February 23, 2016

Roth IRA Contribution Eligibility and Tax Benefits

Most individuals are familiar with the benefits and contribution eligibility of a traditional IRA, and many are familiar with Roth IRAs, but to a lesser extent.  The two are similar in terms of being retirement plans, but they are vastly different in terms of taxes.

While contributions to a traditional IRA are generally tax-deductible, the distributions received from a traditional IRA are generally taxable.  Alternatively, contributions to a Roth IRA are generally NOT tax-deductible, and the distributions from a Roth IRA are NOT taxable.  However, in both cases, the assets in either IRA grow tax-free.

Due to the tax-free growth and tax-free distributions, the Roth IRA has become a very attractive investment vehicle.  However, the IRS has implemented stipulations that “prevent” high-income earners from making Roth IRA contributions.  For single taxpayers, Roth IRA contributions are phased out when Modified Adjusted Gross Income (Modified AGI) is equal to or greater than $131,000.  For taxpayers married filing joint, Roth IRA contributions are phased out when Modified AGI is equal to or greater than $193,000.

On the surface, it appears high-income earners lose the ability to contribute to the Roth IRA.  However, you will learn that is not the case.  A loophole in the Internal Revenue Code allows high-income earners to make non-deductible contributions to a traditional IRA immediately followed by a Roth IRA conversion (commonly referred to as a Backdoor Roth conversion).

Generally speaking, converting funds from a traditional IRA to a Roth IRA creates a taxable event for the taxpayer.  If traditional IRA funds were previously deducted from income, a taxpayer would pay tax on the entire amount converted at their ordinary income tax rate in the year of conversion.  From there, Roth IRA rules would apply in terms of tax-free growth and tax-free distributions.

Since some high-income taxpayers are not eligible to take an IRA deduction due to income levels and/or their employer-sponsored retirement plan, this Backdoor Roth conversion can be a valuable tool.  As long as you have no other IRA accounts, treating an IRA contribution as non-deductible can prevent the conversion from being a taxable event – since the contributions were never deducted.  That same day, the non-deductible IRA contribution can be converted to a Roth IRA, allowing high-income earners the ability to use the Roth IRA as a retirement vehicle.

While the above generally reflects appropriate advice, it is important to discuss the ability to utilize Backdoor Roth conversions with an Anders tax advisor.

All Insights

February 18, 2016

When to Review Your UNICAP Calculations

Everyone is working on their year-end accounting.  As accounts are being reconciled and inventory is taken, have you reviewed your calculations for UNICAP?  We previously provided detail on the UNICAP calculations.  In summary, there are certain costs normally expensed that must be capitalized as part of inventory.  Each year, indirect costs including mixed service costs should be analyzed to determine the proper amount to allocate to inventory.  Using the same allocation percentages year after year may not be correct.  New employees may have been added to the accounting department, a new lease agreement, or new technology costs could all change those allocation percentages.

Maybe your company has never been subject to the UNICAP rules.  Are you sure you still fall under the exceptions?  As long as a taxpayer is allowed to use the cash method of accounting, they are not required to apply these capitalization rules.  The other exception is for resellers whose average gross receipts for the three previous years do not exceed $10 million.  As your business continues to grow, don’t forget to review each year and make sure you continue to be exempt from this rule.

So as you wrap up your year-end accounting, don’t forget to consider your UNICAP calculations. Contact an Anders tax advisor to discuss.

All Insights

February 11, 2016

Why Participate in a Summer Leadership Program?

Summer is a time to relax by the pool and unwind after a hard semester, right? Well you may want to rethink checking out this upcoming summer. As the end of the semester approaches, now is prime time to land yourself an internship by applying for a summer leadership program!

What are summer leadership programs and why are they crucial to advancing your career?

Summer leadership programs vary by firm, but most involve spending a few days at the firm following your junior year. There are many reasons these programs are beneficial, but most importantly:

  • See the office. Meet the people. Before committing to an internship or full-time position, why not meet the people who work there? Can you see yourself coming to work here every day? Do you see yourself eating lunch and becoming friends with these employees? We spend a lot of time at work. It’s nice to enjoy the people and environment while you’re there.
  • Make an informed decision. These programs are designed to help you make a more informed decision about your career. They give participants an up-close view of the accounting industry and the differences between tax vs. audit. Deciding between tax and audit can be a hard decision to make, especially when students haven’t taken classes in either area.
  • Meet other students. These students will be from different universities and backgrounds. Learn from them and where they see their career going. These relationships could lead to long-lasting connections as you begin your career.
  • Compare firms. Participate in a few different programs. Try a large firm, small firm, local firm, or national firm. All of these firms have differences that make them unique. Find where you fit!

And the one you’ve all been waiting for…

  • A job offer may be in your future. For many firms, interviews are part of the process, either during or following the program. These interviews lead to internships and internships lead to full-time offers. And landing that job after graduation is really the goal, isn’t it?

Sound like something you should participate in?

Look into these programs now, don’t wait! Interviews take place throughout the year. Companies even start looking for candidates during fall recruiting. It may seem early, but it is happening! Don’t wait to begin thinking about your summer plans. The spots will be full and you will have missed out on a fantastic opportunity.

Click here for info about Anders’ summer leadership program, Discover Anders.

All Insights

February 9, 2016

Repayment Terms for First-Time Homebuyer Tax Credits

Did you take advantage of the First-Time Homebuyer Tax Credit in 2008, 2009 or 2010?  It’s important to understand your repayment terms and conditions, depending on when you bought your home. Many first-time homebuyers, myself included, took advantage of this credit.  The idea that I was going to get $8,000 cash back for purchasing my first home fresh out of college was music to my ears.  But, are you aware that there are different rules for each of the tax credits?

First Time Homebuyer

If you were a first-time homebuyer and purchased your home between April 8, 2008 and December 31, 2008, then you could have claimed a tax credit up to $7,500 on your 2008 individual income tax return.  This 2008 legislation was a first in a series of legislation designed to stimulate the housing market, but inevitably there was a catch.  The $7,500 credit was not a gift from the government, but more of an interest-free loan that required the homebuyer to pay back the credit in $500 installments over the next 15 years. If you were someone who claimed this credit on your 2008 tax return, beginning with your 2010 return, you should be filing Form 5405 with your individual income tax return and adding $500 of the credit to your tax liability ($7,500/15 years).

Now as long as the home purchased remains your principal residence until 2024, you simply have to fill-out Form 5405 and add $500 to your tax liability over the next 15 years.  However, most first-time homebuyers are unlikely to stay in their first home for 15 years.  Therefore, if you have sold or plan to sell your home between 2008 and 2024 be prepared to pay back the remaining balance of the credit on your income tax return for the year of sale.  For example, if you purchased your home in 2008 and claimed the $7,500 credit and you sold your home in 2015, you will be liable to pay back the remaining balance owed of $5,000 on your 2015 income tax return ($7,500 less $2,500 from five – $500 installment payments made for years 2010-2014).  If there is no gain or even a loss on the sale, then the remaining installments may be reduced or eliminated.  This acceleration of recapture payment also applies if you decide to purchase another home and rent out the property in which the tax credit was claimed.

Credit Payback Requirement

There are a few exceptions in which one may not be liable to pay back the full credit.  If you sell your home and the gain on your home is less than the remaining amount owed back on the tax credit, the maximum credit you would have to repay is the amount of the gain.  If you file for divorce and you deed your home to your spouse in a divorce settlement, then your former spouse will become responsible for making the remaining recapture payments.  If you lose your home in a foreclosure, then you are responsible to pay back the credit only up to the amount of any gain. Finally, if you pass away, then you will also be off the hook for the remaining payments.

Well what if you were a first-time homebuyer in 2009 or 2010?  Then, luckily for you, this is not an instance to which the early bird gets the worm.  If you were a first-time homebuyer in 2009 or signed a binding contract by April 30, 2010 and you closed on your home on or before September 30, 2010, you could have claimed a tax credit up to $8,000, and with some exceptions, DID NOT have to repay. Unlike the 2008 legislation, a first-time homebuyer would only be required to remain in the residence for 36 months.  In addition, long-time residents who purchased a home between these dates were eligible to claim a tax credit up to $6,500 that also didn’t require a payback, with some exceptions.  The term “long-time resident” is described as someone who lived in their current home for a five-consecutive-year period of the eight year period ending on the closing date of their new principal residence.

Finally, there was a first-time homebuyer tax credit offered in 2011 for members of the Armed Forces and certain employees serving outside the U.S.  The 2011 legislation allowed these individuals to have an extra year to buy a principal residence and still qualify for the tax credit offered in 2009 and 2010.  An eligible taxpayer must have bought or was in a binding contract to buy a principal residence by April 30, 2011 and close on the purchase by June 30, 2011.

If you have additional questions regarding your first-time homebuyer tax credit or other housing tax credits, contact an Anders advisor today.

All Insights

February 5, 2016

Anders Named a 2016 Best Place to Work

Anders is proud to be named on the St. Louis Business Journal’s Best Places to Work for 2016. Nearly 150 St. Louis employers participated in the survey measuring many workplace environment factors including communication, management structure, benefits, and teamwork. The March 4 issue will have the final list of winners in each category.


Click here to see the entire list of winners.

All Insights

Keep up with Anders

Want to keep up with all the latest insights from Anders? Subscribe and receive the information that matters to you.

  • This field is for validation purposes and should be left unchanged.