It is one thing to be taxed on retirement contributions and their related earnings when you withdraw funds from your Traditional IRA, it is quite another when you pay the tax plus a 10% penalty for early withdrawal. Need funds prior to retirement and want to avoid the early withdrawal penalty? There are cases when this can be done:​

1. ​Medical insurance premiums if unemployed. If you receive federal or state unemployment for 12 or more consecutive weeks, you may pay for medical insurance premiums from your Traditional IRA without paying the 10% early withdrawal penalty. The premiums may cover yourself, your spouse, and your dependents’ medical insurance premium.
2. Qualified higher education expenses. You may pay for tuition, books, fees, supplies, and equipment at a qualified post-secondary institution for yourself, your spouse, your child or grandchild from your Traditional IRA without paying the 10% penalty.
3. Medical expenses. If you need to withdraw from your IRA to fund medical expenses in excess of 10% of your adjusted gross income you may do so penalty-free.
4. First-time home buyer. IRA distributions of up to $10,000 to help pay for the qualified acquisition costs of a first-time home avoid the early withdrawal penalty too. This is a lifetime limit per individual. A first–time home buyer is defined by the IRS as not having an ownership interest in a principal residence for two years prior to your new home acquisition date. To qualify the home can be for you, your spouse, your child, your grandchild, your parent or even other ancestors.
5. Conversions of Traditional IRAs to Roth IRAs. Want to convert your Traditional IRA into a Roth IRA to avoid paying taxes on future account earnings? No problem, this too is considered a qualified event to avoid the 10% penalty.
6. You're the beneficiary. If you are the beneficiary of someone else’s IRA and they die, there is usually an opportunity to withdraw funds without the penalty. Plenty of caution is required in this case, because if treated incorrectly the penalty might apply.
7. Qualified reservist. If you were called to active duty after 9/11/2001 for more than 179 days, amounts withdrawn from your IRA during your active duty can also avoid the 10% penalty.
8. Annuity distributions. There is also a way to avoid the 10% early withdrawal penalty if the distributions “are part of a series of substantially equal payments over your life expectancy." This option is complicated and must use an IRS-approved distribution method to qualify.

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​Other Things to Consider​

• Remember, the above ideas help you avoid an early withdrawal penalty for funds taken out of your Traditional IRA prior to reaching the age of 59 ½. After this age, there is no early-withdrawal penalty. The penalty is also waived if you become permanently or totally disabled or use the funds to pay an IRS tax levy.
• While the above events allow you to avoid the 10% early withdrawal penalty you will still need to pay the income tax due on the withdrawn funds.
• While generally the same, the 10% early withdrawal penalty rules are slightly different for defined contribution plans like 401(k)s and other types of IRAs.
• Before taking any action, call to have your situation reviewed. It is almost always better to keep funding your traditional IRA until you retire.

Why It Matters

If you have a casualty loss, you must first file a timely claim with your insurance company, if you are covered. Being able to prove claim submission and rejection of claims can help support your casualty loss deduction.

After subtracting any insurance payout, the amount of unreimbursed losses greater than 10 percent of your adjusted gross income, minus $100, is generally deductible from your tax return.

Jennifer Peck’s $500,000 home was destroyed by fire. The insurance company agrees on a $475,000 settlement, leaving Jennifer with a $25,000 casualty loss. Jennifer is able to deduct the amount of the loss, minus $100. That is greater than 10% of her adjusted gross income of $50,000. This gives her a potential deduction of $19,900.

There are often special conditions that apply. If you think you have a casualty loss that qualifies, we would be glad to talk it over with you.

If you have not already done so, now is the time to review your tax situation and make an estimated quarterly tax payment using Form 1040-ES. The second quarter due date is in just a few days.

​Normal Due Date: Thursday, June 15, 2017

Remember, you are required to withhold at least 90% of your current tax obligation or 100% of last year’s federal tax obligation.* A quick look at last year’s tax return and a projection of this year’s obligation can help determine if a payment might be necessary. Here are some other things to consider:
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• Underpayment penalty. If you do not have proper tax withholdings during the year, you could be subject to an underpayment penalty. The penalty can occur if you do not have proper withholdings throughout the year. So a quick payment at the end of the year may not help avoid the underpayment penalty.
• Who is impacted. If you paid additional tax last year with your tax return filing, have a business that flows profits to your personal tax return, or have a change in your filing status pay attention to this reminder. You may be a candidate for potential estimated tax payments.
• W-2 withholdings have special treatment. A W-2 withholding payment can be made at any time during the year and be treated as if it was made throughout the year. If you do not have enough to pay the estimated quarterly payment now, you may be able to adjust your W-2 withholdings to make up the difference.
• Self-employed. Remember to account for the need to pay your Social Security and Medicare taxes as well. Creating and funding a savings account for this purpose can help avoid the cash flow hit each quarter to pay your estimated taxes.
• Don't forget state obligations. With the exception of a few states, you are often required to make estimated state tax payments when required to do so for your federal tax obligations. Consider conducting a review of your state obligations to ensure you meet these quarterly estimated tax payments.
• *If your income is over $150,000 ($75,000 if married filing separate), you must pay 110% of last year’s tax obligation to be safe from an underpayment penalty.

With U.S. equity valuations near historically high levels, now may be an opportune time to take advantage of the tax benefits of donating long-term appreciated stock to a qualified charity. Directly donating a winning stock you've held for at least one year provides greater tax benefits than writing a check to your favorite cause.

Higher deduction. Your charitable gift deduction will be equal to the market value of the stock on the date of your donation, rather than what you originally paid for it.

No capital gains tax. You avoid paying capital gains tax on the unrealized gains of the stock, because it is transferred directly to the charity rather than sold. That also means the charity gets a bigger gift.

Example: John Diaz bought 50 Wonka Industries shares two years ago at $100.00 a share, and its shares have appreciated since then to $150.00 a share, giving him a long-term capital gain of $2,500 if he were to sell today. Instead, John avoids the capital gains tax by donating the shares to the Red Cross, and he deducts the full market value of $7,500 as an itemized deduction on his tax return.

Some tips to keep in mind:

• To maximize your charitable donations, donate only long-term appreciated stock (stock you've held for one year or longer). That way you can deduct the full market value of the stock, rather than its cost basis (what you originally paid for it).
• If it's a losing stock, it's usually better to sell it first instead of donating directly. That's because selling a losing stock will allow you to take a capital loss deduction on your return. Certain limits apply.

Recently the IRS certified 84 organizations as Certified Professional Employer Organizations (CPEO). This is the first group that was approved as part of the CPEO program. But what is a CPEO, and why does it matter?

Certified Professional Employer Organizations typically handle many payroll administration and tax reporting tasks for their business clients. Essentially, they hire the employees of their clients so that they can handle the taxes and payroll for those employees. This is called “co-employment”.

In some cases, there have been abuses by PEOs. Usually this takes the form of the PEO withholding from an employee’s paycheck, but keeping that money for themselves. The IRS created the CPEO program in response to these abuses. In 2014, the IRS started a voluntary certification program for PEOs. After the IRS receives the required surety bond from an approved CPEO applicant, the IRS will publish that CPEO’s name, address, and effective date of certification on their website.

Certification affects the employment tax liabilities of both the CPEO and its clients.  A CPEO is normally treated as the employer of any individual performing services for a client of the CPEO and covered by a CPEO contract between the CPEO with the client, but only for wages and other compensation paid to the individual by the CPEO.

To become and remain certified under the new program, CPEOs must meet tax compliance, background, experience, business location, financial reporting, bonding, and other requirements.

In 2012 my Social Security was launched to allow online access to your Social Security account. To date, over 30 million Americans have created an account. Effective June 10 there will be a second way to authenticate your identity and gain access to your online information using your e-mail account.

Background
Given the increased risk of identity theft, the Social Security Administration (SSA) recently required you provide a cell phone number in addition to your username and password to access your account. After tremendous backlash from users, the SSA rolled back this additional authentication procedure.

Current Situation
To solve this problem the new SSA login protocol adds authentication through either a one-time-use code sent to your cell phone or a one-time-use code sent to your requested e-mail.

To access my Social Security after June 10 you will first enter your username and password. You will then be required to enter your security code sent to you via cell phone or your email address.

Which method to use?
If you think the SSA is vulnerable to hack, you may wish to choose the email option since they already have your email in their system. Adding your cell phone number to your account provides yet another piece of personal information that could be stolen. Just be sure your email does not place the one-time security code in junk or spam folders.

The SSA is launching a campaign to announce this change along with recent updates to their website. Look for this correspondence, but do not lower your attention to the possibility of fraud.  Would-be crooks could use this announcement as an opportunity to send out fake messages.