If your volunteering activities find you traveling for charity, you may be able to take valuable tax deductions for your travel expenses.
income tax
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. […]
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Tax Refund Myths Debunked
Recently the IRS published a Special Edition Tax Tip which debunks some very common myths about your income tax refund. You may find some of these surprising. These myths are pervasive and can lead you astray if you believe them. In my experience the information in the Tip below is great advice for finding information about your tax refund. The complete text of the Tip (IRS Special Edition Tax Tip 2017-02) follows below: IRS Debunks Myths Surrounding Your Tax Refund As millions of people begin filing their tax returns, the Internal Revenue Service reminds taxpayers about some basic tips to keep in mind about refunds. During the early parts of the tax season, taxpayers are anxious to get details about their refunds. In some social media, this can lead to misunderstandings and speculation about refunds. The IRS offers these tips to keep in mind. Myth 1: All Refunds Are Delayed […]
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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. […]
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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 […]
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Missed Rollover Automatic Waivers
When you rollover funds from one retirement plan to another, a missed rollover occurs if you can’t complete the rollover within 60 days. A missed rollover results in a taxable distribution. However, there have always been certain specific situations that provide for exceptions to this rule, but any reasons outside that limited list required the taxpayer to request a Private Letter Ruling (PLR) from the IRS. The PLR request process could result in some significant costs for lawyers and fees. Rev Proc 2016-47: Missed Rollover Waivers Recently the IRS published a new procedure for handling an expanded list of exceptions for a missed rollover. This procedure, Rev. Proc. 2016-47, outlines eleven possible exceptions to the missed rollover rule. The eleven exceptions are: an error was committed by the financial institution receiving the contribution or making the distribution to which the contribution relates; the distribution, having been made in the form of a check, was […]
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If your hobby makes money, read this
Lots of us have a hobby – whether it’s collecting stamps, raising honeybees, restoring old Jeeps, or mounting a wild-cat – and sometimes these hobbies can produce income. If you have a hobby that makes money, you may need to claim this money as income, net of your expenses, on your tax return. Recently the IRS published their Summertime Tax Tip with Five Tax Tips about Hobbies that Earn Income, providing useful information about income-producing hobbies. The text of the Tip is below: Five Tax Tips about Hobbies that Earn Income Millions of people enjoy hobbies. Hobbies can also be a source of income. Some of these types of hobbies include stamp or coin collecting, craft making and horse breeding. You must report any income you get from a hobby on your tax return. How you report the income from hobbies is different from how you report income from a […]
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Canceled debt and your taxes
When you have a canceled debt, you may think you’re done with that old nuisance. Unfortunately, the IRS sees it otherwise. Technically, since you owed money beforehand and now you don’t, your financial situation is increased by the amount of canceled debt. When you have an increase to your financial situation, this is known as income. And income, as you know, is quite often taxable – but sometimes there are ways to exclude the canceled debt from your income for tax purposes. The IRS recently issued a Tax Tip (Tax Tip 2016-30) which details some important information that you need to know about canceled debt, including HAMP modifications and other items. The actual text of the Tip follows: Top 10 Tax Tips about Debt Cancellation If your lender cancels part or all of your debt, it is usually considered income and you normally must pay tax on that amount. However, […]
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Don’t Forget to Make Your IRA Contribution by April 18!
When filling out your tax return, it’s allowable to deduct the amount of your regular IRA contribution when filing even though you may not have already made the contribution. You’re allowed to make an IRA contribution for tax year 2015 up to the original filing deadline of your tax return. This year, that date is April 18, 2016. The problem is that sometimes we file the tax return way early in the year, and then we forget about the IRA contribution. As of the posting of this article, you have 1 week to make your contribution to your IRA to have it counted for tax year 2015. What To Do If You Miss the Deadline If you don’t make the contribution on time, you’re in for some nasty surprises unless you take some corrective actions. If you find yourself on April 19, 2016 without having made your IRA contribution and […]
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Taxes and Your Child
When a child has unearned income from investments in his or her own name, taxes can be a bit tricky. Depending on how much the unearned income is, part of it may be taxed at the child’s parent’s tax rate, for example. Recently the IRS published their Tax Tip 2016-52, which details What You Should Know about Children with Investment Income. The text of the Tip is below: What You Should Know about Children with Investment Income Special tax rules may apply to some children who receive investment income. The rules may affect the amount of tax and how to report the income. Here are five important points to keep in mind if your child has investment income: Investment Income. Investment income generally includes interest, dividends and capital gains. It also includes other unearned income, such as from a trust. Parent’s Tax Rate. If your child’s total investment income is […]
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IRS Reports 9 Common Tax Prep Errors
Unless you’ve been under a rock for the past several years, you know that this time of year is tax season. If you haven’t already filed your 2015 income tax return, of course you’ve got some work ahead of you. Unfortunately filing your tax return often results in errors – and these can be quite costly in terms of delays in processing as well as potential penalties and interest if your error results in underpayment of tax. In addition, an error on your return could result in missing out on refunds or credits that you are entitled to. Recently the IRS issued Tax Tip 2016-42, which lists out 9 common filing errors that they see, and tips to avoid the errors. The actual text of the Tip follows: Avoid Errors; File an Accurate Return The IRS encourages you to file an accurate tax return. Take extra time if you need […]
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Why You’re Getting Form 1095
Many taxpayers are receiving a new form in the mail this tax season – Form 1095, either A, B, or C. This is because of the Obamacare law which requires that taxpayers have healthcare coverage. Form 1095 provides documentation of the taxpayer’s coverage by healthcare insurance. Depending upon the type of coverage you have, you will receive a certain type of form. And what should you do with this form? Form 1095 A If you have coverage through the Health Insurance Marketplace (established as a result of Obamacare), you’ll receive Form 1095-A. This form is used when you fill out your income tax return for the year, so that your tax credit for the healthcare premium can be reconciled, especially if you received the premium credit in advance. Form 8962 is filled out and filed with your tax return, using the information in Form 1095 A. If your advance payments […]
Sterling Raskie, MSFS, CFP®, ChFC®
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