Tuesday, November 24, 2015
Wednesday, November 18, 2015
Part 2 of the Intuit article on year-end tax planning....
5. Contribute the maximum to retirement accounts
There may be no better investment than tax-deferred retirement accounts. They can grow to a substantial sum because they compound over time free of taxes. Company-sponsored 401(k) plans may be the best deal because employers often match contributions. Try to increase your 401(k) contribution so that you are putting in the maximum amount of money allowed. If you can’t afford that much, try to contribute at least the amount that will be matched by employer contributions.
Also consider contributing to an IRA. You have until April 15, 2016 to make IRA contributions for 2015, but the sooner you get your money into the account, the sooner it has the potential to start to grow tax-deferred. Making deductible contributions also reduces your taxable income for the year.
If you are self-employed, the retirement plan of choice is a Keogh plan. These plans must be established by December 31 but contributions may still be made until the tax filing deadline (including extensions) for your 2015 return. The amount you can contribute depends on the type of Keogh plan you choose.
6. Avoid the kiddie tax
Congress created the "kiddie tax" rules to prevent families from shifting the tax bill on investment income from Mom and Dad's high tax bracket to junior's low bracket. For 2015, the kiddie tax taxes a child's investment income above $2,100 at the parents' rate and applies until a child turns 19. If the child is a full-time student who provides less than half of his or her support, the tax applies until the year the child turns age 24. So be careful if you plan to give a child stock to sell to pay college expenses. If the gain is too large and the child’s unearned income exceeds $2,100, you’ll end up paying tax at 15 percent on the gain, rather than the zero percent rate that is applicable for most children.
7. Check IRA distributions
You must start making regular minimum distributions from your traditional IRA by the April 1 following the year in which you reach age 70 ½. Failing to take out enough triggers one of the most draconian of all IRS penalties: A 50 percent excise tax on the amount you should have withdrawn based on your age, your life expectancy, and the amount in the account at the beginning of the year. After that, annual withdrawals must be made by December 31 to avoid the penalty.
When you make withdrawals, consider asking your IRA custodian to withhold tax from the payment. Withholding is voluntary, and you set the amount, but opting for withholding lets you avoid the hassle of making quarterly estimated tax payments.
8. Watch your flexible spending accounts
Flexible spending accounts, also called flex plans, are fringe benefits which many companies offer that let employees steer part of their pay into a special account which can then be tapped to pay child care or medical bills. The advantage is that money that goes into the account avoids both income and Social Security taxes. The catch is the notorious "use it or lose it" rule. You have to decide at the beginning of the year how much to contribute to the plan and, if you don't use it all by the end of the year, you forfeit the excess.
With year-end approaching, check to see if your employer has adopted a grace period permitted by the IRS. If not, you can do what employees have always done and make a last-minute trip to the drug store, dentist or optometrist to use up the funds in your account.
Friday, November 13, 2015
Monday, November 9, 2015
Veterans Day is a public holiday that is dedicated to honoring anyone who has served in the United States military. The holiday began as a day to remember the end of World War I and was declared a holiday by President Woodrow Wilson in 1919. Originally known as Armistice Day, the holiday became Veterans Day in 1954.
November 11th was chosen as the official date for Veterans Day in reference to the ending of World War I. Germany signed an armistice with the Allies that signaled the end of the war at 11AM on November 11, 1918.
When Woodrow Wilson declared November 11 a holiday, the primary intention was to have a day to reflect on the sacrifices of those who had served in the military during World War I. Observation of the holiday through parades and meetings was envisioned.
Today, many Americans observe the day by attending ceremonies and parades that are dedicated to honoring the troops for their service. These often allow veterans to speak about their time in the service and give Americans the opportunity to personally thank veterans for their sacrifice.
Wednesday, November 4, 2015
This is an excerpt from Intuit’s top eight year-end tax planning tips…
1. Defer your income
It's tough for employees to postpone wage and salary income, but if you are self-employed or do freelance or consulting work, you have more leeway. Delaying billing until late December, for example, can ensure that you won't receive payment until the next year. Ranchers may be able to defer livestock sales. Whether you are employed or self-employed, you can also defer income by taking capital gains in 2016 instead of in 2015.
Of course, it only makes sense to defer income if you think you will be in the same or a lower tax bracket next year. You don't want to be hit with a bigger tax bill next year if additional income could push you into a higher tax bracket. If that's likely, you may want to accelerate income into 2015 so you can pay tax on it in a lower bracket sooner, rather than in a higher bracket later. If you are thinking about deferral, please contact our office to ensure you meet the requirements.
2. Take some last-minute tax deductions
Just as you may want to defer income into next year, you may want to lower your tax bill by accelerating deductions this year. Contributing to charity is a great way to get a deduction. And you control the timing. You can supercharge the tax benefits of your generosity by donating appreciated stock or property rather than cash. But remember, you must have a receipt to back up any contribution, regardless of the amount.
Other expenses you can accelerate include an estimated state income tax bill due January 15, a property tax bill due early next year, or a doctor’s or hospital bill. (But speeding up deductions could be a blunder if you're subject to the alternative minimum tax, as discussed below.) First, just make sure you'll be itemizing for 2015 rather than claiming the standard tax deduction.
3. Beware of the Alternative Minimum Tax
Sometimes accelerating tax deductions can cost you money… if you're already in the alternative minimum tax (AMT) or if you inadvertently trigger it. Originally designed to make sure wealthy people could not use legal deductions to drive down their tax bill, the AMT is now increasingly affecting the middle class. The AMT is figured separately from your regular tax liability and with different rules. You have to pay whichever tax bill is higher.
This is a year-end issue because certain expenses that are deductible under the regular rules—and therefore candidates for accelerated payments—are not deductible under the AMT. State and local income taxes and property taxes, for example, are not deductible under the AMT. So, if you expect to be subject to the AMT in 2015, don’t pay the installments that are due in January 2016 in December 2015.
4. Sell loser investments to offset gains
A key year-end strategy is called “loss harvesting” --selling investments such as stocks and mutual funds to realize losses. You can then use those losses to offset any taxable gains you have realized during the year. Losses offset gains dollar for dollar. And if your losses are more than your gains, you can use up to $3,000 of excess loss to wipe out other income.
If you have more than $3,000 in excess loss, it can be carried over to the next year. You can use it then to offset any 2015 gains, plus up to $3,000 of other income. You can carry over losses year after year for as long as you live.