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Tax Bill Too High? Try This Trick

Some individuals get the nice surprise of a big tax refund every tax year (if this is you, don’t be too happy – you’ve been lending Uncle Sam money interest free). Other folks get the unpleasant surprise of having to write a big check to Uncle Sam. For the latter individuals, there may be a way to lower their tax bill and save more for retirement. Let’s look at an example. Assume an individual has a tax bill of $4,000 and they want to reduce this. Naturally, there are other deductions they may qualify for, but in this case, they’ve exhausted all other options except this one: saving to their 401k. Let’s also assume this individual’s marginal tax rate is 25%. The individual can take their tax rate and divide it into their tax liability for the year – in this case $4,000 divided by 25%. This comes to $16,000. […]

April 1 is the deadline for first RMD

If you’ve reached age 70½ in 2016, you must take a required distribution from your IRA by April 1, 2017.

Taxability of Social Security

Taxability of Social Security can be at many different rates, ranging from 0% to 85%, depending upon your other income and filing status.

Tax Time To-Do List

Now that tax time is around the corner I thought I’d put together a handy guide in case you find yourself in need of delegating your tax prep and return to our firm. As a reminder, both Jim and I are enrolled agents with the IRS and in addition to federal taxes we are capable of preparing and filing your state (nationwide) tax return as well. Here are some items to gather and consider. Organize your W2s. Gather all of your tax information from your respective employer(s). This also includes any 1099-MISC income if you operated as an independent contractor. Organize your other tax forms. This include other 1099 forms such as 1099-DIV, INT, as well as 1098 forms for student loan and home mortgage interest. Don’t worry, most of these forms are in the process of being mailed or emailed to you if hold such accounts. Organize your receipts. […]

After-Tax Investment Considerations

Some individuals have the ability to contribute after-tax amounts to their employer-sponsored plans such as a tax-deferred 401k or a defined benefit pension. Generally, since these amounts are after-tax, the contributions start adding up to a sizable amount known as basis. Basis is simply the amount of after-tax money put into these accounts that is not taxed when it’s withdrawn. However, any earnings on the basis are taxable. Individuals considering contributing after-tax amounts to the above plans may also consider if it makes sense to contribute to a non-qualified brokerage account. Like the aforementioned employer-sponsored plans, contributions to a non-qualified brokerage account are made with after-tax dollars, thus they can build a sizable basis – which is not taxed when withdrawn. Also, like the above employer-sponsored accounts, any earnings are subject to taxation. The major difference is in the way the earnings from the non-qualified account are taxed. Earnings on […]

Many Happy Returns*

I was recently talking with an acquaintance who told me about a friend of his that had not filed a tax return for several years… Now, we all know that burying our head in the sand is no way to deal with *any* problem – but especially this one. Right off the top of your head, I’m sure you can name a few folks who have been “taken down” by the IRS for tax evasion.  Let’s see… for starters, Wesley Snipes, Sophia Loren, Richard Hatch, Leona Helmsley, Richard Pryor, Pavaratti, Martha Stewart, Elton John, Nicholas Cage, Heidi Fleiss… the list goes on. And then there is probably the most powerful, certainly the most influential, of all of these:  Al Capone.  The granddaddy of ’em all. Legend has it that the notorious gangster once remarked that tax laws were a joke because “the government can’t collect legal taxes on illegal money.”  The IRS charged the […]

Penalties for Changing SOSEPP

What are the penalties for changing your SOSEPP? If you don’t know, that’s another name for a 72t distribution. IRS has some severe penalties if you change your payment plan.

Tax-Loss Harvesting: It’s Never Too Late

Tax-loss harvesting is a tax move that can help with your income tax burden when you’ve experienced a loss with your investments.  Briefly, this is where you have a taxable account, holding stocks, bonds, or mutual funds and the market declines leaving your holdings in a loss situation.  Once you sell the holding, you have realized the loss, which enables you to take advantage of the tax laws and deduct those losses, first against any gains in your account(s), and then at a rate of $3,000 per year against ordinary income. This is similar to the famous move that Mr. Trump (and I would be shocked if Mrs. Clinton never took a loss against future taxes) used to avoid future income taxes. This was recently discovered in Trump’s tax records and made out to be a fatcat loophole – at least by the media – when actually anyone can take advantage of […]

SOSEPP & How a QDRO Affects It

In addition to the 72(t) exception available for folks with a QDRO (see this post), there is also the question of how a QDRO impacts an established Series of Substantially Equal Periodic Payments (SOSEPP) – which, as we know, once established can only be changed one time. Although not definitive, below are summaries of three Private Letter Rulings (PLRs) that seem to suggest first of all that making the distribution is not subject to the 10% penalty when a QDRO or divorce decree is involved, pursuant to the regulation in Code section 72(t)(4)(A)(ii). Private Letter Rulings for SOSEPP 1) The transfer to a taxpayer’s spouse pursuant to a divorce decree of 50% of each of three separate IRAs owned by the taxpayer from which the taxpayer had already begun receiving “substantially equal periodic payments” did not result in a modification where the taxpayer’s spouse was two years younger and would commence […]

Tax Benefits for Job Hunting

The IRS recently published their Summertime Tax Tip 2016-24, entitled “Looking for Work May Impact Your Taxes”, with some good tips that you should know as you go about job hunting.  The text of the actual publication from the IRS follows, and at the end of the article I have added a few additional job-related tax breaks that could be useful to you. Looking for Work May Impact Your Taxes If you are job hunting in the same line of work, you may be able to deduct some of your job search costs. Here are some key tax facts you should know about when searching for a new job: Same Occupation.  Your expenses must be for a job search in your current line of work. You can’t deduct expenses for a job search in a new occupation. Résumé Costs.  You can deduct the cost of preparing and mailing your résumé. […]

401(k) & Qualified Domestic Relations Orders (QDRO)

An exception to the 10% penalty on distributions from a qualified plan (but not an IRA, an IRA is split via a transfer incident to a divorce, which is not an automatic exception) Qualified Domestic Relations Order, or QDRO (cue-DRO).  A QDRO is often put into place as part of a divorce settlement, especially when one spouse has a qualified retirement plan that is a significant asset. What happens in the case of a QDRO is that the court determines what amount (usually a percentage, although it could be a specific dollar amount) of the qualified retirement plan’s balance is to be presented to the non-owning spouse.  Once that amount is determined and finalized by the court, a QDRO is drafted and provided to the non-owning spouse. This document allows the non-owning spouse to direct the retirement plan custodian to distribute the funds in the amount specified. In the case of a QDRO, the owning spouse will […]

Qualified Charitable Distributions for 2016

Individuals needing to take their required minimum distributions (RMD) for 2016 may consider having all or part of their RMD distributed as a Qualified Charitable Contribution (QCD). In order to qualify, the following rules must be met. The individual taking the QCD must be age 70 ½. The maximum allowed QCD is $100,000 per individual, annually. The QCD must come from an IRA. QCDs from 401(k)s, 403(b)s, 457(b)s, SEPs, SIMPLEs are not permitted. An individual may roll over an amount to their IRA and then made the QCD. The QCD is counted toward the individual’s RMD for the tax year. If the RMD was already taken, the QCD cannot be retroactively made. The QCD must be made directly to the charitable organization. Generally, the charity must be a public charity. The Protecting Americans from Tax Hikes (PATH) Act of 2015 made allowing QCDs from IRAs permanent. The tax benefit from […]

5 Tax Credits You Don’t Want to Miss

As individuals begin to file their tax returns for 2015 here are some tax credits that some individuals may qualify for to help reduce, if not eliminate their tax liability. Child Tax Credit. This credit may be worth up to $1,000 per child, depending on income. The child must be under age 17 at the end of 2015, as well as be a dependent and a US citizen. Additional information can be found in Publication 972. The American Opportunity Tax Credit. This tax credit for education expenses is allowed for parents for up to the first four years of post-secondary (college) education. The benefit of this credit is that it is a “per student” credit. This means the credit can be taken for multiple children in college. The maximum credit per student is $2,500. Additional information can be found here. The Lifetime Learning Credit. Like the AOTC, this credit can […]

Tips for Tax Time

Given that it the start of tax season and individuals will be gathering and preparing their 2015 tax return information, I’d thought I’d put together some basic tax tips. Individuals may consider thinking about these items in order to have a smooth and (hopefully) stress-free 2015 tax season. Additionally, I’ve included a link to our 2015 Tax organizer. Please feel free to use it at your convenience to get your “tax ducks in a row”. Furthermore, please let us know if you’d like us to prepare and file your taxes for you. Many current clients have found Blankenship Financial to be cost effective and efficient compared to other big-named tax preparation services. As Enrolled Agents both Jim and I are well qualified to handle most tax matters and returns. And now with the tax tips… Beware the non-tax man cometh! Each year we field calls from clients and prospective clients […]

What to Do if You’re a Victim of Tax Fraud

Hopefully this will never happen to you but in the unfortunate event you become of victim of tax fraud there are some steps that you can take to help alleviate the concern that someone has stolen your identity to file a fraudulent tax return in order to receive the refund. Generally, the first sign of fraud appears when you try to file our return electronically. Most e-file providers receive acknowledgements from the IRS that the return was successfully e-filed. If a return is rejected, a code will return with the rejection indicating what the issue is. For example, a sign of fraud will indicate that the Social Security numbers used to file your return were previously used in the same tax year for another return. If you know you didn’t previously file, then fraud is likely. If you feel you’re the victim of fraud, here’s what you can do: Contact […]

Get your billion back, Americans – time’s running out

Oftentimes folks with low incomes don’t see the need to file a tax return. Much of the time this is the correct way to go – after all, why go through the hassle and expense of filing a tax return for no purpose? Unfortunately, many of these folks who didn’t file a tax return are actually due a refund of withheld tax, and possibly even tax credits that they weren’t aware of. The IRS has compiled a list of approximately 1 million taxpayers who didn’t file a tax return in 2011, and this group is due a total of approximately $1 billion in refunds. The problem is that in order to claim these refunds, the tax return for 2011 has to be filed by April 15, 2015 – 3 years after the original filing date. If you don’t file by then, the refund is lost to you forever. Recently the […]

5 Tips to Lower Your Tax for 2015

With 2014 over and 2015 well on its way you may be finding yourself gathering all of your 2014 tax information and getting ready to file your income taxes. Some folks will be expecting refunds while others will woefully dread writing out a check to the IRS. If you find yourself in the group of folks that will be writing a check to Uncle Sam, here are some tips to reduce your tax burden for 2015.

Your Year-End Bonus

As the end of the year approaches many employers will pay and many employees will receive year-end bonuses. While often the icing on the cake for a productive year employee should be aware of the tax consequences of their bonus. Percent vs. Aggregate Method When it comes to taxing the bonus an employer may choose the percentage method versus the aggregate method. Under the aggregate or wage holding bracket method the employer will use the withholding tables generally used for the employee normal paycheck. Then, the supplemental wages are aggregated with the employee’s normal pay and taxes are withheld accordingly.

Social Security Wage Base Projected for 2015

Update 10/22/2014: The wage base has been set for 2015. See the article Social Security Wage Base Set for 2015. According to the Social Security Administration trustees, the Social Security wage base for 2015 is projected to be $119,100.  This represents an increase of $2,100 from the 2014 wage base of $117,000. This is an increase of 1.79% – and won’t be finalized until October when the other increases for Social Security amounts are announced. This is a relatively small increase when compared to recent annual increases we’ve seen.  The previous 3 years’ increases have averaged 3.09%. This is different from the COLA (Cost of Living Adjustment), which has increased an average of 2.27% in the past three years. The 2014 COLA (applicable to 2015 benefits and other figures) will be released later in the year, typically in October.

A Quick Trick to Reduce Your Tax Liability

Now that most folks are recovering from tax time there may be some individuals that paid an excessive amount of tax to Uncle Sam and are looking for ways to reduce their tax liability for next year. This post will be short and sweet, but hopefully it will drive a few points home. The best way to explain this is through an example. Let’s say that Mary and her husband Paul both work and file their taxes jointly. Their tax liability for 2013 was $4,000 – meaning that’s the amount of the check they wrote to the IRS. Needless to say, they are both looking for a potential way to reduce that liability – at least in the here and now. In this case, their marginal tax rate is 25%. The quick trick in this example is to take their tax rate which is 25% and divide it into their […]

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