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 […]
2013 tax year
Charitable Donations
This time of year many people find it in their hearts to give. They’ll give to friends, family, loved ones and charitable organizations that can help maximize the gift such as a church, charity, or foundation. Last week I had written about the law of reciprocity and giving, and this week I’d like to mention how you can make your giving work in favor when tax season rolls around. As of this writing there are about 11 days left in 2013. Some individuals will be looking to see how much they can give or how much more they can give in order to receive the biggest tax deduction they can for charitable giving. Of course, gifts to friends and family are not deductible, but there are times when gifts or donations are completely deductible and may be to the tax advantage of the person giving or donating the gift. According to […]
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Flex Spending “Use it or Lose it” is a Thing of the Past
If you have a Flex Spending Account (FSA) for healthcare expenses through your employer, you are familiar with the “use it or lose it” concept. Each year during December, it’s a mad dash to get that last-minute eye exam, or fill prescriptions, or what-have-you to use up the Flex Spending money before the end of the year. That tradition will, for many folks, be a thing of the past if their employers adopt the carryover rule now allowed by IRS. Traditionally, with a Flex Spending Account (FSA) for healthcare expenses you arrange with your employer to withhold a certain amount of money out of each paycheck and then as you incur expenses for healthcare throughout the year, you can be reimbursed for those expenses up to the amount of your annual withholding for FSA. The money withheld for the FSA is pre-tax, so it’s to your advantage to take part […]
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You’re Running Out of Time If You Want to Use These 13 Tax Provisions
Every year we say goodbye to certain things that we’ve come to know and love, and certain provisions of the tax law are not excluded from this treatment. Portions of the tax law are intentionally added with short life-spans, and others are retired from time to time as their intended use has either changed or been eliminated. Listed below are the tax provisions (according to the Joint Committee on Taxation) that will be expiring at the end of the year – some we’ll be glad to see go, others we’ll wish would stay around a while. Some will be extended by Congress, either at the last moment or on into the new year, as has happened in the past. Note: This article is aimed toward individual taxpayers rather than businesses, so I’ve only listed those provisions that will have impact on individuals. There are quite a few provisions expiring that […]
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So, What’s Going on at the IRS During the Shutdown?
While the government is in hiatus, what’s going on at the IRS? Well, not a lot. As I understand it, none of the phone lines are being manned, so if you call in for any reason you wind up with the automatons handling your questions. The website is still in operation as well (at least partly). So, you may be able to do a few things, but you’re limited. For example, if you need a transcript of a prior year’s return, I understand that you can request this for yourself – but you can’t ask your accountant or anyone else operating as POA for you to request a transcript. I’ve experienced this myself in attempting to get a transcript for a client – I was shut down. (The same individual had trouble getting a transcript for himself, as the IRS records of his address didn’t match what he was entering […]
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Same-Sex Joint Filing
One result of the strike-down of DOMA is that legally-married same-sex couples will now be required to file federal tax returns as marrieds – either married-filing-jointly or married-filing-separately. This ruling takes effect on September 16, 2013. This means that, regardless of how the members of the couple filed their returns in the past, they only have the MFJ or MFS filing statuses to choose from for returns filed on or after September 16, 2013. For couples who have not filed a return for 2012, now is the time to review whether filing as Single status provides a superior result (lower overall taxes) versus the MFS or MFJ option. If filing Single or Head of Household works out better for the couple, the (presumably) extended 2012 tax return must be filed before September 16, 2013 in order to utilize a Single or Head of Household filing status. After that date, the […]
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3 Reasons to use the new safe harbor home office deduction and two reasons not to
Home office workers! In case you hadn’t heard about it, the IRS made some changes to the way the home office deduction works for 2013. Essentially, you are now allowed to deduct a flat $5 per square foot of dedicated office space, with a maximum of 300 square feet. But this new “safe harbor” option isn’t for everyone. Listed below are three reasons this may be good for you, and a couple of reasons that you might want to use the old method. 3 Reasons It’s a Good Thing Depreciation recapture not needed any longer – if you are just starting out taking the home office deduction, you can forget about this concept of “depreciation recapture”. This is a required add-back (actually basis reduction) when you sell your home. If you took the old-style home office deduction, including depreciation of your home office space, you’ll still need to keep records of […]
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Medicare Part B
The next letter in our Medicare alphabet soup is Part B. Part B is essentially medical insurance that covers doctor’s services, outpatient care, home health services, and durable medical equipment. It will also cover some other services as well as well as many preventative services. As far as what doctors will and will not cover Part B depends on whether or not they have agreed to assignment. Assignment is simply your doctor or another health care provider agreeing to be paid directly by Medicare and be willing to accept the payment amount that Medicare decides is the value of the service. Agreement also means the doctor or health care provider cannot charge you any more than what the deductible and coinsurance amounts are. The basic cost for Medicare Part B for 2013 is $104.90 monthly. Individuals with higher AGI may end up paying more. The table below, courtesy of Medicare.gov shows […]
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State Income Tax and Retirement Income
On only a few rare occasions does it make sense to defer money to your 401(k) or other employer sponsored plan instead of a Roth IRA. Those occasions include when your gross income excludes you from contributing directly to a Roth IRA (you can still convert), you are currently at a very high tax rate or the case of when you live in a state where retirement income is excluded from state taxation. Here in Illinois, the current law exempts retirement income from being taxed at the state level. What this means, is that any contributions to a 401(k), 403(b), SEP, SIMPLE and 457 avoid state income taxation. Qualified distributions at retirement are only taxed at the federal level, and then only as income. If you contribute directly to a Roth IRA that money is after-tax money going in. After-tax in this case meaning it’s been already taxed at the […]
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Estimated Tax Payments
When you have income from sources other than traditional employment, it often becomes necessary to make Estimated Tax payments since you don’t have withholding (as you would from traditional wages). This income may be from self-employment, rents or royalties, or from interest and dividends from your investments. Income of this variety may also be from pensions, Social Security, and IRAs or qualified retirement plans. Sometimes you can set up the payments from various sources to withhold tax payments and the provider will then send the withheld tax to the IRS on your behalf. These tax payments will be reported to you on your 1099R, SSA-1099, and/or other specific tax documents that you receive at the end of the year. If you don’t have another form of withholding, you may need to make estimated tax payments throughout the year. The IRS recently issued their Tax Tip 2013-49, which details Six Tips […]
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What Income is Taxable?
It may be tough to figure out which parts of your income you’ve received over the year are taxable, and what parts are not taxable. This is because certain kinds of income may seem like they should not be taxed (but they are), while other items of income seem like they should be taxed (but they’re not). The IRS has published a Tax Tip to help understand which income is taxable and which is not. The complete text of IRS Tax Tip 2013-12 is detailed below. Taxable and Nontaxable Income Most types of income are taxable, but some are not. Income can include money, property or services that you receive. Here are some examples of income that are usually not taxable: Child support payments; Gifts, bequests and inheritances; Welfare benefits; Damage awards for physical injury or sickness; Cash rebates from a dealer or manufacturer for an item you buy; and […]
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Adoption Credit for Tax Year 2012 and beyond
As you probably already know if you’re in the position to seek the adoption credit, this credit has undergone some changes for the 2012 filing season. In the past, for tax years 2010 and 2011, the adoption credit was a refundable credit – meaning that you could receive the entire credit regardless of the amount of tax you have to pay. For example, if you had $10,000 of adoption credit and your tax return otherwise indicates that your tax is $6,000, you were able to claim the entire credit and $4,000 would be refunded to you. This was in addition to any overpayment you may have made on your withholding. However, for 2012 (and beyond, unless the rules change again) the adoption credit is back to being non-refundable. Now, in the situation described above, the maximum amount of credit that you could claim is equal to your tax, or $6,000. […]
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Earnings Tests Apply to Spousal and Survivor Social Security Benefits As Well
If you’re receiving Spousal or Survivor Social Security benefits and you’re under Full Retirement Age, you need to know that any earnings that you have can have an impact on the benefits that you’re receiving. These are the same limits that apply to regular retirement Social Security benefits, and they apply in the same manner. For 2013, if you will not reach Full Retirement Age during this calendar year, the earnings limit is $15,120, or $1,260 per month. For every $2 over that limit that you earn for the year, your Social Security benefit will be reduced by $1. For example, if you earned $20,000 for the year, you are over the limit by $4,880, and you’ll lose $2,440 of your benefit. If you will reach Full Retirement Age in 2013, the earnings limit is $40,080, or $3,340 per month – and the treatment is different. In this case, for […]
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IRS Announces A New Home Office Deduction Option for Tax Year 2013
For folks who work out of their homes, including home-based businesses and telecommuters among others, there is a new alternative available starting with the 2013 tax year for claiming the Home Office Deduction. This new method saves a lot of extra recordkeeping and simplifies the filing process considerably. In the past (including tax year 2012 which you’ll file by April 15, 2013), to take the home office deduction you are required to fill out Form 8829, Expenses for Business Use of Your Home. This form requires you to compile all of your expenses for your home and then allocate those expenses to the portion of your home that is used “regularly and exclusively” for business purposes. IMPORTANT NOTE: For your 2012 tax return (which you’re filing in 2013) you must use Form 8829 as usual. The new method will be available on your 2013 tax return which you’ll file in […]
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History of the 401(k)
Back in 1978, the year of 3 popes, Congress passed the Revenue Act of 1978 which included a provision that became Internal Revenue Code section 401(k). The 401(k) has roots going back several decades earlier, with many different rulings (Hicks v. US, Revenue Ruling 56-497, and Revenue Ruling 63-180, among others), providing the groundwork for the specialized tax treatment of salary deferrals that Section 401(k) enabled. More groundwork for the 401(k) as we know it was laid with the passage of the Employee Retirement Income Security Act (ERISA) of 1974, in that the Treasury Department was restricted from putting forth a particular set of regulations that would have reduced or eliminated the tax-deferral benefits of deferred compensation plans. After the Treasury Department withdrew the proposed regulations in 1978, the way was cleared to introduce the 401(k) plan with the Revenue Act. This particular section of the Code enabled profit-sharing plans […]
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Qualified Charitable Contributions From Your IRA in 2012 and 2013
With the passage of the American Taxpayer Relief Act of 2012, the provision for Qualified Charitable Contributions (QCD) from an IRA has been extended to the end of calendar year 2013. Great news, right? But what does that mean? Can you make a QCD for 2012? As you know, the QCD provision is limited to taxpayers who are over age 70½ and thus subject to Required Minimum Distributions (RMD). In addition, the QCD must normally be sent directly from your IRA custodian to the qualified charity – it can’t be taken in cash and then sent to the charity. If you qualify and you do the distribution correctly, you will not have to include the distribution on your tax return as income. You also would not count the charitable contribution as an itemized deduction. If you happened to send a distribution directly to a charity from your IRA during 2012, […]
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2013 MAGI Limits for IRAs – Married Filing Jointly or Qualifying Widow(er)
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 Jointly or Qualifying Widow(er)): 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 work, and your MAGI is $95,000 or less, there is also no limitation on your deductible contributions to a traditional IRA. If you are covered by a retirement plan at your job and your MAGI is more than $95,000 but less than $115,000, you are entitled to a partial deduction, reduced by 25% for every dollar […]
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2013 MAGI Limits – Single or Head of Household
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 this page to determine eligibility. For a Traditional IRA (Filing Status Single or Head of Household): If you are not covered by a retirement plan at your job, there is no MAGI limitation on your deductible contributions. If you are covered by a retirement plan at work, if your MAGI is $59,000 or less, there is also no limitation on your deductible contributions to a traditional IRA. If you are covered by a retirement plan at your job and your MAGI is more than $59,000 but less than $69,000, you are entitled to a partial deduction, reduced by 50% for every dollar over the lower limit (or 60% if over age 50), and […]
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2013 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 […]
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IRA Distributions Are Not Subject to the New 3.8% Surtax
As you may be well aware, beginning in 2013 there will be a brand spanking new tax added to unearned income if your Modified Adjusted Gross Income is greater than $200,000 for Singles, and $250,000 for Married Filing Jointly. Married folks filing separately are affected above a $125,000 threshold. This surtax is to help bolster the Medicare system, and it applies specifically to unearned income. What’s important to know is that IRA distributions (among other things) are not included as impacted by this new surtax. This means that when you make significant IRA distributions (beginning in 2013), such as to convert to a Roth IRA, this surtax will not be applied to your distribution. Other types of unearned income that are specifically exempted from this surtax includes tax-free interest and other payouts from retirement plans such as 401(k) plans, deferred compensation plans, and pension plans. Income that is subject to […]
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”.