Inherited IRAs

If you inherit an IRA from a spouse, you can treat that IRA as your own and all the regular rules concerning IRAs apply. If you are a non spouse beneficiary, then you are under a whole new set of rules. You can't make contributions to an inherited IRA, you can't roll over any of the inherited IRA to your own IRA, and one good thing; you don't have to pay the 10% early withdrawal penalty on distributions. There are required minimum distributions for inherited IRAs for non spouse beneficiaries. If the original owner of the IRA died before their required beginning date of distributions (generally age 701/2), then the distributions have to be taken out over the beneficiary's life expectancy. If the original owner died after the required beginning date, then distributions have to be taken out over the longer of the remaining life expectancy of the deceased per the tables in IRS publication 590 or the beneficiary's life expectancy.

Gift Tax Exclusion

There are really two exclusions: the lifetime exclusion of $5,340,000 and the annual exclusion of $14,000. For example, you can give any number of $14,000 gifts to different individuals in a year and you would not affect your lifetime exclusion nor would you need to file a gift tax return form 709. If you give over $14,000 you reduce your lifetime exclusion and need a gift tax return prepared. For example, if you give a car costing $30,000 to your daughter in 2014, your reportable taxable gift would be $16,000 because you reduce the gift by the annual exclusion and your lifetime exclusion would then be $16,000 less. You would not owe a gift tax until you exceeded the lifetime exclusion amount. Taxable gifts also reduce your estate tax exclusion of $5,340,000 which equals the lifetime gift tax exclusion.

Self Rental

If you have a business and also own your own office, then you pay rent to yourself. Generally you never want to put property that may appreciate in value in a corporation because you would pay double tax upon the sale of the property so that is why it is a good strategy to rent to yourself. What rent to charge though becomes the question. I think the best outcome is a break even because net rent income is considered non passive income but a net loss is passive. The IRS is playing heads I win, tails you lose. Passive losses are only deductible against passive income. Passive rental losses are suspended until you sell the property.

Late Payment Penalty

The IRS charges you a late payment penalty along with interest if you owe tax after April 15 on individual returns. You can extend the time to file your return but not the time to pay the tax due. The late payment penalty is .5% of the unpaid balance for each month or part of a month up to a maximum of 25%. If you agree to an installment arrangement with the IRS, then the penalty is half the usual rate.

Does your child have to file a tax return?

The requirements for filing include the following rules for dependents. Returns must be filed if your child has unearned income such as interest and dividends of over $1,000 or earned income such as wages greater than $6,100.  You may still want to file if you want to recover any tax withholding on wages less than $6,100.

Nonbusiness Bad Debt

"Neither a borrower nor a lender be, for loan oft loses both itself and friend." William Shakespeare
Well what can you do if you have ignored Shakespeare's good advice and lent money to a friend who won't or can't pay you back. The IRS lets you take a short term capital loss on your tax return if the loss meets certain qualifications.  It has to be a legal obligation meaning a written document signed by both parties, and the loan has to be totally worthless not just partially worthless. Loans to relatives face much greater scrutiny by the IRS and should in most cases just be considered gifts and not deductible bad debts. You have to attach a statement to your tax return indicating the following: description of the debt, amount, and date due, debtor's name and relationship, efforts made to collect debt, and why you think it is worthless. Vigorous documented efforts to collect the debt and a letter from the debtor explaining why he can't repay are good ways to support your deduction.

Kiddie Tax

It might not be a good idea to transfer investment assets to your children age 23 or younger that generates more than $2,000 in income. If you do, the investment income over $2,000 is subject to Federal tax at the parent's rate so as a family you're not saving any tax dollars. The rules apply to children age 19 to 23 only if they are full time college students.