Learning Center for Tax and Financial Insights

Article Highlights:How Naming Beneficiaries Impacts Traditional IRA DistributionsThe Impact of Naming Your Trust as a BeneficiaryIRA Beneficiary TaxationThe decision concerning whom you wish to designate as the beneficiary of your traditional IRA is critically important. This decision affects:Who will get what remains in the account after your death, andHow that IRA balance can be paid out to beneficiaries.What's more, a periodic review of your IRA beneficiaries is vital to ensure that your overall estate planning objectives will be achieved considering changes in the performance of your IRAs and in your personal, financial, and family situation. For example, if your spouse was named as your beneficiary when you first opened the account several years ago and you’ve subsequently divorced, your ex-spouse will remain the beneficiary of your IRA unless you notify your IRA custodian to change the beneficiary designation.The issue of naming a trust as the beneficiary of an IRA comes up regularly. There is no tax advantage to naming a trust as the IRA beneficiary. Of course, there may be a non-tax-related reason, such as controlling a beneficiary’s access to money; thus, naming a trust rather than an individual or individuals as the beneficiary of an IRA could achieve that goal.Generally, trusts are drafted so that IRA required minimum distributions (RMDs)will pass through the trust directly to the individual trust beneficiary and, therefore, be taxed at the beneficiary’s income tax rate. However, if the trust does not permit distribution to the beneficiary, then the RMDs will be taxed at the trust level, which has a tax rate of 37% on any taxable income in excess of $15,200 (2024 rate). This high tax rate applies at a much lower income level than for individuals.Distributions from traditional IRAs are always taxable whether they are paid to you or, upon your death, paid to your beneficiaries. Once you reach age73(years 2023 through 2032),you are required to begin taking distributions from your IRA. If your spouse is under the age of73upon inheritance of your IRA he or she can delay distributions until he or she reaches age73.The rules are tougher for non-spousal beneficiaries, who generally must begin taking distributions based upon a complicated set of rules. The following details the distribution options from an IRA inherited after 2019 by a non-spousal beneficiary, which includes several categories of beneficiaries.SURVIVING SPOUSE BENEFICIARY The options available to surviving spouse beneficiaries include:Treat it as their own IRA by designating themself as the account owner.Treat it as their own by rolling it over into their own IRA, or to the extent it is taxable, roll it into a:a. Qualified employer plan (Sec 401(k) plan),b. Qualified employee annuity plan (Sec 403(a) plan),c. Tax-sheltered annuity plan (Sec 403(b) plan),d. Deferred compensation plan of a state or local government (Sec 457 plan), orTreat themself as the beneficiary rather than treating the IRA as their own.Treating It As Their Own – The surviving spouse will be considered to have chosen to treat the IRA as their own if:Contributions (including rollovers) are made to the inherited IRA, orThe surviving spouse does not take the required minimum distribution for a year as a beneficiary of the IRA.The surviving spouse will only be considered to have chosen to treat the IRA as their own if:The surviving spouse is the sole beneficiary of the IRA, andThe surviving spouse has the unlimited right to withdraw amounts from it.However, if the surviving spouse receives a distribution from the deceased spouse's IRA, the surviving spouse can roll that distribution over into their own IRA within the usual 60-day time limit for rollovers, provided the distribution isn’t an RMD. This is true even if the surviving spouse is not the sole beneficiary of the deceased spouse's IRA.Surviving spouse is sole designated beneficiary – If the IRA owner died on or after the RMD required beginning date and the surviving spouse is the sole designated beneficiary, the life expectancy the spouse must use to figure the RMD may change in a future distribution year. This applies where the spouse is older than the deceased owner or the spouse treats the IRA as his or her own.Special Rules for Sole Surviving Spouse:

In the wake of a legal victory, understanding the tax implications of your settlement or judgment can be a maze of complexity. Whether you've just triumphed in court or are weighing your legal options, grasping the financial consequences is paramount. Below we will try to demystify the taxability of plaintiff awards, drawing insights from the authoritative guidance of the Internal Revenue Service (IRS).The General Rule: The Taxman Cometh...At the heart of any discussion on the tax ramifications of legal proceedings lies the Internal Revenue Code (IRC) Section 61. This foundational code stipulates a sweeping principle: all income, regardless of its source, falls under the umbrella of gross income unless explicitly exempted by another section of the code. In simple terms, the general rule dictates that any financial gains stemming from legal actions are taxable....But There's More to the StoryWhile the general rule paints a broad stroke of taxation, exceptions abound in the realm of lawsuit settlements and judgments. Unlocking these exceptions hinges on IRC Section 104, which carves out exclusions from taxable income for specific categories of lawsuit settlements and awards. The nature of the payment and the circumstances surrounding it play a pivotal role in determining its taxability.Physical Injury or SicknessAmong the notable exceptions are damages received due to personal physical injuries or sickness. According to IRC Section 104(a)(2), such damages—whether from a lawsuit, settlement, or periodic payments—are generally exempt from inclusion in gross income. This exclusion encompasses compensatory damages intended to cover losses and even punitive damages aimed at penalizing the offender.Emotional Distress and Other Non-Physical InjuriesThe tax treatment of damages stemming from emotional distress or non-physical injuries requires a more nuanced approach. Typically, these damages are included in gross income, unless directly linked to a physical injury or sickness. However, expenses for medical treatment related to emotional distress, not previously deducted, may qualify for exclusion.

March 11- Report Tips to EmployerIf you are an employee who works for tips and received more than $20 in tips during February, you are required to report them to your employer on IRS Form 4070 no later than March 11. Your employer is required to withhold FICA taxes and income tax withholding for these tips from your regular wages. If your regular wages are insufficient to cover the FICA and tax withholding, the employer will report the amount of the uncollected withholding in box 8 of your W-2 for the year. You will be required to pay the uncollected withholding when your return for the year is filed.March 15 - Time to Call For Your Tax AppointmentIt is only one month until the April due date for your individual income tax returns. If you have not made an appointment to have your taxes prepared, we encourage you to do so before it becomes too late.Do not be concerned about having all your information available before making the appointment. If you do not have all your information, we will simply make a list of the missing items. When you receive those items, just forward them to us.Even if you think you might need to go on extension, it is best to prepare a preliminary return and estimate the result so you can pay the tax and minimize interest and penalties. We can then file the extension for you.We look forward to hearing from you.

March 1 - Farmers and Fishermen File your 2023 income tax return (Form 1040 or 1040-SR) and pay any tax due. However, you have until April 15 (April 17 if you live in Maine or Massachusetts) to file if you paid your 2023 estimated tax by January 16, 2024.March 1 - Applicable Large Employers (ALE) – Forms 1095-B and 1095-CIf you’re an Applicable Large Employer, provide Forms 1095-C, Employer-Provided Health Insurance Offer and Coverage to full-time employees. For all other providers of minimum essential coverage, provide Form 1095-B, Health Coverage to responsible individuals. See the Instructions for Forms 1094-B and 1095-B and the Instructions for Forms 1094-C and 1095-C for more information about the information reporting requirements.March 15 - PartnershipsFile a 2023 calendar year return (Form 1065). Provide each partner with a copy of their Schedule K-1 (Form 1065), Partner’s Share of Income, Deductions, Credits, etc., or a substitute Schedule K-1 and, if applicable, Schedule K-3 (Form 1065) or substitute Schedule K-3 (Form 1065). If you want an automatic 6-month extension of time to file the return, file Form 7004. Then file Form 1065 and provide Schedules K-1 or substitute Schedules K-1, and if applicable Schedules K-3, to the partners by September 16.March 15 - S-CorporationsFile a 2023 calendar year income tax return (Form 1120-S) and pay any tax due. Provide each shareholder with a copy of Schedule K-1 (Form 1120-S), Shareholder’s Share of Income, Deductions, Credits, etc., or a substitute Schedule K-1 (Form 1120-S) and, if applicable, Schedule K-3 (Form 1120-S) or substitute ScheduleK-3 (Form 1120-S).To request an automatic 6-month extension of time to file the return, file Form 7004 and pay the tax estimated to be owed. Then file the return; pay any tax, interest, and penalties due; and provide each shareholder with a copy of their Schedule K-1 (Form 1120-S) and, if applicable, Schedule K-3 (Form 1120-S) by September 16.

In the digital age, online security is among the most critical factors for any business. As more and more people are living their lives online, security has become a priority for those giving up sensitive information – including financial data – via the World Wide Web. Cyber threats are evolving with alarming sophistication, making it crucial for businesses to bolster their defenses against potential cyber-attacks. This comprehensive guide delves into the multifaceted approach required to safeguard your business and reassure your clients, emphasizing the importance of cyber security, phishing awareness, and network security.The Bedrock of Business Security: Understanding Cyber ThreatsThe foundation of any business cyber security strategy is understanding – the more you educate yourself about modern cyber threats, the easier it will be for you to safeguard your business against them. Cyber-attacks can range from data breaches and ransomware to sophisticated phishing schemes to deceive employees into divulging sensitive information. Recognizing these threats is the first step toward developing effective defenses. It's not just about installing antivirus software. It's about creating a culture of security awareness throughout the organization.Phishing: The Deceptive Lure in Cyber WatersPhishing attacks, in particular, have become a common and effective tactic cybercriminals use. These attacks often involve sending fraudulent emails or messages that mimic legitimate sources to trick individuals into providing confidential data. Educating your team on how to recognize and respond to phishing attempts is crucial. Regular training sessions and simulated phishing exercises can significantly enhance your organization's resilience against these deceptive attacks.The High Stakes of CEO Impersonation FraudCEO fraud, also known as executive impersonation, represents a particularly insidious form of cybercrime that preys on the hierarchical structures within businesses. A recent case of CEO fraud used deepfake AI and falsified, artificial intelligence-generated audio to con a U.K.-based energy company out of USD$243,000.In sophisticated scams like this, the criminal crafts an email, mirroring the tone, style, and signature of a high-ranking executive such as the CEO, COO, CFO, or Head of HR. The fraudulent communication is directed towards employees lower down the chain of command, often with urgent requests for wire transfers or sensitive information. As noted, criminals who run these scams can create even more convincing output thanks to the rise of AI technology.This sort of scheme hinges on the inherent trust employees place in their leaders and the natural inclination to respond promptly to executive directives. The consequences of falling victim to CEO fraud can be devastating, ranging from significant financial losses to severe reputational damage. It underscores the critical need for a multi-layered approach to cyber security that includes technical safeguards, such as email authentication protocols and transaction verification processes, as well as a strong organizational culture of security. Training employees to question and verify unusual requests, even when they appear to come from the top, is essential. Establishing clear protocols for financial transactions and sensitive communications can also provide a sturdy barrier against these deceptive tactics. In the battle against CEO fraud, vigilance, skepticism, and a robust verification process are your most powerful weapons.The Importance of Securing Bank Accounts and Accounting SystemsBusiness operations can be complex, especially in highly regulated industries like energy and finance. Bank accounts and accounting systems are the foundation of most companies, pumping vital resources through the organization. However, just as a heart is vulnerable to ailments, these financial conduits are prime targets for cybercriminals. Securing these accounts and programs is critical, not only for the preservation of financial health but also for maintaining the trust of clients, investors, and stakeholders. A breach in these systems can lead to direct financial loss and compromise sensitive financial data, leading to long-term reputational damage. Securing these financial assets requires a multifaceted approach. First, robust authentication mechanisms, such as two-factor or multi-factor authentication, should be non-negotiable. These add an extra layer of security, making it significantly harder for unauthorized users to gain access. Additionally, regular monitoring and auditing of financial transactions can help in the early detection of any irregularities or suspicious activities.

Article Highlights:New U.S. Department of Labor RulePrior Rule RescindedEffect on ABC Test Used by Some StatesNew Six Factor Testo Opportunity for Profit or Loss Depending on Managerial Skillo Investments by the Worker and the Potential Employero Degree of Permanence of the Work Relationshipo Nature and Degree of Controlo Extent Work Performed Is an Integral Part of the Potential Employer's Businesso Skill and InitiativeThe U.S. Department of Labor (DOL) announced on Jan. 9, 2024, the issuance of its final rule regarding whether a worker is an employee or an independent contractor under the federal Fair Labor Standards Act (FLSA). The new rule, which becomes effective March 11, 2024, rescinds the 2021 independent contractor rule issued under former President Donald Trump and replaces it with a six-factor test as outlined below. Additional factors may be relevant if they bear on whether the worker is economically dependent on the potential employer for work.IMPORTANT: The rule does not adopt an "ABC" test and does not impact independent contractor classification under state laws utilizing the "ABC" test, such as California, Massachusetts, New Jersey, and others. The rule only revises the DOL's guidance on how to analyze who is an employee or independent contractor under the FLSA. The DOL believes this new rule will provide greater clarity and consistency for businesses. However, it could potentially lead to an influx of litigation against certain businesses, particularly in the transportation and logistics industries, by attorneys seeking to have independent contractors reclassified as employees and awarded damages for overtime and deductions from pay, even if those workers prefer to be independent contractors.The following is an overview of relevant factors associated with each of the new six-factor tests: 1. Opportunity for Profit or Loss Depending on Managerial Skill:Whether the worker determines or can meaningfully negotiate the charge or pay for the work provided,Whether the worker accepts or declines jobs or chooses the order and/or time in which the jobs are performed,Whether the worker engages in marketing, advertising, or other efforts to expand their business or secure more work,Whether the worker makes decisions to hire others, purchase materials and equipment, and/or rent space,If a worker has no opportunity for a profit or loss, then this factor suggests that the worker is an employee. 2. Investment by the Worker and the Employer -This factor considers whether any investments by a worker are capital or entrepreneurial in nature. Costs to a worker of tools and equipment to perform a specific job, costs of workers’ labor, and costs that the potential employer imposes unilaterally on the worker are not evidence of capital or entrepreneurial investment and indicate employee status. Investments that are capital or entrepreneurial in nature and thus indicate independent contractor status generally support an independent business and serve a business-like function, such as increasing the worker's ability to do different types of or more work, reducing costs, or extending market reach. Additionally, the worker's investments should be considered on a relative basis with the potential employer's investments in its overall business. The worker’s investments do not have to be equal to the potential employer’s investments and should not be compared only in terms of the dollar values of investments or the sizes of the worker and the potential employer. Instead, the focus should be on comparing the investments to determine whether the worker is making similar types of investments as the potential employer (even if on a smaller scale) to suggest that the worker is operating independently, which would indicate independent contractor status.