How to Save on Retirement Taxes

Having a retirement account is an absolute must for today’s Americans. However, if these accounts are not used wisely, they can lead to having to pay lots of tax penalties, as well as other costs and fees.  

Therefore, the first thing you should do, when you open a retirement account, is to study the fine print. What are the penalties for drawing money out early or late? When you know the regulations surrounding your retirement account, you can make informed decisions about how to use it. If you do that and follow a few other tips, you can probably save quite a bit in retirement taxes.

Contribute to a 401(k)

Looking for a way to put off paying income tax? If so, then consider contributing to a 401(k). You can contribute as much as $18,000 to your plan without having to pay a dime of income tax on it until you withdraw it. That’s a pretty sweet deal, right? Definitely take advantage of this perk.

Withdrawal from a Roth

If you know you’re going to have to make a withdrawal, do it from your Roth IRA. Yes, the money in the account is taxed, but withdrawing doesn’t cost retired individuals anything. Obviously, you want to leave your money where it is as much as possible, but if you absolutely have to make a withdrawal, do it the smart (free!) way.

Take Advantage of the Saver’s Credit

If your adjusted gross income is below $30,500 (for singles) or $61,000 (for married couples), then you can claim the “saver’s credit” for contributions made to your retirement accounts. This credit, which can equal up to $2,000 for individuals and $4,000 for couples, is in addition to any other tax deductions for retirement accounts, so it’s a truly great way to save big. The more you contribute to a 401(k) or Roth IRA throughout the year and the lower your income, the higher the credit you are likely to receive.

Keep Working

In all seriousness, you should retire when you’re ready. If you’re not ready just yet and are still working, then know that you can delay withdrawals from your 401(k) until the day you actually retire. This option only extends to those who are over 70 and who don’t own the companies they work for. If you meet those eligibility requirements, then you can start saving!

Obviously, there are lots of great ways to save on retirement taxes. If you follow these tips and stay informed about all of your accounts and how they work, you can enjoy great savings and, eventually, an even greater retirement!

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Is Your Will Up to Date?

When was the last time you reviewed your will? People generally make wills to guarantee the proper disposition of their money and property, which is why it's a good idea to consult your CPA when it's time to create or update your will.

We recommend that you revisit your will every time you experience a major life event, such as marriage, the birth of a child, retirement or other significant milestones. Even if there is no 

meaningful change in your life, it's smart to review the document every couple of years to ensure it still addresses all your estate concerns and reflects your wishes. Changes in the value of your investments-such as a stock portfolio or real estate-may also require adjustments in your estate plans.

Reviewing your will may raise questions about various areas of your financial life, including your retirement or estate planning, college savings or other financial concerns. Be sure to tum to us for the perspective and advice you need to make the best choices.

The Income Tax Waiting Game - When To Stop Playing

When you choose to file your income tax online or with the help of an accountant, you are usually given an estimate of how much you can expect to receive in terms of income tax. When that money doesn’t come as quickly as you might hope, however, you may start to worry. You might fear that there was a problem with your return or some other issue. Instead of panicking, know that there are things you can do, other than just waiting it out, to get answers and ease your mind.  

File Correctly

You can eliminate a lot of needless worry ahead of time by making sure you file your tax return correctly and accurately. If you’re filing yourself, resist the temptation to be dishonest. Also check and double-check your forms and records to increase the likelihood of an error-free tax return. When your tax documents are submitted without error, you probably won’t have to wait around on your income tax. And, even if you do, you’ll have an honest conscious and no need to worry.

If your taxes are complicated or you just don’t think you can handle them on your own, hire someone to do it for you. The cost of hiring an accountant is usually nothing compared to the relief of knowing your taxes were done professionally and accurately.

Where’s My Refund?

Once your taxes have been filed, you’re usually given an estimate of when you can expect your tax refund. This is always a rough estimate though so don’t panic if you don’t get your money on the exact estimated date.

Another good reason not to panic is that you can actually track the progress of your refund using the IRS’ Where’s My Refund? feature. The website is updated overnight, so you can check it once a day to find out the status of your refund and when you can expect it.

Potential Witholdings

Barring an error on your return, there are some legitimate reasons that you may not have received your tax refund. Depending on where you live, taxes can be withheld (sometimes permanently) if you owe any of the following:

l  Unpaid child support

l  Past tax debt

l  Student loan debt

l  Unpaid state taxes

If one of these issues is holding up your return, you’ll receive a notification from the IRS. Unfortunately, if your refund isn’t given because of a legitimate withholding reason, there’s really nothing you can do.

When to Stop Waiting

What should you do if you filed correctly, there’s no reason you know of to withhold your taxes, and you still haven’t gotten your refund? Well, first of all, you should keep waiting. The IRS is busy and short-staffed.

You should stop just waiting, however, if you haven’t heard anything about a month or so after you’ve filed. If that happens, check the aforementioned IRS refund tool. If it says your check has been sent, but you haven’t gotten it, request a replacement check.

If it hasn’t been sent and you don’t know why, then you’ll need to contact the IRS directly to find out what the problem (and the hold up!) is. Usually, though, the IRS will have already been in contact with you.

As you can see, Tax refunds can and do get held up, but be patient and take action when necessary, and everything should turn out okay

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How Does the New Rules on Estate Planning Affect You

You may have heard that there are new rules on estate taxes as a result of the new tax law enacted in early 2013.  Effective Jan. 1, 2013, the top tax rate on estates rose to 40% from 35%,

but no tax will be imposed on the first $5.25 million of an estate (adjusted for inflation to

$5.34M million in 2014). While this sounds high, and you may think that the estate tax doesn't affect you or your family, you may be surprised. Estate planning should definitely be a priority.  

Contact us now to discuss all your questions about estate planning and the steps you can take to

 minimize the potential estate tax burden to your beneficiaries.

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• Estate Planning Changes from Obama's Budget Proposal (mrrlawestateplanning.net)

Does the Net Investment Income Tax Apply to You?

As of Jan. 1, 2013, there is a 3.8% net investment income tax on some categories of passive investment income for individuals, trusts and estates that exceed certain income thresholds.  As a

result, it is in your best interest to identify these income sources and adopt strategies to lower

your modified adjusted gross income or your net investment income to avoid the surtax.

If you think the new tax may apply to you, we can explain your choices and help you pick the best strategy to mitigate your tax bill.

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• Tax Planning Tips for High Income Earners (getirshelp.com)

What You Should Know About Education Provisions in the Tax Law

Are you making the most of tax benefits designed to offset some of the high costs of education? The American Taxpayer Relief Act of 2012, which settled the year-end fiscal cliff debate, extended the American Opportunity Tax Credit through 2017.The credit provides a tax break of up $2,500 for qualified college expenses. The Act also made permanent several education-related tax options, including a $2,000 maximum contribution amount for Coverdell education savings accounts, which can be used to pay certain elementary, secondary and post-secondary expenses.

Given the many changes, we can help you make sense of the benefits available to you and ensure you're taking full advantage of them. We can also offer advice on smart steps for financing the high cost of education, so please contact our office with all your questions.

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• Tax Guy: College tax breaks explained (marketwatch.com)

Stop Tax Identity Theft In its Tracks

Imagine after sending in your annual tax return, you receive a notice from the Internal Revenue Service saying that another return has already been filed using your name and Social Security number-and claiming a refund. Sound impossible? It can happen if you become one of a growing number of victims of tax return identity theft. According to one estimate, tax-related identity theft cases have soared more than 650% since 2008. At the least, this crime can lead to a

delay in your refund, but the consequences may be much more serious. In addition, you may face a larger problem with identify theft if the scammer is also running up credit card debt or taking out loans in your name.

To avoid becoming a victim, we recommend steps such as safeguarding your Social Security number and other financial information, keeping an eye on changes to your credit ratings and taking precautions with electronic transfers of confidential information. Be sure to contact us if you believe you have been a victim of identity theft or would like advice on the best ways to secure your financial information.

Student Loan Details

Did you know that the average student loan balance is $24,803?  Student debt is taking a heavy toll on borrowers, according to an American Institute of CPAs survey, which found that 75% of respondents or their children had made personal or financial sacrifices because of monthly student loan payments. Sacrifices included putting off saving for retirement (41%); delaying car purchases (40%); postponing a home purchase (29%); and even waiting on marriage (15%).  

Among the most troubling findings were that only 39% fully understood the burden that student loan debt would place on their future and 60% had at least some regrets about their decisionson financing their education. That's  why it's always critical to understand the full potential impact of all your financial choices. The good news is that your CPA can help. Contact us with all your financial questions and we'll provide the knowledge and insights you need to make the best decisions for you.

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A Simplified Home Office Deduction

Do you work at home or have a home-based business? If so, you should be aware that the IRS has created a simpler option for calculating the deduction for the business use of your home. The new option makes record keeping easier because, instead of maintaining records of specific home office expenses, you can use a standard rate per square foot.  The rate is $5 per square foot (up to a maximum of 300 sq. feet or $1,500) for qualifying business use space in place of taking a pro rata percentage of items such as mortgage interest, taxes and repairs.

Keep in mind there are good and bad aspects to this "simpler" method.  The new method gives you back your full interest and tax deduction on schedule A, but you will lose your depreciation and loss carryover deductions. Of course, you must still use your home office regularly and exclusively for business. This may be a welcome relief for some taxpayers, but it might not be the best choice for others. Is it the right choice for you? Please contact us for answers to all your financial questions.