I’ve written much about the Net Unrealized Appreciation (NUA) treatment for company stock in a 401(k) plan – this is the provision that allows you to pull out company stock as part of a full distribution from the plan and get favorable tax treatment for the gain on the stock. More about NUA can be found in this article about Net Unrealized Appreciation Treatment. One of the factors in that article speaks to a special way to allocate the basis (original cost) of the stock. Specifically, if handled correctly, the ordinary income tax on the NUA move can be minimized or eliminated, and the capital gains treatment maximized. However. (As you know, there’s always a however in life!) The problem with this move is that you absolutely must get the 401(k) administrator to go along with your plan – in order to make sure that the 1099R generated by your […]
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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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Increase Your Income Tax Knowledge
If you find yourself stymied by the Income Tax Code (more power to you if you don’t!) and you’d like to get a better understanding of this very important area of your financial life, the IRS has many resources to help you improve your knowledge of taxes. At the risk of sounding churlish, I suggest that if you’re an incurable insomniac these resources can also be used in lieu of the strongest over-the-counter sleep aid drug with satisfactory results and few (if any) side-effects. The IRS recently published their Summertime Tax Tip 2013-21, which describes several of the resources available to help you gain a better understanding of income taxes. The text of the Tip follows, in its entirety: Explore a Quick and Simple Way of Understanding Taxes If you’re a student or teacher, the summer months may be a nice break from class, but they’re also a good time […]
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Review Tax Withholding In Time to Fix Problems
At this time of year, with a few months remaining on the calendar, it can be a good time to review your income and withholding to ensure that you will have enough in tax payments to ensure that you don’t get hit with underpayment penalties next year when you file your return. This can be a relatively simple activity – all you need to do is gather your most recent pay-stubs and all of your other income information together and produce an estimate of your tax burden. You’ll then compare the estimated tax with the amount of withholding and estimated tax payments that you’ve made up to date. To do the estimates, you can use the worksheets available within Form 1040-ES, as well as the IRS’s Withholding Calculator online tool. (click the links to go to the tool or form) If your withholding is significantly less than the estimated tax […]
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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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Tips When Renting Out Your Vacation Home
If you have a vacation home that you only use during for brief vacations throughout the year, you might have entertained the thought of renting out the home to defray some of your expenses. Using a property for mixed purposes – that is, partly as personal and partly as a rental (business use) – can lead to some complications with regard to your income taxes. This is due to the fact that the income earned from renting out the property is likely to be taxable income, which you will need to report on your income tax return. Of course, you’re allowed to deduct the expenses that are related to the production of income, and then you’re only taxed on the net income after the deductions. The IRS recently published their Summertime Tax Tip 2013-08, which provides some of the guidelines to keep in mind if you’re going to rent out […]
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Financial Record Storage and Safekeeping
We’ve all got reams of papers, paystubs, receipts, sticky notes and possibly even old matchbook covers with important financial information stored on them. It’s important to keep some of these documents safe, in order to provide proof of purchase, documentation for deductions, and the like. You never know when a significant event could occur in your home that could put these documents at risk. Fire, flooding, tornadoes, blizzards, and three-year-olds can emerge out of nowhere and could possibly destroy your important documents. We’ve discussed how long to keep these documents in the past. Recently the IRS published their Summertime Tax Tip 2013-04, which details some recommendations for safe storage of your documents. The text of the Tip follows. Keep Tax and Financial Records Safe in Case of a Natural Disaster Hurricanes, tornadoes, floods and other natural disasters are more common in the summer. The IRS encourages you to take a […]
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When is a RMD a RMD?
I receive quite a few questions from folks looking for clarification on the rules around Required Minimum Distributions upon reaching age 70½, so I thought I’d jot down a couple of facts about them that you may find interesting. When can I take the distribution? Looking through some notes from readers I found one where it was asked (this is paraphrased for clarity): My birthdate is April 10, 1943, so I will reach age 70½ on October 10, 2013. Do I need to wait until October 10 or after to take a distribution so that it is counted as my RMD? I responded to this question by saying that, to be safe, I suggest the reader wait until after October 10 to take the distribution. However. (there’s always a however in life, isn’t there?) I subsequently received a message from a reader (thanks, TAM!) with the following updated information: It […]
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Last-Minute Tax Tips
Since today is D-Day for income tax filing, I’ve pulled together a few recent tips that the IRS published. These tips cover a few of the areas that you may find interesting, including how to get a six-month extension for your filing (but not for payment of tax), errors to avoid as you complete your tax return, how to make IRA contributions, and tips for the self-employed at tax time. This is a much longer post than I normally write, but I think it has a lot of very good and very timely information that will be useful today. The actual text of these tips are listed below, with the reference number of each tip. IRS Newswire IR-2013-38 Can’t File by April 15? Use Free File to Get a Six-Month Extension; E-Pay and Payment Agreement Options Available to People Who Owe Tax WASHINGTON – The Internal Revenue Service today […]
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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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Deducting Medical Expenses from Your Income
Among the types of expenses that are allowed to be deducted from your income is expenses that you’ve paid for medical insurance, medical care, and certain other expenses. This can get a bit complicated to understand what expenses are deductible, and the IRS recently issued a Tax Tip that will help you to understand how it all works. The complete text of IRS Tax Tip 2013-25 is listed below. Seven Important Tax Facts about Medical and Dental Expenses If you paid for medical or dental expenses in 2012, you may be able to get a tax deduction for costs not covered by insurance. The IRS wants you to know these seven facts about claiming the medical and dental expense deduction. You must itemize. You can only claim medical and dental expenses for costs not covered by insurance if you itemize deductions on your tax return. You cannot claim medical and […]
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What You Need to Know About the Alternative Minimum Tax (AMT)
When you have high taxable income and certain deductions and exclusions from income, you may be subject to the Alternative Minimum Tax, or AMT. This is a nearly flat-tax, which excludes a higher amount of income from the regular income tax. For 2012 taxes, the exclusion of income is $50,600 for singles, and $78,750 for married couples. The “nearly flat” tax rate starts at 26% and the upper end rate is 28%. Under the AMT, no deduction is allowed for the standard deduction, or for personal exemptions. State and local taxes are also not allowed to be deducted from your income. Your other itemized deductions are allowed, at least to a certain extent. Recently the IRS issued their Tax Tip 2013-17, which lists Five Facts to Know About AMT. The actual text of this Tip is below. Five Facts to Know about AMT The Alternative Minimum Tax may apply to […]
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Choosing a Tax Preparer
It’s that time of year again – time to do your income taxes. While lots of folks will opt for the “box”, using one of the many do-it-yourself options like TurboTax, Tax Cut and others, many folks will choose to go to a professional tax preparer to have their returns prepared. There are several types of professionals who are qualified to prepare your tax return: Certified Public Accountants (CPAs), attorneys, Enrolled Agents (EAs), and unenrolled tax preparers. You’re likely familiar with CPAs and attorneys, so I won’t go into explaining them. Enrolled Agents (EAs) are enrolled with the IRS and empowered to represent taxpayers before the IRS. This type of professional must pass a rigorous series of exams to be enrolled, and then must complete 72 hours of continuing education every three years to remain enrolled. CPAs, attorneys and EAs (as well as Enrolled Actuaries) are among a group known […]
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Getting a Transcript From the IRS
Often when dealing with an issue regarding a prior year’s tax return it is necessary to get a copy of the information that the IRS has on record for your return as filed. Of course, you should always keep a copy of your original return, but in the absence of an original, the IRS’s record, known as a “transcript”, stands as the only way for you to have access to the filed information. A couple of months ago the IRS sent around their Summertime Tax Tip 2012-18 which details how you can request and receive a transcript for a prior year’s return. The actual text of IRS Summertime Tax Tap 2012-18 follows: How to Get a Transcript or Copy of a Prior Year’s Tax Return from the IRS Taxpayers should keep copies of their tax returns, but if they cannot be located or have been destroyed during natural disasters or […]
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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 […]
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Charitable Contribution Tips
As the tax year comes to a close, many folks are looking for ways to reduce their taxes by making charitable contributions. During December’s various holidays many folks are inclined to make extra contributions as well, in the spirit of the season. The IRS recently published a Special Edition Tax Tip 2012-15, which offers tips for tax benefits of gifts that you might make. The actual text of the Tip is reproduced below: IRS Offers Tax Tips for “The Season of Giving” December is traditionally a month for giving generously to charities, friends and family. But it’s also a time that can have a major impact on the tax return you’ll file in the New Year. Here are some “Season of Giving” tips from the IRS covering everything from charity donations to refund planning: Contribute to Qualified Charities. If you plan to take an itemized charitable deduction on your 2012 […]
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A friend at the IRS
Did you know that there is someone working at the IRS that you can turn to when you have problems with your federal taxes? There is. It’s called the Taxpayer Advocate Service, an independent arm of the IRS whose job is specifically to help taxpayers with their problems. The IRS published a tax tip (back a couple of months ago) which lists ten facts that the IRS wants you to know. The actual text of Summertime Tax Tip 2012-12 is below. Taxpayer Advocate Service: Helping You Resolve Tax Problems The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that helps taxpayers who are experiencing unresolved federal tax problems. Here are 10 things every taxpayer should know about TAS: The Taxpayer Advocate Service is your voice at the IRS. TAS assistance is free and tailored to meet your needs. You may be eligible for TAS help if you’ve […]
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IRS Warns of Phony Websites
It pays to be careful out there on the interwebs. You never know what you might be getting into if you don’t pay close attention to the addresses that you click on. Recently the IRS issued a warning about certain scams that have been making the rounds recently. The funny thing is, they had to issue their warning a second time because they initially posted an incorrect address. At any rate, the text of the IRS’ Corrected Special Edition Tax Tip 2012-13 is listed below: Don’t Fall for Phony IRS Websites The Internal Revenue Service is issuing a warning about a new tax scam that uses a website that mimics the IRS e-Services online registration page. The actual IRS e-Services page offers web-based products for tax preparers, not the general public. The phony web page looks almost identical to the real one. The IRS gets many reports of fake websites […]
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 
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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”.