It may be tempting to invent income for a child, such as paying them to do the dishes, in order to qualify for a Roth IRA contribution. Don’t do it!
2011 tax year
Mortgage Debt Forgiveness and Taxes
Image via Wikipedia When you have a debt canceled, the IRS considers the canceled debt to be be income for you, taxable just like a paycheck. There are cases where you don’t have to include all of it though, and mortgage debt forgiven between 2007 and 2012 may be partly excepted from being included as income. The IRS recently issued their Tax Tip 2012-39, which lists 10 Key Points regarding mortgage debt forgiveness. Below is the actual text of the Tip. Mortgage Debt Forgiveness: 10 Key Points Canceled debt is normally taxable to you, but there are exceptions. One of those exceptions is available to homeowners whose mortgage debt is partly or entirely forgiven during tax years 2007 through 2012. The IRS would like you to know these 10 facts about Mortgage Debt Forgiveness: 1. Normally, debt forgiveness results in taxable income. However, under the Mortgage Forgiveness Debt Relief Act […]
Share, tweet, print, email, like or pin this post:
Tax Credits That Can Increase Your Refund
The IRS recently issued their Tax Tip 2012-41, which lists out some of the tax credits that are refundable. Most tax credits are not refundable, meaning that if the amount of the credit is more than your tax for the year, the credit is limited only to the amount of your tax. For example, if you had tax payable of $1,500 and then had Education Credits, Energy Credits, and/or Foreign Tax Credits amounting to more than $1,500. Your credits will be limited to $1,500 since that’s your tax payable and the credits are not refundable. On the other hand, there are a few credits that are refundable, as listed below in the actual text from Tax Tip 2012-41. Four Tax Credits that Can Boost Your Refund A tax credit is a dollar-for-dollar reduction of taxes owed. Some tax credits are refundable meaning if you are eligible and claim one, you […]
Share, tweet, print, email, like or pin this post:
11 Facts About the Child Tax Credit (2011)
Image via Wikipedia The IRS recently issued their Tax Tip 2012-29, which provides some key points about the Child Tax Credit. Below is the text of the tip: The Child Tax Credit is available to eligible taxpayers with qualifying children under age 17. The IRS would like you to know these eleven facts about the Child Tax Credit. Amount With the Child Tax Credit, you may be able to reduce your federal income tax by up to $1,000 for each qualifying child under age 17. Qualification A qualifying child for this credit is someone who meets the qualifying criteria of seven tests: age, relationship, support, dependent, joint return, citizenship and residence. Age Test To qualify, a child must have been under age 17 – age 16 or younger – at the end of 2011. Relationship Test To claim a child for purposes of the Child Tax Credit, the child must […]
Share, tweet, print, email, like or pin this post:
What Changed About the Earned Income Credit?
Image by didbygraham via Flickr I’ve received a lot of questions about this. Apparently as folks file their returns for the year, they are finding a difference in the amount of refund that they are due to receive this year versus last year. And as they look for answers, they often focus on the Earned Income Credit (EIC) and wonder if something changed. The answer is – very little changed. Certainly nothing that would have a significant impact on your income tax refund. There was one significant change, in that beginning in 2011 there was no advance payment of the EIC – in years past it was an option available for the taxpayer to receive his or her EIC in advance payments throughout the year rather than waiting until the tax return has been filed. Beginning with 2011, you have to wait to receive the EIC payment. Other than that, […]
Share, tweet, print, email, like or pin this post:
Review of 2011 Stats
Ed. Note: As in past years, I’m taking a break from my normal business of posting retirement, tax and other personal financial planning topics to report on the blog itself and the statistics we’ve seen in this, the 8th year of publication for this blog. I’ll be back to regular programming with the next entry. – jb Over the past year, this blog has seen continued growth. This year has been all about Social Security as much as anything. As you know, in October I released A Social Security Owner’s Manual, and many of you have picked up copies, thank you! Through your comments and email questions I have come to meet literally hundreds and hundreds of you over the years – and we’ve learned a lot together. I’ll take this opportunity to thank you for your tremendous support by reading, asking questions, and making comments on what I have […]
Share, tweet, print, email, like or pin this post:
End of Year Roth Conversion Strategy: Fill Up the Bracket
Image by agrilifetoday via Flickr If you’re in a relatively low tax bracket and have funds in a traditional IRA or Qualified Retirement Plan, chances are you might be in a position to set yourself up with tax-free income via a Roth Conversion. One method that can work in your favor is the “fill up the bracket” technique, and if you want to do this for 2011, you’re running out of time, it must be done by December 30 (December 31 is a Saturday). The way this works is that you determine what your regular income is, and then look at where you are with regard to your tax bracket. If there’s still some “headroom” in the current bracket, you could convert an amount, equal to or less than your “headroom”, from your traditional IRA to a Roth IRA. This way you are controlling the tax rate at which your […]
Share, tweet, print, email, like or pin this post:
Year End Income Tax Planning
Image via Wikipedia Once you’ve reached the last month of the tax year, there aren’t a lot of things that can be done to minimize your income taxes. But there are a few things that could be done. For example, you could double up your real estate taxes by prepaying next year’s tax during December. Doing this with, for example, a $3,000 per year real estate tax bill could result in a reduction of tax for the year of $750 if you’re in the 25% bracket. Keep in mind though, that you’ll have forked out this money long before it is actually due in most cases, and for the next year you won’t have this deduction available if you used it in this year. The same could be done with your charitable contributions – there’s no reason that you can’t make additional contributions to your favorite charities at the end […]
Share, tweet, print, email, like or pin this post:
Expiring Tax Provisions for 2011
Image by polapix via Flickr There are quite a few tax provisions that will be expiring at the end of 2011 – nowhere near the number of provisions that were set to expire at the end of 2010 (many of which were subsequently extended), but still there are quite a few sun-setting this year. Listed below are some of the major provisions that will expire at the end of 2011 that will affect individual taxpayers. Charitable Contributions from IRA The provision that allows an IRA owner, subject to Required Minimum Distributions (RMDs) and over age 70½ to make a Qualified Charitable Distribution (QCD) directly to a charity from his IRA will expire as of 12/31/2011. This provision allows the IRA owner to make this charitable contribution without having to recognize the income – which could have a profound effect on the taxpayer’s return. Remember, this one expired once before, at […]
Share, tweet, print, email, like or pin this post:
Expanded Adoption Tax Credit
Image via Wikipedia Recently the IRS published their Summertime Tax Tip 2011-10, which lists out six facts about the expanded adoption tax credit. The credit is considered “expanded” due to the changes made by the Affordable Care Act of 2010, which increased the amount of the credit, while also making the credit refundable. Refundable credits are such that, even if your tax on your tax return is less than the credit, whatever amount of your credit surpasses the tax can be refunded to you (much like the Earned Income Tax credit). Six Expanded Adoption Credit Facts Here are the six facts that the IRS lists: The adoption tax credit, which is as much as $13,170, offsets qualified adoption expenses making adoption possible for some families who could not otherwise afford it. Taxpayers who adopt a child in 2010 or 2011 may qualify if you adopted or attempted to adopt a […]
Share, tweet, print, email, like or pin this post:
Proposed Changes to the Inflation Index
Image by darkmatter via Flickr One of the many proposed changes that is being considered to help resolve the current budgetary issues is to change the index used to adjust Social Security benefits from the current method, using the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W, to a much more conservative index known as the Chained Consumer Price Index for all Urban Consumers (or C-CPI-U). (See this article on How Social Security COLAs are Calculated for more information.) Unfortunately, the reason behind making this is change is the fact that it will ultimately save money for the Social Security system, directly at the expense of the beneficiaries of that system. Here’s what you can expect: As an example, the CPI-W indicates a year-over-year increase from June 2010 to June 2011 of 4.1%. Over the same period, the C-CPI-U only shows an increase of 3.4%. This […]
Share, tweet, print, email, like or pin this post:
NonDeductible IRA Contributions: Good or Bad Idea?
Image by Sean MacEntee via Flickr If you find yourself in the position of having too high of an income to make a deductible contribution to your IRA for the year ($110,000 for joint filers in 2011, $66,000 for Single and Head of Household), you may be wondering if it’s a good idea to make a non-deductible contribution to your IRA. There are two opposing camps on this issue, and the deciding factor is how you’re intending to use the funds in the near term. It’s a Good Idea If you’re intending to convert your IRA to a Roth and your income is too high to just make the contribution directly to the Roth account, the non-deductible IRA may be the right choice for you. This way you’re effectively working around the income limitations of the Roth contribution ($179,000 for joint filers in 2011 or $122,000 for single or head […]
Share, tweet, print, email, like or pin this post:
Mileage Rate Adjusted for Second Half of 2011
Image via Wikipedia The IRS recently released Announcement 2011-40, in which was announced an increase of 4.5¢ per mile for the standard mileage rates for certain classes of vehicle use. This increase is due to the nationwide increase in gasoline prices. As you may already be aware, so far this year the business mileage rate has been 51¢ per mile. This will remain the same until June 30, 2011, and on July 1, 2011, the rate will increase to 55.5¢ per mile. You’ll have to keep good records (as always) on your mileage in order to properly take advantage of this increase. The medical and moving mileage rates will also increase by 4.5¢ to 23.5¢ a mile, up from 19¢ for the first six months of 2011. The rate for providing services for charitable organizations is set by statute and remains at 14¢ a mile. These rates will remain in […]
Share, tweet, print, email, like or pin this post:
Don’t Forget – Social Security Tax is Going Up Next Year!
Image via Wikipedia This year you may have been blissfully enjoying an increase in your paycheck without realizing it. Remember the Tax Act of 2010? One of the provisions in that little gem of legislation was to reduce the Social Security withholding amount for the calendar year 2011 by 2%. This means that you’re only having to pay out 4.2% for Social Security tax during the 2011 tax year – and next year you’ll back back in the 6.2% world. But that’s not where it stops. There is another increase in the offing for 2012: the tax wage ceiling is scheduled to increase as well, from the $106,800 level that it’s been at for the past two years, to an estimated $110,100. This means that if you’re at the top of the wage base, your withholding and employer portion of Social Security tax will increase from $11,107 in 2011 to […]
Share, tweet, print, email, like or pin this post:
Why Your Paycheck is Changing in 2011
After the passage of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (2010 Tax Act) late last year, there were certain changes that will impact your take-home pay in 2011, versus what you were seeing in 2010. For starters, although the 2010 Tax Act extended the tax rates to be the same as they were in 2010, as always there are increases in the tax tables which have a minor impact on your take-home pay. Typically, this change will increase your tax withheld, reducing your take-home pay. The 2010 Tax Act also included a provision to reduce the withholding requirement for Social Security from 6.2% to 4.2%, which will have the effect of increasing your take-home pay by 2%. One other change to your paycheck came about because of a provision that was not included to be extended as a part of the 2010 Tax Act […]
Share, tweet, print, email, like or pin this post:
Over-The-Counter Drugs via Your Flex-Spending Account
In case you missed it when I wrote about Guidance from the IRS on Flex Spending Plans – one of the changes you’ll have to deal with beginning with 2011 is that you can no longer use your Flex-Spending Account (FSA) to reimburse yourself for over-the-counter drugs like you’ve been able to do in the past. However, there is a way to get the over-the-counter (OTC) drugs that your physician recommends and use your FSA funds to pay for it… if your physician gives you a prescription for it. Even though the IRS has disallowed the use of FSA funds for OTC drugs, if your physician gives you a prescription for the OTC drug, your FSA can be used to pay for the drug. There are some rules though: first, the prescription has to provided to the pharmacist prior to the purchase, and the pharmacist must dispense the drug just […]
Share, tweet, print, email, like or pin this post:
Credit for Energy Saving Home Improvements for 2011
This tax credit has undergone a change from previous years. In 2010, for example, you could achieve a credit for as much as 30% of the cost of your energy-saving home improvements, with a ceiling of $1,500. Beginning January 1, 2011, the credit rate is now just 10%, and the ceiling has been lowered to $500. Something important to keep in mind about this credit: any credit claimed in prior years (2009 and/or 2010) will be used to reduce your ceiling. In other words, if you claimed the full credit (or any amount up to $500) on a previous year’s tax return, you have no energy-saving home improvement credit available to you. In addition to the changes above, there are specific item caps in place as well. For example, if you are putting in a new furnace or water heater, the credit for those units is capped at $150. If […]
Share, tweet, print, email, like or pin this post:
Earned Income Tax Credit 2011 Style
There have been a few changes to the Earned Income Tax Credit (EITC) for 2011 and years beyond. Some of these changes are pretty significant, others are more of the common variety. No More Advance Payments In the past, if a taxpayer was likely to be eligible to receive the EITC on filing his or her return, the law allowed the taxpayer to apply for and receive advance payment of a portion of the credit. This is because the credit is refundable – even if you don’t owe any tax on your tax return, you’ll get something back with the EITC. With the passage of the Education Jobs and Medicaid Assistance Act of 2010 signed into law August 10, 2010, the Advance payment of EITC was repealed, effective after December 31, 2010. Third-Child EITC The American Recovery and Reinvestment Act (ARRA) increased the EITC by 5% for families with three […]
Share, tweet, print, email, like or pin this post:
2011 IRA MAGI Limits – Married Filing Separately
Note: for the purposes of IRA MAGI qualification, a person filing as Married Filing Separately, who did not live with his or her spouse during the tax year, is considered Single and will use the information on that page to determine eligibility. For a Traditional IRA (Filing Status Married Filing Separately): If you are not covered by a retirement plan at your job and your spouse is not covered by a retirement plan, there is no MAGI limitation on your deductible contributions. If you are covered by a retirement plan at your job and your MAGI is less than $10,000, you are entitled to a partial deduction, reduced by 50% for every dollar (or 60% if over age 50), and rounded up to the nearest $10. If the amount works out to less than $200, you are allowed to contribute at least $200. If you are covered by a retirement […]
Sterling Raskie, MSFS, CFP®, ChFC®
The latest in our Owner’s Manual series, A 401(k) Owner’s Manual, was published in January 2020 and is available on 
A Medicare Owner’s Manual, is updated with 2020 facts and figures. This manual is available on 
Social Security for the Suddenly Single can be found on Amazon at 
Sterling’s first book, Lose Weight Save Money, can be 
An IRA Owner’s Manual, 2nd Edition is available for purchase on Amazon. Click the link to choose the 
Jim’s book – A Social Security Owner’s Manual, is now available on Amazon. Click this link for the 
And if you’ve come here to learn about queuing waterfowl, I apologize for the confusion. You may want to discuss your question with Lester, my loyal watchduck and self-proclaimed “advisor’s advisor”.