December 22, 2012

How Do the Tax and Audit Teams Collaborate at Anders?

Anders is often engaged to complete both the tax return and financial statement audit. Prior to starting, the tax and audit teams have a planning meeting, and during the engagement, both teams gather and process information for the other, ensure reporting accuracy, and confirm that all of the client’s needs have been addressed. It takes both departments working together to provide the best service to the client.

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December 20, 2012

Fueled Roth Conversion with Proactive Tax Planning

We turned two years of significant business losses into many years of tax savings. Our client was able to convert $400,000 in a traditional IRA to a Roth without paying any tax. The family has already seen substantial tax-free growth in the new account.

Learn more about our Family Wealth and Estate Planning, Tax Planning and Compliance services.

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December 18, 2012

Basic Rules of Passive vs. Non-Passive Income

The Affordable Care Act has created a 3.8% surtax on investment income starting in the 2013 tax year. To avoid the 3.8% surtax, your investment income must be offset with investment losses or your income has to be considered non-passive vs. passive. For income to be considered non-passive, the taxpayer must materially participate in the activity. This is determined on an annual basis; because a taxpayer qualifies in one year does not automatically qualify him or her in subsequent tax years.

Material participation occurs when a taxpayer’s involvement in the trade or business is regular, continuous, and substantial. Any work an individual performs in an activity in which he or she owns an interest generally is considered participation. However, not all participation is considered material. An individual materially participates in an activity if any one of the following tests is met:

  1. The taxpayer participates in the activity for more than 500 hours during the year,
  2. The taxpayer’s participation in the activity constitutes substantially all of the participation by all individuals (including non-owners) in the activity for the year,
  3. The taxpayers’ participation is more than 100 hours during the year, and no other individual (including non-owners) participates more hours than the taxpayer,
  4. The activity is a significant participation activity in which the taxpayer participates for more than 100 hours during the year and the taxpayer’s annual participation in all significant participation activities is more than 500 hours,
  5. The taxpayer materially participated in the activity for any five years (whether or not consecutive) during the 10 immediately preceding tax years,
  6. For a personal service activity, the taxpayer materially participated for any three tax years (whether or not consecutive) preceding the current tax year, or
  7. Based on all the facts and circumstances, the taxpayer participates on regular, continuous, and substantial basis during the year.

In general, these seven tests are used for determining material participation for any business activity in which a taxpayer is involved. If one or more of the tests are passed, the activity is non-passive and the 3.8% surtax does not apply. However, exceptions to this general rule apply to working interests in oil or gas activities, to limited partnership interests, and to grouping activities. For additional guidance and planning, please contact an Anders advisor.

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December 7, 2012

Guided Clients Through Tax Implications of Divorce

We helped our clients and their divorce attorneys through the division of assets, including significant stock options, to minimize the tax impact. We created an option exercise strategy and analyzed the tax basis and AMT basis on which shares of stock would provide the most benefit to each party.

Learn more about our Family Wealth and Estate Planning, and Tax Planning and Compliance services.

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