Author Archives: Anatoli Pilchtchikov

About Anatoli Pilchtchikov

Anatoli Pilchtchikov is a senior manager in Aronson’s Personal Financial Services Group, where he specializes in tax compliance and consulting for high net worth individuals and their families, corporate executives and business owners. Working closely with clients and their investment and legal advisors, Anatoli plans and implements strategies designed to effectively achieve financial and estate planning objectives. As a trusted member of a client’s advisory team, he helps integrate financial plans with sound tax guidance in the areas of retirement and estate planning, risk management and investment planning.

Anatoli Pilchtchikov

FAFSA Data Breach Impacts Nearly 100,000 Taxpayers

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Another government agency falls short in protecting personal data. A recent data breach to the Department of Education website’s Free Application for Federal Student Aid (FAFSA), has compromised the personal information of approximately 100,000 taxpayers. Parents and students had an option to use the IRS Data Retrieval Tool (DRT), which provided access to their income information from prior year tax returns and automatically filled in the applicable information on the FAFSA application.

Identity thieves used the personal information of individuals that they had obtained from outside the tax system to begin the FAFSA application process. The thieves further used the DRT to access adjusted gross income and other personal information to file fraudulent tax returns with the IRS. Currently, it’s estimated that up to 8,000 fraudulent returns were filed, processed, and completed. Furthermore, approximately $30 million in refunds were issued before the IRS shut down the tool in March.

The online FAFSA application remains available and operational; however, the DRT functionality will remain suspended for the 2016-17 and 2017-18 FAFSA application forms. The DRT should be available for the 2018-19 FAFSA application when the form launches on October 1, 2017. Taxpayers that have not completed the process of finalizing their FAFSA applications (2016-17 and 2017-18) must manually enter their 2015 tax information by obtaining copies of their 2015 tax returns or requesting IRS tax transcripts.

The IRS is currently working to identify the exact number of taxpayers affected by the FAFSA breach. As the IRS identifies those taxpayers with compromised personal information, it is flagging and locking down their accounts to provide an additional layer of protection against any fraudulent activity. Additionally, the IRS plans to notify any affected taxpayers by mail about possible identity theft concerns.

For more information or questions, please contact Anatoli Pilchtchikov at 301.231.6200.

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Recently Released: Trump’s Tax Reform Proposal

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Without providing any substantial detail or legislative text, earlier this week the White House presented a one-page document titled “2017 Tax Reform for Economic Growth and American Jobs”.

Here are some items that may affect individual taxpayers.

Tax Brackets

Three brackets may replace the existing seven-bracket structure. The new brackets would be set at 10%, 25%, and 35%.

Standard Deduction

The existing standard deduction could be doubled. Under the existing structure, individuals can deduct $6,350 and married couples can deduct $12,700.

Itemized Deductions

The plan would limit itemized deductions to mortgage interest and charitable contributions. A very popular deduction for State and Local Income Taxes would no longer be available (taxpayers residing in high-tax jurisdictions will feel the most impact).

Tax Relief for Families with Child and Dependent Care Expenses

No detail was provided as to how or if the existing dependent care tax credit and child tax credit will be modified.

Proposed Repeals

  • Repeal of the Alternative Minimum Tax
  • Repeal of the Estate/”Death” Tax
  • Repeal of Obamacare Tax (3.8% on Investment Income)

Although Treasury Secretary Steven Mnuchin said in his address Wednesday that the administration would like to move as fast as they can to pass the plan by year-end, the lack of transparency will lead to major congressional headwinds in the coming weeks and months.

For more information or questions, please contact Anatoli Pilchtchikov at 301.231.6200.

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Republican Tax Reform Proposals

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With President Trump recently taking over the Oval office, it will be interesting to see how quickly his administration can advance proposed tax legislation through Congress; considering it was a top priority during his campaign.

Over the coming weeks, the Trump administration should submit their fiscal year 2018 budget to Congress, which ought to provide further details on his proposals.

To understand the implications of the current tax reform proposals from both President Trump and House Republicans, below is a summary of the key provisions impacting individual taxpayers.

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For more information, please contact Anatoli Pilchtchikov at Apilchtchikov@aronsonllc.com.

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Gifting Strategies to Keep in Mind at Year-End

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The year is coming to a close, and now is the time to take advantage of some tax saving opportunities including giving to family members or donating to charity.

Gifts under annual exclusion – under current law, single taxpayers can give up to $14,000 to any donee without being subject to gift taxes, a married couple can give up to $28,000. This annual exclusion applies to individual donees, so you can make a tax-free gift of $14,000 to any number of individuals without being subject to gift taxes.

Educational and Medical Payments – making payments directly to an educational institution for a person’s tuition (ex. children or grandchildren) do not count against the annual gift tax exclusion. Be cautious to not gift the student or individual the money for their tuition or else gift tax laws will apply. This same principle applies to medical expenses; you may pay an unlimited amount of medical expenses for any donee as long as the payments are made directly to the medical institution or doctor.

529 Plan Contributions – consider contributing to a 529 plan if you would like to help your children or grandchildren with education costs. Section 529 plans offer a special gifting feature that allows you to make a lump-sum contribution of up to five times the annual gift tax exclusion, which is $70,000 for an individual and $140,000 for a married couple. An election to spread the gift evenly over five years avoids federal gift tax, provided no other gifts are made to the same beneficiary during the five-year period.

Roth IRA Contributions – if you have any working children, consider setting up and contributing to their Roth IRA. For 2016, you can contribute up to $5,500 or a maximum of the child’s 2016 earnings if they are less. These contributions will count toward your annual gift tax exclusion but the benefit of the Roth is that the contributions can be withdrawn tax-free at any time. The earnings generally cannot be withdrawn prior to age 59½ without paying the 10% early withdrawal penalty with the following exceptions:

  • Distributions up to $10,000 for the purchase of a first home
  • Distributions for qualified education expenses

Charitable Donations – when donating to charitable organizations, be sure to give appreciated assets and not property that has declined in value. If you have owned the appreciated property for more than one year, you can generally deduct the full fair market value at the date of gift, without the charity or you having to pay any income taxes on the appreciation. However, if you own property that has declined in value, sell the property, claim the capital loss on your tax return, then donate the proceeds from the sale.

There are many favorable tax gifting strategies that can be utilized for year-end tax planning. If you have any questions or are looking for assistance with your gifting strategies, please contact Aronson’s Anatoli Pilchtchikov, CPA, at 301.231.6200.

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Year-End Giving: Accounting for Charitable Contributions

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Charitable contributions are an effective incentive for taxpayers that also benefit communities. However, taxpayers must diligently track their contributions and maintain proper substantiation in order to claim charitable contribution deductions on their tax return. Substantiation requirements for noncash contributions can extend beyond a simple “Thank You!” receipt from a donee organization.

In a recent Tax Court case, a couple was audited after claiming charitable deductions that equated to almost 45% of their adjusted gross income. The examination primarily focused on the lack of existing substantiation, not the amount contributed. The taxpayers filed Form 8283, which is required for noncash gifts greater than $500, but upon request failed to provide details about specific items and their value. Furthermore, the taxpayers claimed contributions for some items, which included groups of similar items in excess of $5,000, without the required appraisal.

For noncash contributions exceeding the $5,000 value threshold, a written appraisal by a qualified appraiser is required. It is critical to note that the threshold applies to “similar items of property” where the aggregate is used to determine if the gifts exceed the limit. For example, two separate clothing donations with a total thrift shop value of $2,600 each, would require written appraisal since the aggregate value exceeds $5,000.

Due to insufficient substantiation records, the Tax Court disallowed most of the claimed contributions and the aforementioned taxpayers were subject to penalties for substantial understatement of income tax (Payne, TC Summ. Op. 2016-30).

With the holidays approaching, keep contemporaneous records of your charitable giving and consult your tax advisor especially if you plan on making large noncash gifts.

 

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