September 2013 NewsLetter Part 1

Fkatz

Veteran Expediter
Charter Member
Hi all, here is the New letter for September, Even if they do not pertain to you check them out anyway. Who Gets Your IRA
The designated beneficiary listed on yourIRA account beneficiary form determines who gets your IRA. This is true even ifyour will or trust names different beneficiaries. You may have filled out thatbeneficiary form long ago and no longer remember who you designated as yourbeneficiary. Perhaps your family circumstances or marital status have changed.Whenever your family circumstances change, you need to review your beneficiarydesignations. You may have named an ex-spouse as your beneficiary and now maynot want him or her to receive your IRA.

If you are recently remarried and want your IRA account to go to your children,your new spouse may have to sign a waiver of rights to your retirementbenefits. Otherwise, the IRA might go automatically to your new spouse. This isalso generally true for employer plan benefits.

If you have a trust and want the IRA proceeds to go to the trust, then you needto name the trust as the beneficiary. There is no tax advantage to naming atrust as the beneficiary of an IRA. Of course, there may be a non-tax-relatedreason, such as controlling a beneficiary’s access to the money; thus, naming atrust rather than one or more individuals to inherit the IRA could achieve thatgoal. However, that is not typically the case. Naming a trust as thebeneficiary of an IRA eliminates the ability for multiple beneficiaries tomaximize the opportunity to stretch the required minimum distributions (RMDs)over their individual life expectancies.

Worse yet is if your IRA does not have a designated beneficiary. When there isno beneficiary form on file, you are really rolling the dice. Your retirementassets will go to whomever the IRA trustee has named for you in the defaultlanguage in the documents for the account.

When you fill out the beneficiary designation form, you have the opportunity toalso designate one or more contingent beneficiaries who will inherit the IRA ifthe primary beneficiary has passed away before you do. For example, you couldname your spouse as the primary beneficiary and your child and brother as nextin line if your spouse pre-deceases you. This is a safety net of sorts in caseyou don’t get around to changing the primary beneficiary after that personpasses away.

Don’t take chances; make sure your IRA beneficiary designations are up to dateand correctly specify who you want to get your IRA in the event of your death.Call this office if you have any
Who Claims The Child?
Claiming a child can provide significant tax benefits. When couplesdivorce or separate, or even if the parents were never married, the questionarises: who gets to claim the kids?

This sometimes presents a nightmare for tax preparers. This is because oftenboth parents will claim the same child, and in this modern era of e-filing, thefirst one to file and claim the child will be accepted for e-file and thesecond to file will be rejected regardless of who is rightfully entitled toclaim the child. If the second parent to file is legally eligible to claim thechild, then that parent must file a paper return and provide proof ofeligibility to claim the child’s exemption. This sometimes requires anelaborate array of documentation and can be quite a pain.

Another leading cause of problems are family court judges who will award thechild’s tax exemption to the parent who is not qualified to claim the childunder federal tax law. Rulings by family court judges cannot trump federal taxlaws.

So, who legally, according to federal tax law, is entitled to claim the child?Well, the Internal Revenue Code says the parent with whom the child resided forthe longer period of time during the tax year gets to claim the child’sexemption. This seems simple enough, but some parents have joint custody andthey begin counting time by the hour and minute. However, when it comes todetermining with whom the child resided the longest, the
IRS looks at the numberof nights the child sleeps in each parent’s home. If that turns out to be anequal number of nights, the tax rules include a tiebreaker that gives thechild’s exemption to the parent with the higher adjusted gross income (AGI). However, a child istreated as the qualifying child of the non-custodial parent if the custodialparent releases a claim to the exemption to the non-custodial parent. Thecustodial parent can do this on an annual basis or for multiple years.

However, the custodial parent should be cautious about releasing the exemptionfor multiple years. The release can be revoked but the revocation does notbecome effective until the tax year following the year the
questions.
non-custodialparent was provided a copy of the revocation. The IRS providesForm 8332,Release/Revocation of Release of Claim to Exemption for Child by CustodialParent, for this purpose.

A number of tax benefits are at stake by claiming the child, including:


The child’s exemption that produces a $3,900 tax deductionin 2013.

A potential $1,000 child credit for children under the ageof 17.

For children attending college, the education credit (up toas much as $2,500) goes to the parent who claims the child’s exemptionregardless of who pays the tuition.

For children under age 13 the parent that claims the child’sexemption is the one that gets to claim a tax credit for childcare expenseswhile working.

Claiming a child under the age of 19 can substantiallyincrease the earned income tax credit if the taxpayer otherwise qualifies.

Claiming a child can also help a single individual qualifyfor the more beneficial head of household filing status.

Caution:
Some of the benefits phase out for higher income taxpayers.Where possible, parents should seek professional assistance to determine what


 
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