October 27, 2015

Calculating Your Long-Term Capital Gains Tax Rate

With long-term capital gains tax rates changing over the past few years, you may be wondering how to calculate your rate. Along with the rates periodically changing, as of 2013 there is a new tax that could apply to your long-term capital assets: the net investment income (NII) tax.

First, let’s look at what is classified as a long-term capital asset. Capital assets include assets held for personal or investment purposes such as a home, household furnishings, stocks, and bonds. To be considered long-term an asset must be held for a year or more.

When capital assets are sold, the difference between a taxpayer’s basis (what was paid for the asset), and the selling price is their capital gain/loss. Once you determine your ordinary tax rate based on your individual income tax bracket, use the chart below to find out the rate of tax on long-term capital gains.

Ordinary Tax Rate Long-Term Capital Gains Rate Long-Term Capital Gains Rate including Net Investment Income Tax (If applicable)
10% 0% 0%
15% 0% 0%
25% 15% 18.8%
28% 15% 18.8%
33% 15% 18.8%
35% 15% 18.8%
39.6% 20% 23.8%

The NII tax, sometimes referred to as the 3.8% tax or the Medicare surtax for high-income earners, is an additional tax on NII above the long-term capital-gain rates. It applies to an individual’s income from passive investments. Examples of passive investments include stocks, bonds, mutual funds, and business interests. If a taxpayer actively participates in a business venture, related income is NOT subject to the NII tax. Not all passive income is subject to the NII tax. In order to be subject to this tax, a taxpayer’s adjusted gross income has to exceed the following thresholds:

Filing Status Threshold Amount
Married Filing Jointly $250,000
Married Filing Separately $125,000
Single $200,000
Head of Household $200,000
Qualifying Widow(er) $250,000

Determining the tax rate that applies to long term capital gains can be difficult, but in many circumstances exposure to 20% capital gains taxes and the 3.8% NII tax can be mitigated through proper planning. Please contact an Anders advisor to discuss these concepts in more detail.

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October 27, 2015

Anders Receives Innovative Firm of the Year Award

Anders received the EDGE Award for 2015 Innovative Firm of the Year at the Leading Edge Alliance (LEA) annual global conference and awards ceremony in Miami, FL.

The EDGE Awards recognize member firms and individuals that demonstrate exceptional leadership, improve the performance of their organizations, and make outstanding contributions to the advancement of the CPA profession. Nominations for the EDGE Awards were submitted by LEA member firms from around the world. A panel of distinguished judges selects the winners.

This is the eighth EDGE Award for Anders, including awards for the Young Professionals Program, the Innovative Firm Initiative of the Year and Outstanding Marketing Initiative.

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October 20, 2015

How to Avoid Penalty Fees for IRA/Roth IRA/401(k) Early Withdrawal

Every year millions of Americans stash away a portion of their hard earned paycheck into an IRA, Roth IRA, or 401(k) in order to save for retirement.  Unfortunately though, millions more will face penalty fees when taking early withdrawals due to unforeseen job loss, medical expenses, or other financial hardship.  It’s important to understand that if you do take an early distribution from your retirement account you will not only pay income taxes owed on the withdrawal, but will also pay a 10% penalty fee for early withdrawal.

10% Early Withdrawal Fee

The 10% penalty, also known as an excise tax, is assessed if you withdraw from your IRA, Roth IRA, or 401(k) early, i.e. before you have reached the age of 59½.  One easy solution to avoid a penalty is to contribute to a Roth IRA.  Roth IRAs are contributions made after-tax in which one could withdraw from account after 5 years tax-free and penalty-free.  However, you can only withdraw your contributed amount.  So it’s important to keep track of what amount of your Roth IRA is contributed and what has been earned on your contribution.  If you withdraw more than what you contributed, you will be liable for income tax on your earnings and subject to the 10% penalty on your earnings for early withdrawal.

While the above seems like a reasonable solution, most of us contribute to a 401(k) or a traditional IRA to which the after-tax contribution is not an option.  So while early withdrawals are not recommended, below is a list of scenarios in which one can withdraw early without incurring that pesky 10% penalty, because after all, it is “your money”:

  • If you are a first time homebuyer you can elect to take up to $10,000 out of your IRA penalty-free and if you’re married, you and your spouse can each take up to $10,000. The money must be used within 120 days to purchase your home or you will be hit with the 10% penalty. The withdrawal can benefit you, your spouse, your children, parents, or other ancestors to assist in the purchase of their first home.  There is no penalty exemption for the first time homebuyer if you withdraw funds from your 401(k); however, there is a possibility of rolling over the funds into an IRA in order to avoid paying the penalty, but it must be from a former employer.
  • You are also allowed to take an early distribution from your IRA for qualified higher education expenses such as tuition and books. The distribution will still be taxed as ordinary income, but you would be waived of the 10% penalty.  Like with the first time home buyer, your family can also benefit from this exclusion.  Also, same rules apply as above if you are withdrawing from a 401(k).  There is no penalty exemption for qualified higher education expenses, but there is the possibility of rolling over your 401(k) to an IRA and then taking the distribution.
  • You may also withdraw from your IRA or 401(k) early if you have become totally disabled or have incurred unreimbursed medical expenses greater than 10% of your adjusted gross income in the year of withdrawal. Although watch for the timing trap in regards to your medical expenses.  These expenses must be paid in the same year that you take the distribution.
  • Now another less well-known option is to take a 72t early distribution (named after the tax code) which allows you to take a “series of substantially equal periodic payments” which is derived from a calculation using your current age and the size of your IRA. However, once you begin taking these payments, you must continue taking the same amount for 5 years or until you reach the age of 59½ whichever is LATER and even if you no longer need the payments.
  • Another option in the short-term is to take a loan against your 401(k). The IRS allows you to borrow against your 401(k) as long as your employer permits.  If your employer allows you to take a loan, the maximum amount that you can withdraw against is either $50,000 or half of your 401(k) balance, whichever is less.

While the above is not a complete list, it does comprise the most common options taken if an early withdrawal is necessary and you want to avoid the 10% penalty.  In the end, it’s best avoid withdrawing from your retirement funds early.  One of the major factors to having a concrete retirement is the ability to compound your earnings pre-tax. Contact an Anders advisor with any questions on early withdrawal penalties.

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October 13, 2015

HIPAA and Meaningful Use Audits Underway

If you’ve not yet completed your Security Risk Assessment, now is the time to do so, as CMS is currently conducting HIPAA Compliance audits as well as Meaningful Use audits.  Below is some pertinent information about both.


The U.S. Department of Health and Human Services Office for Civil Rights (OCR) recently sent pre-audit screening surveys to a pool of covered entities that may be selected for a second phase of audits (Phase 2 Audits) of compliance with the HIPAA Privacy, Security and Breach Notification Standards, as required by the HITECH Act.

Business Associates beware! 

Unlike the Phase 1 Audits which focused solely on covered entities, Phase 2 Audits will include both covered entities and business associates.

HIPAA Compliance Phase 2 Audit Focus Areas: 

  • PHI security and pervasive non-compliance. Based on Phase 1 Audit results, the Phase 2 Audit program will focus on areas of greater risk to the security of protected health information (PHI) and on pervasive non-compliance.  These audits will not comprise of a comprehensive review of all of the HIPAA Standards.
  • Yet to be identified best practices and vulnerabilities. In addition, OCR also intends for the Phase 2 Audits to identify best practices and uncover risks and vulnerabilities that OCR has not identified through other enforcement activities.
  • Other audit goals. The OCR has intends to use the Phase 2 Audits to identify areas in which covered entities and business associates need the OCR to develop technical assistance. And, should an audit identify a serious compliance concern, the OCR may further review the organization, with the potential for civil monetary penalties.


As of April, 2012, the Centers for Medicare & Medicaid Services (CMS) reports it had distributed $4.5 billion to eligible healthcare providers and hospitals via the program designed to incent them to invest in electronic health record (EHR) technology and use it in a meaningful way.  Since 2012, CMS has been conducting post-payment audits of providers and hospitals which received EHR incentive program monies.

  • What the Meaningful Use audits entail: The audit reviews information, submitted by the incentive payment recipient, for compliance with Meaningful Use (MU) requirements for the reporting year and stage of implementation.  Initially conducted as a desk audit, if deemed necessary, it will become an on-site audit.  Important to remember is that every iteration of these requirements included the completion of a Security Risk Assessment, and the majority of entities audited during Phase 1 had not done so.
  • What are the consequences? If the audit finds that even a single requirement of the program has not been met, the recipient must return the entire incentive payment.
  • Additional consequences. If the audit determines the incentive recipients had reason to know they were not complying with the MU requirements, the payments made via the program could then be considered overpayments, which would trigger the Federal False Claims Act and possibly result in civil penalties.


  • Conduct your Security Risk Assessment as soon as possible. Both HIPAA Compliance and Meaningful Use attestation require a Security Risk Assessment, and many providers and hospitals have not yet conducted one (or have conducted only 1!).
  • Assume that you will be subject to either or both audits, and take no chances. Compliance is not optional.   The risks associated with non-compliance are too great.

Need to conduct your Security Risk Assessment?  Unsure of your compliance?
Contact an Anders advisor to discuss our Security Risk Assessment and other Compliance-related Services.

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October 6, 2015

A Postseason Run for an MLB Team Creates a Financial Discussion over Playoff Shares

With the Major League Baseball postseason upon us, an interesting financial discussion will take place in each playoff team’s clubhouse. Postseasons shares, bonus money for teams making the playoffs, date back to the very first World Series in 1903 when the amount awarded to each player on the winning team was $1,182. Today, the amount has risen considerably—last year’s 2014 World Series champs received a record $388,606 per player.

Each year the players’ pool of money is formed from 50 percent of the gate receipts from the Wild Card games, 60 percent from the first three games of the Division series, and 60 percent from the first four games of the League Championship Series and World Series. The pool only includes guaranteed games so players have no financial incentive to prolong a series. The money is then divided among the ten Postseason clubs with 36 percent going to the World Series winner, 24 percent to the World Series runner-up, 12 percent to each League Championship Series runner-up, 3.25 percent each to the four Division Series runner-ups, and 1.5 percent each to the two Wild Card Game runner-ups.

The 2014 playoff pool totaled $62,026,462. Of that, the champion San Francisco Giants received $22,329,526 from which they distributed 47 full shares, 9.65 partial shares, and 17 cash awards. Shares can be determined in any number of ways. The determination takes place at a players-only meeting held near the end of the season. Of course, the more shares a team distributes, the less each is worth, so there are always questions regarding how much to give a guy acquired mid-season in a trade, a September rookie call-up, or an injured player out for most of the year. Most teams prorate a percentage of the season a player was with the team, but others have their own customs. The St. Louis Cardinals, for instance, have given every player who appeared on a postseason roster a full share regardless of when they joined the team. This could mean the Cardinals will have a lot of shares to hand out this year due to the number of injuries they’ve had and the rookies that have been called up. Their shares could be more diluted than in years past because of this.

Dividing Postseason Shares

Players aren’t the only ones who can receive shares, however. Anyone in the organization is able to be voted upon. For instance, in 2007, the Colorado Rockies voted to give a share to Amanda Coolbaugh, the wife of Mike Coolbaugh who had been killed earlier that July when a line drive struck him in the head while he was coaching for the Rockies’ Double-A affiliate in Tulsa. The same year the Rockies granted a half-share to a clubhouse worker who was able to buy a house and car and go back to school. With so many supporting people in an organization today—trainers, therapists, video coordinators—shares are being handed out to more and more individuals. This means not only are the players watching the postseason races intently, everyone in the organization is too. If the batboy or bullpen catcher is voted on to receive a share for a team like the Astros or Angels in the Wild Card race, the difference between the team making the playoffs and going all the way to the World Series or missing out completely by a game could be the difference between changing a person’s life or not. Last year, just for making the World Series, each Kansas City Royals share received $230,700. It should be an interesting October for all!

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