Khaas Baat : A Publication for Indian Americans in Florida



As we approach the end of 2010 and look forward to the holiday season, the last thing on our mind is taxes. Most people avoid the topic like the plague unless there is potential for good news — i.e., a refund coming back from the IRS. A refund is not free money from the government. It is merely a return of the money that you have already paid; what you need to do is know how to maximize that return. In order to do so, basically, you should reduce your taxable income by taking advantage of deductions that are allowed against your gross income.

Most taxpayers are calendar year taxpayers and expenditure decisions have to be made during the course of the calendar year in order to receive any tax benefit. As with life, most of us like to wait till the last minute to sort things out; however, the next few months are excellent times to make an impact on reducing your taxable income for 2010 and maximizing your refund. As tempting as it may be, don’t wait until after Dec. 31 to begin thinking about this!

Basically, all individual filers can benefit from these commonly-used strategies to minimize taxable income:

1) Retirement plan contributions – Most individuals, whose employers offer 401(k) type deferral plans, should definitely maximize up to the allowable limits. The limit for 2010 is $16,500 for people under 50 and $22,000 for 50 and older. If you haven’t deferred enough, it might be a good idea to tell your employer to withhold more from your paycheck to reach your desired goal. It is important to note that most employers offer some matching contributions and not taking advantage of the employer match simply equates to throwing money away. Individuals not participating in employer-sponsored plans can always contribute to traditional IRAs and still qualify for a deduction, albeit lower.

2) Capital losses – As we all painfully know, the most anyone can deduct as a capital loss per year is $3,000. However, capital losses are allowed to be offset against capital gains. The recent market run-up provides an opportunity to offload some profitable positions and use them to offset other loss making positions or prior year capital losses. Remember, you can always buy your favorite stock back right away as the wash sales rule doesn’t apply to gains.

3) Charitable contributions – For those who itemize or who are on the edge of itemizing, charitable donations can offer considerable tax savings. Any “in-kind” donations to the Salvation Army or Goodwill also count. A simple weekend house cleaning project can uncover several items that we bought but never used.

4) Energy-efficient improvements – If you are planning to make energy upgrades to your home, there is a 30 percent credit (up to $1,500) for qualified residential energy improvements. For solar heating and electric systems, there is no limit on the credit and some states have additional credits.

5) Miscellaneous deductions and organization – There are a slew of deductions, including gambling losses, investment interest, IRA custodial fees, casualty losses, bad debts, etc., that can apply to you depending on your situation.

Given the growing complexity of tax laws, it is advisable to consult a licensed CPA who can offer customized strategies for your unique situation. As always, it is vitally important to maintain good records for all of your deductions, including receipts and any other documents that will substantiate your expenditures. Scheduling a conference with your CPA in the next few weeks might be a great way to start thinking about that big refund you could get from the IRS next year.

Amol Nirgudkar, CPA is the managing partner of Reliance Consulting LLC ( He can be reached at (813) 931-7258 or email


IRS Update – December 2010

By Kamlesh H. Patel, CPA

What’s happening at the IRS? Here’s a quick update on some issues that might affect you and your taxes.

Check the options for paying taxes on a Roth IRA conversion

When it comes to Roth IRA conversion options, do you feel like frontier scout Daniel Boone – never lost but occasionally confused about the right direction?

Fortunately, more than one path will get you where you want to go. For instance, say you plan to take advantage of the tax law change allowing Roth conversions this year regardless of your income level. The next question is when to pay the tax.

You already know you can put off reporting the conversion income until you file your 2011 and 2012 income tax returns. Alternatively, you could include the entire taxable amount on your 2010 return. In that case, you’d adjust your 2010 estimated payments, or write the final check in April 2011.

You can explore other payment options as well. An example: When you’re married, both you and your spouse can make the delay-or-pay-now decision independently for your separate IRAs. One scenario: You include the amount of your taxable conversion in full on your 2010 return, while your spouse includes none on this year’s return. Instead, your spouse reports one-half of the conversion on your 2011 return and one-half on 2012.

In addition, an all-or-nothing conversion is not your only avenue of opportunity. Partial conversions can be a good planning move. Why? You can convert just enough assets to reach the top of your current tax bracket. This method allows you to spread the tax over a time frame that works for you. Keep in mind that if you made deductible and nondeductible contributions to your traditional IRAs, the conversion will include a percentage of both.

Finally, you have the option of back-tracking. You can change your mind about the conversion and “recharacterize” - that is, return the assets to your traditional IRA. You’ll still be able to reconvert at a later date.

Check your mutual funds for real DIVERSIFICATION

Even if you aren’t an investment expert, you probably know that one of the main benefits of owning a mutual fund is “diversification.” And like many financial terms, there’s more to “diversification” than first meets the eye.

For example, many mutual fund investors believe that they are well-diversified, even though they aren’t. Consider Pat, who owns a U.S. large-cap value fund, a technology fund, and a worldwide fund.

At first glance, these appear to be three distinct funds in three unrelated categories. Yet underneath the surface, there could be some big surprises. Many “worldwide” funds are heavily invested in U.S. stocks, while technology funds can have significant foreign holdings.

To further complicate matters, the definition of a “value” fund can be quite fuzzy, and it wouldn't be surprising to find several high-flying technology stocks in Pat’s large-cap value fund. In other words, it’s possible that all three funds own many of the same stocks or similar stocks in the same industries. What looks like a diversified portfolio could actually suffer from a serious case of fund “overlap.”

What is the best protection against fund overlap? Whether you are thinking about buying a fund for the first time or you already own several of them, it pays to do a little digging. All mutual funds are required to publish a list of their complete holdings at least twice a year. Get the most recent portfolio list for each fund that you’re interested in, and compare them for overlap. Although published information can sometimes be several months old, it’s still the best way to determine just how much diversification your fund portfolio really has.

Kamlesh H. Patel, CPA, can be reached at (813) 949-8889 or e-mail or




A Grantor Retained Annuity Trust allows you to pass assets you believe will appreciate in value to family members at discounted levels. You contribute assets to a trust and receive a fixed annuity payment stream for a specified period of years. At the end of the trust term, the remaining assets and their appreciation (if any) are distributed to your beneficiaries. Since the value of the gift is reduced by the present value of the annuity payments, you could structure a payment schedule and payout amount that could result in a minimal gift-tax value. However, if you die before the end of the specified term, some or all of the remaining trust property would be included in your estate and subject to estate taxes. Life Insurance can help replace your estate and gift tax liabilities.

Life insurance often provides a substantial benefit for relatively small costs. A life insurance policy may be used by itself to increase the size of your estate, or it may be used for cost-effectively paying estate taxes. Plus, the proceeds of life insurance are typically income-tax free to the beneficiary. And with careful planning, these proceeds may also be received estate tax-free.

A Limited Liability Company or Family Limited Partnership may help reduce the size of your estate for transfer-tax purposes. The LLC or FLP is made up of managing or voting interests and nonvoting interests, and you could gift the nonvoting interests to your children and grandchildren. (You should consult with your legal or tax advisor about LLC or FLP planning and the potential tax consequences. The IRS may challenge this planning and take the position that gifted LLC or FLP interests and/or underlying LLC/FLP assets are includable in the donor’s estate.) Since the non-voting interests gifted to your children and grandchildren lack voting rights and are not readily marketable, they might be discounted for gift tax valuation purposes. (You should consult with a qualified appraiser to determine the appropriate amount of the valuation discounts.)

A Dynasty Trust could allow you to establish a source of funds for multiple generations. Here’s how it generally works: You would fund the trust with an amount up to your and your spouse’s lifetime gift tax exclusions. The trust assets, including any growth, will remain free of federal transfer taxes (i.e., estate, gift and generation-skipping transfer taxes) for as long as they remain in the trust. In certain states, such as South Dakota, the trust may theoretically last forever. And the plan could be designed so that any distribution from the Dynasty Trust would be free of gift- and generation-skipping transfer taxes.

Income or principal from the trust may be distributed to your children, grandchildren and great grandchildren as specified in the trust document. The provisions could tie those distributions to incentives, such as maintaining gainful employment, and permit distributions for funding businesses or purchasing homes for the use of beneficiaries or other activities. There also may be provisions in the trust document to gift a percentage of the assets directly to a charity or family foundation. Assets remaining in the trust are protected from creditors and divorce judgments.

Create Your Estate Plan
Discuss your estate planning objectives and concerns with your Financial Advisor and your tax and legal advisors. Together, you can develop an estate plan that best addresses your financial and familial situations.

Seema Ramroop, financial advisor, Morgan Stanley Smith Barney, can be reached at or call (727) 773-4629.

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