services provided by the taxpayer is taxable as compensation, whether the property is goods, common stock, a partnership interest, or … Read more

Accrual Method Tax Planning – Paul Gaulkin CPA

people at table planning

Tax planning when using the accrual method of accounting can increase or decrease the amount of taxable income for the year. Listed below are a few techniques that can be used to increase or decrease taxable income for the tax year in which they are used. Income Deferral Income may be deferred by the following techniques: 1. Delays in shipping goods sold (if shipping time is accrual time) 2. Shipping free on board destination, delaying the title change ( if … Read more

Like Kind Three Party Exchanges – Paul Gaulkin CPA

different size buildings

In the event a taxpayer is unable to find a party with who to have a like kind exchange because the party whose property the taxpayer seeks wants to sell for cash instead of doing a trade. A three party exchange is basically a way for the taxpayer to still carry out a like kind exchange but with three instead of two people. Finding Third Party If the taxpayer can find a purchaser who is willing to pay cash and … Read more

Hybrid Method of Accounting – Paul Gaulkin CPA

Balancing the Accounts

The main type of accounting methods that the IRS allows a taxpayer to take advantage of are the cash method and accrual method of accounting. It is a general misconception that a taxpayer must utilize one method or the other method, but this is not true. A taxpayer has the option to use a combination of permissible accounting methods. Hybrid Method Restrictions For example, the accrual method, which must be used for purchases and sales of inventory, may be combined … Read more

Eligible Rollover Distribution – Paul Gaulkin CPA

an egg inside a nest saying retirement

A rollover is basically a transfer of a distribution from one tax advantaged plan to another tax advantaged plan in which the individual is able to maintain the form plan’s tax advantage with respect to the amount transferred. Distributions that may be rolled over are distributions from: 1. A qualified plan 2. A 403(b) tax sheltered annuity 3. An IRS’ 4. A 457 governmental plan Once a distribution is made from one plan to another, the taxpayer does not have … Read more