Helpful Articles Tax

Traditional vs Roth IRAs

People often ask, “Should I invest in a traditional or Roth IRA when planning for retirement? What’s the difference?” To answer this question, let’s discuss the basics.

Traditional vs. Roth

An IRA is an individual retirement account that is not associated with your employer. When opening an IRA, you will have to choose either traditional or Roth. This is not to say that you are limited to one account for your lifespan. Depending on your income and the stage of your career, both types can be beneficial. 

Generally, Roth IRAs are best suited for younger individuals because they have a long working life before they retire, and that large time-frame gives their investments time to increase substantially. This increase will not be taxable when drawn out during retirement. Roth IRAs also come with an income limit, so it is ideal for those at entry-level or mid-level in their careers.

Traditional IRAs are best suited to those who are in a higher tax bracket. These individuals will save significant tax dollars immediately through tax-deductible contributions and will likely be in a lower tax bracket when they retire because their income will be reduced. This usually describes mature individuals who are in their later years of working and usually have higher incomes. Therefore, the tax savings now are greater, and the time for investments to increase in value is shorter. 

Withdrawing Your Savings

When you decide to put money in a retirement account, it is ideal to leave that investment untouched until you are retired. Traditional IRAs have stricter rules about early withdrawals than Roth accounts. The penalty for early withdrawal (before age 59.5) from a Traditional IRA is 10%, and you pay income tax on the amount you withdraw. Roth IRA withdrawals are tax and penalty free if you withdraw upon reaching age 59.5 and the account has been established for five or more years.

Traditional IRAs impose Required Minimum Distributions (RMDs) when you turn 72; this is a minimum amount that you must withdraw each year from your account. These withdrawals are considered taxable income. To find your RMD, use this worksheet from the IRS.

Roth IRAs do not impose RMDs, and the withdrawals are not considered taxable income. 

Both Traditional and Roth IRAs have contribution limits and due dates that vary year-to-year. You can find those amounts and dates in the graphic below.

For more information and consultation about IRAs and retirement planning, contact industry leader Gabrielle Lorbiecki or visit


What Can Be Written Off as a Business Expense? 

Watch the tax planning video on small business expenses here.

Your business expenses can translate into tax write-offs, also known as deductions, as long as they’re “ordinary and necessary“—that is, common in your industry and essential to your business. When an expense meets those requirements for your business, you can deduct it.

Some of these include:

  • Internet Expenses
  • Office space 
  • And payment to employees

We hear many business owners wanting clarification on office space, including home offices, as well as business meal expenses.

Overlapping company and personal expenses 

Sometimes an expense can be broken down between your business and your personal life. For example, if you use part of your home as your office and use that area solely for business purposes, then you can make a home office deduction. The standard method of deducting home office expenses involves calculating the percentage of your home that is used for business by taking the square footage of your office area and dividing it by the total square footage of  your home.

Let’s say your office is 5% of your home’s square footage, so you can deduct 5% of the cost of your mortgage interest, utilities, insurance and other related expenses at tax time.

You can apply a similar model to the times you use your personal vehicle for business, by keeping track of miles driven and deducting based on the IRS’s standard mileage rate.  

Common Non-Deductible Business Expenses

Some costs related to doing business cannot be deducted from your taxable income. Common examples include lobbying or political costs and penalties/fines. Additionally, entertainment costs such as tickets to a sporting event cannot be expensed. Prior to this year, only 50% of business meals were deductible. As part of the Consolidated Appropriations Act (2021), the deductibility of business meals is changing. Food and beverages will be 100% deductible if purchased from a restaurant in 2021 and 2022. This temporary 100% deduction was designed to help restaurants, many of which have been hard-hit by the COVID-19 pandemic.

The first thing you should do to help keep track of your small business expenses is to open separate business checking and savings accounts for your business. After that, ensure that you’re also keeping your business expenses separate from your personal expenses.

Small businesses contribute to local economies by bringing growth and innovation to the community. ATA walks alongside business owners to help overcome challenges in an efficient and experienced manner. To discuss business expenses in depth, contact one of our experts for a consultation.  


2021 Tax Planning: Depreciation

As you prepare for the upcoming tax season, here are some things to consider on depreciation. In this article, we will cover bonus depreciation as it relates to qualified improvement property, also known as QIP, and section 179.  Watch the video version here

What is QIP and why does it matter?

 The Tax Cuts and Jobs Act classified qualified retail-improvement, restaurant and leasehold improvement property as QIP. Under the new legislation, QIP, placed in service in 2018 and after is now considered 15-year property and is eligible for 100% bonus depreciation, providing many taxpayers with significant tax savings opportunities and incentivizing taxpayers to continue to invest in improvements. 

Bonus depreciation is additional first-year depreciation of 100% for qualified property placed in service through Dec. 31, 2022. It should be noted, for 2023 through 2026, bonus depreciation is scheduled to be gradually reduced. But, the statutory language didn’t define QIP as 15-year property, so QIP defaulted to a 39-year recovery period, making it ineligible for bonus depreciation.

 Section 179

Valuable depreciation-related breaks may be available to real estate investors. One such break is the Section 179 expensing election. It allows you to deduct (rather than depreciate over a number of years) qualified improvement property. The Tax Cuts and Jobs Act also allows Section 179 expensing for certain depreciable tangible personal property used primarily to furnish lodging and for the following improvements to nonresidential real property: roofs, HVAC equipment, fire protection and alarm and security systems. For qualifying property placed in service in 2021, the expensing limit is $1.05 million. The break begins to phase out dollar-for-dollar when asset acquisitions for the year exceed $2.62 million. (These amounts are adjusted annually for inflation.) Other valuable breaks include bonus depreciation and accelerated depreciation.

It is important to develop your personalized strategy regarding depreciation with your tax advisor. Please click here to connect with your CPA to setup an appointment for tax planning. 

Financial Institutions and Banking Helpful Articles

CFPB Issues Guidance on Unauthorized EFTs

The Consumer Financial Protection Bureau (CFPB) has issued guidance — in the form of answers to FAQs — on unauthorized electronic fund transfers (EFTs). Here are some of the highlights:

  • Unauthorized EFTs include situations in which a third party fraudulently induces a consumer into sharing account access information that’s used to initiate an EFT from the consumer’s account. And subsequent EFTs initiated using that information are not excluded from the definition of unauthorized EFTs as transfers initiated by “a person who was furnished the access device to the consumer’s account by the consumer.”
  • Banks can’t consider a consumer’s negligence when determining liability for unauthorized EFTs under Regulation E.
  • In determining whether an EFT was unauthorized and whether any liability protections apply, a bank can’t rely on a consumer agreement that “includes a provision that modifies or waives certain protections granted by Regulation E, such as waiving Regulation E liability protections if a consumer has shared account information with a third party.”

You can find the complete FAQs by visiting and typing “EFT FAQs” in the search box.

Federal Reserve tool simplifies CECL implementation

For most community banks, the current expected credit loss (CECL) accounting standard will take effect in 2023, and many banks are concerned about the complexity involved in complying with the updated standard. In an effort to simplify the process, the Federal Reserve in July unveiled its Scaled CECL Allowance for Losses Estimator (SCALE), a spreadsheet-based tool that “draws on publicly available regulatory and industry data to aid community banks with assets of less than $1 billion in calculating their CECL allowances.”

Your advisors can help you determine whether the SCALE is appropriate for your institution. For more information, visit

OCC will rescind 2020 CRA rule

In July, the OCC announced its intent to rescind its May 2020 final rule, which was designed to modernize and strengthen the regulatory framework for implementing the Community Reinvestment Act (CRA). Notably, neither the Federal Reserve nor the FDIC joined the OCC in advancing the final rule. In a statement, acting comptroller Michael Hsu said: “To ensure fairness in the face of persistent and rising inequality and changes in banking, the CRA must be strengthened and modernized.” He went on to observe that “the disproportionate impacts of the pandemic on low- and moderate-income communities, the comments provided on the [Fed’s] Advanced Notice of Proposed Rulemaking, and our experience with implementation of the 2020 rule have highlighted the criticality of strengthening the CRA jointly with the [Fed] and FDIC.”


Financial Institutions and Banking

Maintaining Internal Controls in a Post-Pandemic Environment

Internal controls are the lifeblood of a bank’s risk management system. Weak or ineffective controls can lead to operational losses and expose a bank to a higher risk of fraud. As we continue to recover from the COVID-19 pandemic, banks need to assess the pandemic’s impact on their internal control systems and make appropriate adjustments.

Many banks continue to rely on remote workers, and it’s likely that many employees will continue to work remotely long after the pandemic is behind us. In addition, some banks are operating with reduced workforces. In this environment, maintaining key internal controls — segregation of duties, in particular — can be a challenge. In addition, as workers’ duties are adjusted to accommodate remote work and leaner staffs, these changes can inadvertently render some controls ineffective.

Evaluate the impact on segregation of duties

Segregation of duties is a simple yet powerful control that substantially reduces the risks of fraud and error. By assigning different people responsibility for authorizing or reviewing transactions, recording transactions and maintaining custody of assets, a bank makes it virtually impossible for a single employee to perpetrate a fraud or make an error and conceal it. If workforce changes reduce segregation of duties, they can significantly weaken a bank’s internal controls.

Consider this example: ABC Bank has been operating with a reduced staff since early in the pandemic. As lending activity has increased, its staff has struggled to keep up with the growing volume of loan applications. To avoid falling behind, the bank provides Jane Doe, its vice president for loan servicing, with the ability to record transactions on the bank’s loan system. Because Jane is also responsible for reviewing loan file maintenance changes, she now lacks independence with respect to her review of loan file maintenance reports. In other words, the duties associated with recording and reviewing transactions are no longer segregated.

How can your bank avoid this situation? When employees’ operational responsibilities change, it’s important to evaluate any potential conflicts of interest with employees’ existing review responsibilities.

Digital approvals: Handle with care

A byproduct of the remote work environment is that reviewers may sign off on transactions via email or by typing their initials on an electronic document. This can be risky, as virtually anyone can enter the reviewer’s initials.

One solution is to use a digital signature platform, which requires the reviewer to enter a username and password. It also incorporates other protections to verify the signer’s identity and otherwise ensure the integrity of the approval process.

Review your controls

These are just a few examples of how a changing work environment can affect a bank’s internal control systems. The consequences aren’t always obvious, so be sure to review your internal control policies and procedures and conduct a risk assessment to anticipate the full impact of contemplated changes. Also consider implementing or strengthening other types of controls — such as surprise audits, management or director oversight, mandatory vacations, job rotation, employee support programs and fraud training — to help compensate for a lack of segregation of duties and other internal control weaknesses.


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Keep Your Customers Satisfied

Over the past few years, community banking has withstood rapid technological changes, unprecedented economic challenges during a pandemic and new demands from its customer base. To maintain profitability amidst all this turmoil, you need to ensure that your bank retains its existing customers. After all, studies show that attracting a new customer typically costs five times more than retaining an existing one.

Here are three fundamental questions to help improve customer satisfaction and, ultimately, retention.

  1. What’s your core deposit base?

A good first step is to identify your core deposits and develop an understanding of customer behaviors. Differentiate loyal, long-term customers from those motivated primarily by interest rates. A core deposit study can help you distinguish between the two types of depositors and predict the impact of fluctuating interest rates on customer retention. Banking regulators strongly encourage banks to conduct these studies as part of their overall asset-liability management efforts.

Core deposit studies assess how much of your bank’s deposit base is interest-rate-sensitive by examining past depositor behavior. They also look at factors that tend to predict depositor longevity. For example, customers may be less likely to switch banks if they have higher average deposit balances and use multiple banking products (such as checking and savings accounts, mortgages and auto loans).

  1. How can you get to know your customers better?

To build customer loyalty, it’s critical to ensure that customers are engaged. According to research by Gallup, engaged customers are more loyal, and they’re more likely to recommend the bank to family and friends. They also represent a bigger “share of wallet” (that is, the percentage of a customer’s banking business captured by the bank).

Recent retail banking studies show that fewer than half of customers at community banks and small regional banks (less than $40 billion in deposits) are actively engaged. The percentages are even smaller at large regional banks (over $90 billion in deposits) and nationwide banks (over $500 billion in deposits). That’s the good news. The bad news is that 50% of customers at online-only banks are fully engaged.

So, how can community banks do a better job of engaging their customers to compete with online banks? The answer lies in leveraging their “local touch” by knowing their customers, delivering superior service, and providing customized solutions and advice. To do that, banks must ensure that their front-line employees — tellers, loan officers, branch managers and call center representatives — are fully engaged in their jobs.

Encouraging employees to engage with customers has little to do with competitive salaries and benefits. Rather, it means providing employees with opportunities for challenging work, responsibility, recognition and personal growth.

  1. How can you develop your online presence?

An increasing number of customers — younger people in particular — use multiple channels and devices to interact with their banks. These include online banking, mobile banking applications and two-way texting.

To build loyalty, banks should enable customers to use their preferred channels and ensure that their experiences across channels are seamless. And don’t overlook the importance of social media platforms. Younger customers are more likely to use these platforms to recommend your bank to their friends and families.

Ask the right questions

Your customer retention strategies shouldn’t be based on guesswork. Consider periodically engaging with customers concerning their level of satisfaction with your current systems and processes. Ask what they’d like to see improved. A brief survey, or even a short conversation, can provide valuable input on ways to keep your customers satisfied with your bank’s services over the long term.


Helpful Articles Tax

Planning for Year-End Gifts

As we approach the holidays, many people plan to donate to their favorite charities or give money or assets to their loved ones. Here are the basic tax rules involved in these transactions.

Donating to charity

Normally, if you take the standard deduction and don’t itemize, you can’t claim a deduction for charitable contributions. But for 2021 under a COVID-19 relief law, you’re allowed to claim a limited deduction on your tax return for cash contributions made to qualifying charitable organizations. You can claim a deduction of up to $300 for cash contributions made during this year. This deduction increases to $600 for a married couple filing jointly in 2021.

What if you want to give gifts of investments to your favorite charities? There are a couple of points to keep in mind.

First, don’t give away investments in taxable brokerage accounts that are currently worth less than what you paid for them. Instead, sell the shares and claim the resulting capital loss on your tax return. Then, give the cash proceeds from the sale to charity. In addition, if you itemize, you can claim a full tax-saving charitable deduction. The second point applies to securities that have appreciated in value. These should be donated directly to charity.

The reason: If you itemize, donations of publicly traded shares that you’ve owned for over a year result in charitable deductions equal to the full current market value of the shares at the time the gift is made. In addition, if you donate appreciated stock, you escape any capital gains tax on those shares. Meanwhile, the tax-exempt charity can sell the donated shares without owing any federal income tax.

Donating from your IRA

IRA owners and beneficiaries who’ve reached age 70½ are allowed to make cash donations of up to $100,000 a year to qualified charities directly out of their IRAs. You don’t owe income tax on these qualified charitable distributions (QCDs), but you also don’t receive an itemized charitable contribution deduction.

Gifting assets to family and other loved ones

The principles for tax-smart gifts to charities also apply to gifts to relatives. That is, you should sell investments that are currently worth less than what you paid for them and claim the resulting tax-saving capital losses. Then, give the cash proceeds from the sale to your children, grandchildren or other loved ones. Likewise, you should give appreciated stock directly to those to whom you want to give gifts. When they sell the shares, they’ll pay a lower tax rate than you would if they’re in a lower tax bracket.

In 2021, the amount you can give to one person without gift tax implications is $15,000 per recipient. The annual gift exclusion is available to each taxpayer. So if you’re married and make a joint gift with your spouse, the exclusion amount is doubled to $30,000 per recipient for 2021.

Make gifts wisely Whether you’re giving to charity or loved ones this holiday season (or both), it’s important to understand the tax implications of gifts. For more guidance about year-end giving and tax planning, contact one of our experts today.

© 2021

Helpful Articles Tax

Tax Consequences for Overfunding Your 529 Plan

If money is held too long in a Section 529 college savings plan, there could be tax consequences. This article describes alternatives for savers who have overfunded their accounts.

Oops, you overfunded your 529 plan

Some might consider it a good problem to have: saving too much money for college. But if the money is held in a Section 529 college savings plan, there could be tax consequences to overfunding the account.

The tax man giveth

529 plans are tax-advantaged accounts designed to help families save money for college education expenses. Savings grow on a tax-deferred basis, and withdrawals are made tax-free if the money is used to pay for qualified education expenses such as college tuition, fees, books, and, generally, room and board. Further, some states offer tax incentives for contributions to 529s.

The tax consequences come into play if 529 funds are used for anything other than qualified education expenses. Specifically, earnings on investments held in the account will be taxable and a 10% penalty will be assessed if the money is used for noneducation-related expenses.

Note that only the earnings portion of the account will be subject to taxes and penalties. Funds you’ve contributed to the account (or principal) won’t be taxed upon withdrawal regardless of what they’re used for, because contributions were made with after-tax dollars.

Your alternatives

So what should you do if your child graduates from college and there are funds left in your 529 account? Here are a few options to consider:

Change the beneficiary. The flexibility that characterizes 529 plans includes the ability to name someone else as the account’s beneficiary. So if you have other children in college now or who’re planning to attend college, you can simply make them the beneficiaries of the account.

You can even change the beneficiary to yourself. This would allow you to use the funds for qualified expenses for your own education.

Use the funds to pay for private school education. The Tax Cuts and Jobs Act changed the 529 plan rules so that up to $10,000 of funds per year can now be used for private K-12 tuition. Therefore, if you have younger children, you can potentially make beneficiary changes so you can use the 529 plan funds to send them to a private school. But beware that, depending on the state, there could be state tax consequences.

Investigate non-qualified 529 plan withdrawal options. The law specifies certain situations where non-qualified withdrawals can be made from 529 plans penalty-free. These include a child’s death or disability and a graduate’s attendance at a U.S. military academy.

Also, if your child is awarded an academic or athletic scholarship, you can use withdrawals up to the scholarship amount for expenses that aren’t education-related and avoid the 10% penalty on earnings. But you’ll still have to pay income tax on the earnings when you file your federal tax return.

There’s also a new provision that allows — subject to restrictions, of course — 529 plans to be used to repay student loans.

Leave the money alone. There’s no deadline for 529 account withdrawals, so you can leave funds in the account to pay for future education expenses. The money will continue to grow tax-deferred as long as it stays in the account.

So if your child decides later to attend graduate school, funds can be used to help cover these expenses. You can even keep funds in the account for the long term to help pay education expenses for your future grandchildren. This will give your children a good head start on college saving for their kids.

If all else fails

If none of these strategies are ideal for your situation, you may just have to withdraw excess 529 funds and pay the taxes and penalties due. Since they apply only to the earnings portion of the account, the tax hit may not be too severe.

To develop your best course of action regarding your overfunded 529 plan, contact a tax expert today.

© 2021