Working Grandparents May be Eligible For EITC

More than ever before, grandparents are raising their grandchildren. The IRS wants working grandparents to know they may qualify for for the Earned Income Tax Credit, and to claim it if they qualify. But, before going into too much detail about determining if you qualify for the EITC, let’s first explain what it is, shall we?

What is the Earned Income Tax Credit?

The EITC is a federal tax credit for workers whose income is below a certain level. For 2016, that level is $53, 505 or less. Basically, it is a refundable credit which means people who qualify for it could pay less federal tax, pay no federal tax, or even get a federal tax refund. According to the IRS, the EITC could put anywhere between an extra $2 to an extra $6269 back into a taxpayer’s pocket.

Who Qualifies for the EITC?

Aside from meeting income requirements, there are other requirements taxpayers need to meet in order to qualify for the credit. The basic rules for qualifying for this tax credit include having a social security number, having income, and you must file your tax returns in one of the following ways:

  • Married filing jointly
  • Head of household
  • Qualified widow or widower
  • Single

There are some additional rules for qualifying for the credit. Check out the IRS website for additional details.

Grandparents can Claim the EITC

So, as I said earlier, grandparents are caring for more and more children in the United States. They are often unaware of being eligible to claim the credit on their tax returns. A grandparent who is working and who has a qualifying child living in the household may be able to claim the credit even if the grandparent is 65 or older. Special rules apply if the child’s parents also qualify for the EITC

Services that Set Us Apart from the Rest

what makes our services better than the rest?

what makes our services better than the rest?Tax season is ramping up right now. The IRS began accepting returns on Monday, January 23, which means many of you are looking to get your house in order and get your taxes filed. You may be wondering what the benefit is of using a tax professional versus doing it yourself. And if you DO decide to use a professional, what makes Gagliano Associates a better choice than say the kiosk inside WalMart? Well, for one thing, we offer a variety of services that many of the large chains don’t offer. We focus on quality, not quantity. But we also provide a number of services that many of the other professionals in the area do not.

S Corporation Tax Preparation and Partnerships

One of the services we provide which others don’t is tax preparation for S-Corps and small partnerships. What is an S-Corp? Well, I’m glad you ask! It is a type of business where corporate taxes, losses, deductions, and credits are passed onto shareholders for federal tax purposes. In plain English that means shareholders bear the brunt of liability on their personal income taxes. But it also means that they are taxed at their individual income rates. For a corporation, it reduces the tax liability.

Gagliano Associates handles tax preparation for small S-Corps. By small, I mean we handle taxes for S-Corps which have only a few members who takes an S election. This saves on taxes because members are required to do payroll. Any leftover profits are distributed as dividends and aren’t subject to self-employment taxes.

Payroll Services (Only for S-Corp Clients)

Did you know that we handle payroll? Yep. We do. We handle payroll for small businesses and S-corps so you can focus on what’s important–running your business. We manage payroll taxes and tax codes. Being tax experts makes it easy for us to handle the payroll and take any and all guesswork out of it.

Small Business Consultations

Whether you’re starting your own business for the first time, or you’re looking to make some changes in your current business plan, we offer small business consultations to help get your business off the ground. We do everything from advising how to set up your books to helping you decide whether you should be a sole proprietorship, LLC,  or S-Corp. Here are some of the other services we offer with small business consultations:

  • Payroll
  • Determine what is deductible
  • Advise how to take a home office deduction
  • Calculate estimated payments and provide vouchers
  • Advise on how setting up a self-employment retirement account in order to help you pay less taxes
  • Advise on the procedure to become an LLC
  • Advise on the steps to get an EIN (Employment Identification Number)
  • Most importantly, we specialize our services to fit YOUR needs.

What Else You Can Expect From Gagliano Associates

We also prepare individual tax returns. We have been providing world class customer service since 1987. Our reputation is extremely important to us, which is why most of our business comes from referrals and word of mouth. We offer personalized service to meet your specific needs. And the best part is that you aren’t just our client from the time you bring us your paperwork until the time you get your refund (or pay your tax bill). We stand by you all year round. We are available to answer your tax questions, concerns, or offer advice all year–not just through tax season. We look forward to serving your tax preparation needs.

Finally, remember to book your appointment if you haven’t already! We offer remote services, evening, and weekend appointments for your convenience. You can also schedule your appointment online. Just remember: evening and weekend appointments fill up quickly! So go ahead–book your appointment. We look forward to working with you soon.

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Record Keeping and Tax Preparedness

keep a good record of tax documents

keep a good record of tax documentsThis is a question we get all the time–what should you keep on record, and how long should you keep them? As tax filing season winds up, the IRS (as well as Gagliano Associates) offers some words of advice about what to keep. While it may seem frivolous to keep old tax returns and records for properties you no longer have, there are some guidelines to abide by. These records will come in handy should you ever need to file an amended return or if questions arise.

General Recommendations for Records

The IRS recommends keeping copies of tax returns and supporting documents for at least three years. We generally recommend keeping your tax returns for seven years. Some documents, however, should be kept for longer. Any records relating to real estate should be kept for seven years after disposing of the property. Additionally, health care information should also be kept along with your tax returns. While the IRS does not need statements sent to them as proof of coverage, you should still keep some health records. This includes records of any employer-provided coverage, premiums paid, advance payments of the premium tax credit received and type of coverage. You should keep these records as you would other tax-related documents. In most cases, that would be three years from the time you file your tax returns.

Keep Your Records Secure

However you store your records–whether you keep paper transcripts or store records electronically, it is important to keep this information safe and secure. This is especially important for anything that bears Social Security numbers. The IRS suggests scanning paper tax and financial information into a format that can be encrypted. These can then be stored securely on a CD, flash drive, or DVD.

Importance of Keeping Previous Year’s Tax Returns

Now, more than ever, it is important to keep your previous year’s tax returns. The IRS is taking new measures for security. These new measures require a two-step process. This authenticates the user and protects taxpayer identity. The two-step process is similar to what some bank apps already use. It’s also similar to what social media sites use when logging in from a device you haven’t used before. Beginning in 2017, some taxpayers will need to enter either the prior year’s Adjusted Gross Income or the prior year’s PIN and date of birth. If you file a joint return, both taxpayers must be authenticated with this information.

How to Get Previous Year’s Tax Information

If for some reason you misplace your tax information from a previous year, you can get a copy of it. Simply visit the IRS website. You can click on the “Get Transcript” tool on the website. You have a choice of getting a copy electronically or you can have one mailed to you. Getting a copy sent electronically is the fastest way to receive a transcript.

Tax Record Storage

If you are still cramming receipts and old tax returns stuffed into an old shoe box on a dusty old shelf, it might be time to rethink your storage. It is important to keep tax records and other documents safe. You can scan important papers into your computer and store on an encrypted flash drives. When you no longer need the record, make sure you destroy them properly. This way you make sure your personal information doesn’t fall into the wrong hands.

We get a lot of questions about record keeping. Long answer is that it depends on the records. If you have specific record keeping questions, feel free to contact us. We can always help you decide what should stay and what should go.

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Filing Season for 2016 Coming Soon!

filing information for the coming tax season

filing information for the coming tax seasonIt is so hard to believe that the 2016 tax season is already coming. It feels like we just finished 2015’s tax season. Alas, the filing season for 2016 begins in just a few short weeks! The IRS will begin accepting returns starting January 23, 2017. That means a couple of things for us at Gagliano Associates. First, it means we get the opportunity to meet with a lot of our clients. Our clients aren’t just customers–they are like family. Second, it means it’s time to book now for your appointments. Night and weekend appointments fill up quickly! For your convenience, we are now offering online booking for the coming tax season.

Important Dates for the 2016 Filing Season

On Monday, January 23, the IRS will begin accepting electronic tax returns. They are expecting more than 153 million individual tax returns in 2017 with four out of five tax returns being prepared electronically. Many tax professionals (us included!) will be accepting returns before January 23. Returns will be submitted when the IRS systems open for the season. Paper returns will also be processed starting on that same date. What does that mean for you? It means there is absolutely no advantage to filing tax returns on paper in early January instead of waiting for the IRS to begin accepting electronic returns. In fact, it can delay your return even more if you file a paper return before January 23.

Possible Delay in Some Tax Return Processing and Refunds

The IRS is reminding taxpayers that a new law requires them to hold certain refunds. These include those returns which claim the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC). These refunds will be held until February 15, 2017. Additionally, the IRS wants to remind taxpayers that it will take several days for these refunds to be released and processed through banks. And with holidays (President’s Day) and weekends, the IRS thinks that many taxpayers may not have their refunds available until the week of February 27.

What does all of this mean for you? It means that it’s more important than ever to plan ahead. Make sure you have all of your important tax documents. This includes your year-end tax statements, mortgage statements, or whatever else you need to file your tax returns. The IRS is encouraging taxpayers to file as they usually would–including those who are claiming credits affected by the refund delay.

Other Filing Reminders from the IRS

It is important to keep copies of your tax returns for at least three years according to the IRS. We suggest keeping tax returns for at least seven years. Taxpayers who are changing tax software products this filing season or changing tax professionals will need their adjusted gross income from their previous year’s tax return to file electronically. The Electric Filing Pin is no longer an option. You can also click here for more tips on preparing to file your 2016 tax return.

Deadline for Filing in 2017

D-Day this year is Tuesday, April 18, 2017. This is a few days later than the traditional April 15 date. This is because this year the 15th of April falls on a Saturday. This would move the filing deadline to Monday, April 17. However, Emancipation Day, a legal holiday in Washington D.C., is observed on that Monday. That pushes the nation’s filing deadline to Tuesday, April 18.

When to Expect Refunds in 2017

Isn’t this what most of us really want to know? First things first: choosing to e-file and using direct deposit for your refund is the fastest way to get your money. It is also the safest way to file an accurate income tax return and get a refund. Nine out of ten refunds will be processed in less than 21 days with some exceptions. The IRS will be holding refunds on tax returns claiming the EITC or the ACTC until mid-February. This is designed to protect Americans from tax hikes. It also helps make sure that taxpayers get the refund they are owed by giving the IRS more time to help detect and prevent fraud. They will begin releasing EITC and ACTC refunds starting February 15. However, most taxpayers won’t be seen in bank accounts or on debit cards until the week of February 27.

Book Your Appointments Now

It is important for our clients to note: even if you anticipate using the EITC or the ACTC, you can still book your appointment now. Even with the delay of releasing funds for these types of returns utilizing the credits, we can still prepare everything so it’s ready to be processed as soon as the IRS starts accepting returns. Don’t wait–our appointments fill up quickly!

We are really excited to see so many of you again. Remember to book your appointments now to reserve your space. We have evening and weekend appointments. You can also book a remote appointment. This is a very popular option we offer to our clients. We look forward to hearing from you and look forward to serving your tax preparation needs!

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Health Care Law and Your Taxes

health care exemptions for your taxes

health care exemptions for your taxesThe tax filing season is coming up quickly! It isn’t too early to start thinking about the health care law and how it affects your taxes. You may qualify for an exemption. The Affordable Care Act has put certain requirements in place that you must follow including:

Having health care coverage – This is also called minimum essential coverage. Examples of plans that may qualify include Marketplace plans, job-based plans, Medicare, Medicaid, and CHIP.

Qualifying for a health coverage exemption – These are usually due to hardship. If you qualify for a hardship, you are not required to have health care coverage and you are exempt from penalties for not having insurance. You must apply to qualify for a hardship, and can download the forms at the Marketplace.

Make a shared responsibility payment – These payments are made with your federal income tax return for the months that you didn’t have insurance OR an exemption.

Health Care Coverage Exemptions

As already mentioned, if you meet certain qualifications for the tax year, you may not have to have minimum coverage and still avoid the tax penalty. You won’t have to make the shared responsibility payment, either. Instead, you’ll file Form 8965 when you file your return. This does not necessarily exempt you from having to carry insurance for the whole year. Instead, it goes on a month by month basis. For any months that you don’t qualify for a coverage exemption, you have to have insurance OR make a shared responsibility payment. You may be exempt if you meet one of the following:

  • The lowest cost coverage offered is not affordable.
  • You have a gap in coverage that is less than three months in a row.
  • You qualify for an exemption for one of a few other reasons. This can be having a hardship that prevents you from getting coverage. It may also be because you belong to a group that is specifically exempt from the coverage requirement.

Important Takeawawys

The Federally-sponsored Marketplace used to grant exemptions for certain people or groups. This included people who are incarcerated and Indian Tribes. These exemptions are still in place for eligible taxpayers. However, these exemptions must be filed on the tax return. For a full list of exemptions and how to claim them, click here. You may also find out if you’re eligible for a coverage exemption by using the IRS interactive tool.

NOTE: Federal tax returns MUST show one of these three options: reporting health care coverage, claiming an exemption, or reporting a shared responsibility payment. Electronically filed returns that do NOT reflect one of those three options will be rejected. If you file a paper return and do not indicate one of the three options, your return will take longer to process and any refunds may be delayed.

The Affordable Care Act has had mixed reviews over the past several years. In the past year, many people have said that health insurance is NOT affordable. But that’s a topic for a another day. Whatever your thoughts on the current state of health care, there is one thing WE know for sure–it can have a definite impact on your tax bill.

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Safeguards Planned for 2017 Taxes

safeguards

There are already a nusafeguards mber of safeguards in place with the IRS when it comes to protecting our personally identifying information. However, now that we are entering the last few weeks of the year, many of us are already gather our year-end tax data. We should be aware of some of the new measures put in place by the Internal Revenue Service so that we can know what to expect in terms of filing and receiving our 2016 refunds (where applicable).

IRS and Security Summit Partners Urge Taxpayers to Take Immediate Safeguards

Just last week, the IRS and Security Summit partners suggested taxpayers take immediate steps to protect their personal data. Additionally, the IRS just released information regarding delayed tax processing this coming tax season as a result of new security measures. For some taxpayers, refunds will be held until mid-February. The IRS will be implementing safeguards which effect early filers who claim the Earned Income Tax Credit or the Additional Child Tax Credit. This comes as part of a week-long effort by the IRS and the Summit to raise awareness for taxpayers and tax professionals about security threats.

More Safeguards Planned for 2017

New safeguards for 2017 will help confirm the identity of taxpayers. These steps include:

  • Providing information to strengthen the process that shows a tax return is authentic. It helps identify that a return is filed by a real taxpayer.
  • The tax industry will share information that extends more identity theft protections. These apply to both individuals and businesses who file returns.
  • More than 20 states are working together to create a program that flags suspicious refunds. They are trying to stop suspicious refunds before being deposited into accounts.
  • The Form W-2 Verification Code initiative will expand in 2017. The initiative is going from 2 million forms in 2016 to 50 million this coming tax season.
  • Improved software. The industry continues improving software password requirements. They now add more safety before filing.

New Identity Theft Tax Refund Fraud Information Sharing and Analysis Center

Also known as ISAC, this program will launch in 2017. It serves as an early warning system of sorts. It works by identifying ID theft scams early, and quickly shares that information with participating partners.

Past Successes Against Identity Theft

In 2016, the Summit helped protect against identity theft in a number of ways. The number of taxpayers who reported ID theft on tax returns dropped more than 50%. There were almost 300,000 fewer victims in 2016 than the previous year. Overall this means fewer bad returns, fewer bad refunds, and fewer taxpayers being victimized.

Security Reminders for Taxpayers

The IRS reminds taxpayers they can do their part to help put in place safeguards that will protect their personal information. Taxpayers and tax professionals should:

  • Use security software. This means having firewall and anti-virus protections on your software. Make sure the security software is always on and can update automatically. Encrypt sensitive files (like your tax records) that you store on your computer. Also, although it sounds like a no-brainer, use a strong password. Skip password1234 or your birth date. They are not good passwords.
  • Learn to recognize phishing emails. Some of the emails look just like legitimate business sites. Common phishing scams trick victims into giving account information and sometimes pose as Amazon, eBay or PayPal. Clicking links directly from email will direct you to a page that looks identical to the merchant site. Avoid clicking links added directly to your email. Instead, visit the site directly to check account details or for problems with account information. If the actual site does not show any account issues or verification requested, the email you received is likely a scam.
  • Protect your personal data. Don’t carry your social security card in your wallet or purse, and make sure tax records are secure. Treat your personal information like you do your cash–don’t leave any of it just lying around.

More Information and Identity Protection Measures

For more information about safeguards and the partnership between the IRS and the Security Summit, click here. The IRS is constantly working on ways to help protect your personal information. Almost daily new scams are evolving, but with a vast series of partnerships the IRS is working to eradicate them quickly. Each year, the IRS improves efforts to protect legitimate taxpayers and businesses from falling prey to scams. We want our clients to know that we take the utmost care to protect their personal information. You can rest assured that all identifying information is absolutely safe with us!

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Donations May Cut Tax Bills

donations can cut tax bills dramatically

Did you know that dondonations can cut tax bills dramaticallyations to charity can help lower your tax liability? Now that 2016 is drawing to a close, many people are beginning to think about their year-end tax stuff. There is still enough time to make charitable contributions and have it count toward lowering this year’s tax bill. Only certain contributions are eligible. Be sure to check before donating to see if it is eligible.

Eligible Donations

Donations to eligible organizations are tax deductible.  In order to count towards 2016’s tax bill, they must be made by December 31.  To find out if your favorite charity is on the list of eligible organizations, check out the IRS select check toolChurches, synagogues, temples, mosques, and government agencies are able to get deductible donations even if they are not listed in the database.

How to Claim Your Donation

Only taxpayers who itemize using 1040 Schedule A can claim deductions for donations. They are not available to people who use the standard deduction.  They are also not available to people who file Form 1040A or 1040EZ UNLESS you only claim it on your state tax return. In Colorado, anything over $500 is deductible on the state tax return if it is not used for the federal tax return. In order to be able to use donations as a tax deduction, you must provide a bank record or a written statement from the charity. This can include canceled checks, bank statements, or credit card statements. For payroll deductions that automatically go to a designated charity, a pay stub will be sufficient evidence of donations. You may also use a Form W-2 wage statement showing the total amount given to charity along with the pledge card showing the charity’s name.

Donating Clothing or Property

A lot of people will head to Goodwill or other places where clothing or household items are accepted as donations. Keep in mind that for donations of clothing or other household items the deduction amount is limited to the item’s fair market value. In other words, you can’t give a ratty old t-shirt to Goodwill and claim a $100 deduction. All donated property must be in good or better condition to qualify for a tax deduction. The exception is if the deduction is over $500 as long as there is a qualified appraisal included with the return. Last, if you give $250 or more worth of property you should provide documentation from the charity. It should include a description of what you gave. Special rules apply to cars, boats, and other larger types of gifts.

Benefits in Return

No, I’m not talking about the warm, fuzzy glow you get from giving something for a good cause. Although that alone is a good reason to give to your favorite charity. If you get something in return for your donation, you may have to reduce how much you deduct from your tax return. Examples of benefits include merchandise, meals, tickets to events, or other goods or services.

Older IRA Owners

I don’t mean that your IRA is old. Instead I am actually referring to the age of the owner of the IRA. Perhaps it should be rephrased as “more mature IRA owners”. But I guess I digress. Back to what I was saying here–IRA owners who are 70 1/2 or older can transfer up to 100K per year to an eligible charity tax-free. Money must be transferred directly by the IRA trustee. Check out Publication 590-B for more information.

As always, keep good records when you give to charity. The type of records you need will depend on the gift you give. Sometimes you will be required to provide an extra reporting form for donations of “stuff” as opposed to money. Depending on the amount, an appraisal may also be required. Remember, you have until December 31 to give a gift to your favorite charitable organization for it to count towards this year’s tax bill. Gifts to the Human Fund do not count. So go ahead–give that gift to your favorite charity. ‘Tis the Season.

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Letter From the IRS? Maybe a New Scam

letters claiming to be from IRS new scam

Have you recently letter claiming to be from IRS new scamreceived a letter from the IRS claiming you owe money? If so, it could be yet another scam. The Internal Revenue Service warned consumers that a new scheme has developed which tells the recipient they owe money because of the Affordable Care Act. Scammers are often trying to con taxpayers into handing over their hard-earned dollars. The newest attempt at defrauding consumers appears to be a legitimate letter from the IRS.

How the Newest Scam Works

The Federal Trade Commission released a statement warning consumers about the letter scam.  According to the FTC, the IRS letters look extremely official and are almost identical to the real IRS CP2000 notices. These forms are the ones which are sent out when a person’s tax return does not match income. The letter states that the taxpayer owes money from the previous year from the Affordable Care ActThe number of tax scams tends to pick up as the end of the year approaches.

Other IRS Schemes to Look Out For

Back in February, Western Union sent out a warning. A new nationwide IRS impersonation scam had been occurring which involved callers who claimed to work for the IRS. The con artists even had a fake caller ID to help back up the scam, along with an IRS badge number and a fake name. The impersonators told victims they owed money to the IRS. Then they would request payment in the form of a prepaid debit card or money transfer. If the person failed to cooperate, the scammer would get aggressive. Threats would be made that their driver’s licenses or passports could be suspended.

What to do if you Receive a Letter From the IRS

Should you get something in the mail from the IRS, don’t panic. Review the information in the letter. If you think you might actually owe, contact the IRS directly at (800) 829-1040. The information in the letter will let you know exactly why they are contacting you and what you need to do to respond. Do not ignore it! Check out our past blog post on what to do if you receive a letter from the IRS. Our clients can always contact us to discuss any correspondence from the IRS. If you are unsure about the validity of a letter you receive claiming to be from the IRS, contact them directly.

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Tax Questions Common During Tax Season

top tax questions during tax season

As 2016 is quickly drawing to a close, we are preparing for another busy tax setop tax questions during tax seasonason. In just a few more weeks, it will be time to begin gathering all of your important papers. Employers will be mailing out the year’s W-2 formsYour year-end statements will come from your mortgage company. Before you know it, it will be time to schedule your appointments with your tax professionals. Here are some of the most common tax questions we get during tax season.

Is a Bigger Refund Better?

It would seem like getting a bigger refund is better than a smaller refund.. A bigger refund is not necessarily better. It means you have had too much money taken out of your wages. You have basically given the IRS an interest-free loan over the course of the year. The most important line on your return is the “tax liability” line. A smaller liability is always better than a larger refund. However, it is always better to get a refund than to owe money to the IRS. Sometimes in an effort to break even you may actually end up owing the IRS money. Additionally, many people use their income tax returns as forced savings to make big purchases, remodel, or take vacations. In the event of having an interest-bearing savings account, you are better off stashing your money and gaining interest. Unfortunately most savings accounts these days earn little to no interest.

Why is my State Refund Taxed?

This is a common question. Taxpayers often assume they are being taxed twice, and this is not the case. Your state refund is added back into your income, and you are taxed on that income. This is only the case if you itemized in a previous year and deducted that overpayment. Here is where it may get a bit hairy, so bear with me here. If you deducted state or local tax withholding or you estimated tax payments on your return by itemizing on Schedule A you deducted an amount as withheld. This was later returned to you as a refund, which means you must un-deduct it. Of course there are some more complication nuances to this question, particularly when talking about partial deductions or benefits. But we won’t get into that right now.

Why am I Paying Tax on Social Security?

Many people feel that this is THEIR money. They were already taxed on that money, and they feel they are being taxed a second time when they receive the benefits. The truth is, it’s not ALL your own money. Your employer matched what you paid into Social Security, and you did not pay taxes on the employer’s share. Additionally, people who are currently retiring are getting a real return on the money they paid into social security. So while up to 85% of your social security benefits can be taxed, rest assured that you have not been taxed on that money twice.

Is it Worth Paying Off My Mortgage if I Lose the Mortgage Deduction?

Having a mortgage for the sole purpose of a tax deduction is a bit backwards. For every dollar of interest you pay on your mortgage, you only get about 25 cents back as a refund (assuming you itemize). If you only have a small mortgage, you may do as well by claiming a standard deduction. That means you get little or no benefit from your mortgage deduction. Overall, there may be some good reasons to maintain a mortgage payment instead of paying it off. But keeping a mortgage for the sole purpose of a tax write off is not really beneficial.

Should I Dip into Retirement Savings to Pay Off Credit Cards?

Short answer? No. Don’t cash in your retirement or dip into it to pay off credit card debt. During the recent market crash, a lot of people got nervous about their abilities to pay off credit card debts. If you decide you need to reallocate some of your assets so they are more conservative, you can do that within your individual retirement account or 401(k) without incurring the taxes or penalties on retirement account withdrawals. The argument many people may have is that it seems backwards to pay high interest on credit cards while accruing low interest on 401(k) investments. However, withdrawing money early from your retirement account means you lose the chance to let your investments grow. Furthermore, a large portion of what you take out will go to the IRS.  You have to pay state and federal taxes on any money you take out PLUS a 10% penalty. Depending on your tax bracket, this could be 30% for a 15% tax bracket and 40% for a 25% bracket in the state of Colorado. If this is something you are planning on doing anyway, there are some strategies to help alleviate some of the tax liability. 

If you are considering taking money out of your retirement account, speak with a tax professional. They can give some advice on the best way to do it without having to pay too much in interest.

Now that we are about to be in the midst of another tax season, it is a good time to reflect and consider what types of questions or concerns you may have about taxes. What are some of your biggest tax questions or concerns?

 

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Pension Limitations: How Much to Put Away

pension plans, saving for retirement,

Many of us have penpension plans, saving for retirement, sion plans. However, we don’t give them much thought until we get closer to retirement age. Unfortunately, many of us aren’t putting away enough for retirement. Often, people are forced to work past retirement age in order to get by. For the next generation, there is more at stake–the potential loss of Social Security. This means many people won’t be able to live on their pension alone.

IRS Announces 2017 Pension Plan Limitations

You can deduct contributions to traditional IRAs if you meet certain conditions. If the taxpayer or their spouse was covered by a retirement plan at work, the deduction may be reduced or even phased out. This depends on filing status and income. Below you will find the phase-out limits for 2017:

  • Single taxpayers covered by a workplace retirement plan will have a phase-out range of $62,000-$71,000.
  • Married couples filing jointly where the spouse making the contributions to the workplace retirement plan will have a phase-out range of $99,000-$118,000.
  • For somebody who contributes to an IRA without having a pension plan through work and is married to somebody who is covered, the deduction is phased out if their joint income is between $186,000 and $196,000.
  • Finally, for married couples who file individual separate returns covered by a workplace pension plan, the phase out range is not subject to an annual cost of living adjustment. Their phase-out deductions remain from $0-$10,000.

Income Phase-Out Ranges for Roth IRA Contributions

Roth IRAs are different in their phase-out ranges with the IRS. For taxpayers contributing to a Roth IRA, the phase-out range is between $118,000 and $133,000 for singles and heads of household. Married couples who file jointly have a phase-out range of $186,000-$196,000. Taxpayers who are married and filing separately do not qualify for a cost of living adjustment.

Saver’s Credit

The saver’s credit is typically for lower to middle income families, also known as the retirement savings contribution credit. The phase-out limits are $62,000 for married couples filing jointly, $46,500 for heads of household, and $31,000 for singles and married couples filing separate returns.

What Does it All Mean?

Basically, you can qualify for tax deductions by putting into a retirement plan. By setting aside the maximum amount per year, you lower your taxable income. Not only are you lowering your taxable income, but you are also contributing to your retirement income. Overall, it’s a win-win. As you get closer to retirement age, you may find yourself puzzled that the money you’ve been stashing away to fund your golden years may not get you as far as you’d hoped. Oftentimes people in this situation end up working longer or taking on another job. However, contributing more to your pension plan can help you lower your tax bill. It also has the added benefit of lining your nest-egg.

 

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