Tag Archives: Money

IRS FORGIVENESS

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IRS Forgives $434 Million

Excess Advance Premium Credit payments not to be repaid

Category:
Deductions

Category: Deductions

Category image

A recent study by the Treasury Inspector General for Tax Administration (TIGTA) for the 2014 tax filing season estimated that $1.4 billion in unqualified Advance Premium Tax Credits were made. In theory, taxpayers are required to repay these tax credit overpayments as they are not entitled to them. However, $434.2 million of the excess government pay outs will not be required to be repaid as they exceed a calculated advance tax credit repayment limit.

What this means

TIGTA analysis of individual tax returns processed as of May 7, 2015 showed that the verification process of Premium Tax Credit claims needs improvement.
The government determined that requiring repayment of the excess credit payments would create a hardship for many taxpayers.
The reasons for overpayment are fraud and taxpayer overpayment requests due to faulty information.
Many taxpayers using the Advanced Premium Credit faced a surprising tax bill when they filed their 2014 tax return. The same thing could occur in 2015.

What you should know

Impacted? Know your repayment requirement. Whether you are required to repay excess Advanced Premium Credit payments depends on your income. Most must repay the excess amount as calculated on IRS Form 8962. If a repayment claim is made by the IRS, please call to review your situation.

Potential tax risk with advance premium credit payments. Be careful if you use the Health Care Marketplace to purchase health insurance. Remember requests for the Advance Premium Health Credit are paid by the government directly to your health insurance provider. If your credit payments are too high, you will need to repay the excess when filing your tax return.

Consider understating your Advanced Credit payment. If you want to ensure you are not required to return part of the Premium Credit when filing your tax return, consider reserving some of the credit for when you file your tax return.

Keep your information up-to-date. As your situation changes, update your health insurance information on the Marketplace. Increases in pay, changes in the number of dependents, and changes in marital status are common reasons for an over payment of the Premium Health Credit.

Expect changes. The TIGTA analysis shows the government gave away over $400 million to those not entitled to receive the funds. They acknowledge they are not attempting to recover these overpayments because of the financial hardship it would cause. This is stimulating changes in the Premium Credit process.

Published: 10/16/2015 12:00 PM

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TAKE IT NOW OR TAKE IT LATER?

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Maximize Your Monthly Social Security Benefit

The 8% annual increase idea

Category:
Retirement

Category: Retirement

Category image

You can begin receiving your Social Security retirement benefit as early as age 62. But if you do this you could be in for a benefit shock. You will only receive 75% of your full benefit. By putting off your benefit start date you can receive a check that is 8% higher for each year you delay receiving your benefit. Here is how it works.

Those born between 1943 and 1954 reach their full Social Security benefit payment at age 66*.
Those same retirees can begin receiving their benefit at age 62. But if you start your benefits early, the amount paid to you each month is permanently reduced.
For each year you delay receiving benefits past your full retirement age, your Social Security benefit is increased by 8% per year.
After age 70, the Social Security benefit is maximized. Further delay adds no additional benefit.

Is a delay worth the wait?

Here are reasons to delay receiving your Social Security benefits until you reach age 70.

You expect to live longer. If your parents and grandparents lived long lives, you may wish to delay receipt of your initial Social Security benefits. The opposite is true if you have a shorter life expectancy.

You do not need the income. If you are still working or have alternative income sources, it may be better to delay receiving your benefits. An 8% increase in monthly payments is a good increase versus other investment alternatives.

Your spouse has died. You will need to review the possibility of receiving Survivor Benefits based on your spouse’s earnings. Later you could then start collecting your own Social Security Retirement Benefits based on your earnings.

If your benefits are taxed. If you have other income, your Social Security retirement benefits could be subject to income tax if you are not yet at the full retirement age.

Should you delay receiving your Social Security benefits? There often is not one answer that fits all situations. Consider reviewing your situation prior to making a decision.

* Full retirement age increases by 2 months each year after 1954 until reaching a full retirement age of 67 for those born in 1960 or later.

Published: 10/09/2015 12:00 PM

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NO TAXES…MAYBE

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Phone: 323.292.5407 | Fax: 877.690.7818 | Ontario: 909.428.1151
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Understanding the Home Gain Exclusion

When is a tax planning session essential?

Category:
Deductions

Category: Deductions

Category image

Topline

For those who qualify, a married couple can exclude up to $500,000 ($250,000 for unmarried taxpayers) in capital gains from the sale of your principal residence. This exclusion can be taken once every two years as long as you meet a two-years out of five residency and ownership test before you sell the property.

What you need to know

Often tax planning is required to ensure you maximize this tax benefit. Here are some situations that require a review prior to selling your home.

Ownership and principal residency tests met using different years. As long as the two-year requirement is met for both tests you can take the deduction. It does not matter that you use different years for each test. The most common example of this occurs when you rent a home or condo and then buy it later.

Life events complicate things. Marriage, divorce, and death are common life-events that require planning to maximize the gain exclusion tax benefit. For example, you can take advantage of the full $500,000 gain exclusion after the death of a spouse, but usually only during the time you are able to file a joint tax return.

Selling a second home requires planning. While you can use the gain exclusion every two years, you need to be careful with a second home. You may be able to plan your living arrangements to make each home a primary residence during different tax years to meet the two-year requirement for both properties. This means you need to determine your primary residence each year with good recordkeeping in case you are audited.

Business use of your home. You will need to adjust your home basis (cost) for any business activity and depreciation of your home. This can create a depreciation recapture tax event when you sell your home.

A Partial gain exemption is possible. There are exceptions to the two-year tests when certain events occur. The normal exceptions include a required move for work, health reasons, or unforeseen circumstances. Since the IRS definition of each is vague, you should review your options if you are required to move.

Recordkeeping matters. Be prepared to document the gain on your property and how you meet the residency and ownership tests. Please keep all documents relating to the purchase and sale of your property. Save any receipts that document improvements to your home. Also keep an accurate record to support your claim of principal residence if you own a second home.

Given the potential for tax savings, please ask for help before selling your home or vacation property.

Published: 10/02/2015 12:00 PM

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SUMMER IS GONE, START PLANNING FOR 2016

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Tax Doctor Newsletter

Autumn Edition: October 2015

s fall approaches, Congress has not made a decision on pending tax legislation that could impact 2015. In the meantime, presented here are estimated tax figures for 2016 based upon the Consumer Price Index. There are also articles on a recent IRS error in handling some educator expense deductions and a review of the B-Corp phenomena. Ideas to help create a satisfying retirement round out this month’s newsletter.

As always, should you know of someone who may benefit from this information please feel free to forward this newsletter to them.

Preview Key 2016 Tax Figures

While official numbers for 2016 are not yet released by the Internal Revenue Service (IRS), many figures are formulas set within the Internal Revenue Code (IRC) or are based on the Consumer Price Index (CPI) published by the Department of Labor. Using the release of recent CPI figures, a number of reference sources are projecting key figures for 2016. While many are unchanged from 2015 they are noted here for your planning purposes.

Tax Brackets: While the actual income brackets for tax rates are not set for 2016, the rate of inflation that impacts the income levels for each tax rate is anticipated to raise the income brackets by approximately 0.4 – 0.5%.

Personal Exemption: $4,050 in 2016 ($4,000 in 2015)

Standard Deductions:

Deduction	Tax Year 2016	Tax Year 2015
Single	$6,300	$6,300
Head of Household	9,300	9,250
Married Filing Joint	12,600	12,600
Married Filing Separately	6,300	6,300
Dependents (kiddie tax)	1,050	1,050
65 or Blind: Married	Add $1,250	Add $1,250
Single	Add $1,550	Add $1,550

Other Key figures:

Estate & Gift Tax Exclusion	$5.45 million	$5.43 million
Annual Gift Tax Exclusion	$14,000	$14,000
Roth and Traditional IRA Contribution Limit	$5,500	$5,500

Caution: Remember, these are early figures using the recently announced Consumer Price Index. Official numbers are released by the IRS later in the year.

Preview Key 2016 Tax Figures

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B-Corps; What are They?

Kickstarter, a popular crowdsource company that helps new inventors raise money to fund their creative projects, recently announced they are becoming a Benefit Corporation. While many of us may not know what this means, the move by Kickstarter is becoming more popular. Here is what you need to know.

Benefit Corporation defined

Per benefitcorp.net:

A Benefit Corporation voluntarily meets standards of corporate purpose, accountability, and transparency.

	Purpose: Benefit Corporations have a corporate purpose to create a materially positive impact on society and the environment.
	Accountability: Benefit Corporations are required to consider the impact of their decisions not only on shareholders but also on workers, community, and the environment.
	Transparency: Benefit Corporations are required to make available to the public, except in Delaware, an annual benefit report that assesses their overall social and environmental performance against a third party standard.

How is this different?

When a traditional company takes actions that do not maximize their value, they can be vulnerable to owner lawsuits. To solve this problem, some states allow companies to legally organize themselves as B-Corps or Benefit Corporations. The B-Corp formation provides the company legal protection from shareholders while pursuing a social mission. This social mission is made public. Here are some examples;

	Patagonia (outdoor gear): Commitment to the environment
	King Arthur Flour (baked goods and flour): Sustainable living environment; ending child hunger
	Ben and Jerry (ice cream): Advance new models of social justice that are sustainable and replicable
	Kickstarter: Commitment to arts and culture Click here to see the Benefit Corporation Charter of Kickstarter

Other things to note

	Benefit Corporations can be private OR publicly owned.
	The profits may or may not be as high as a typically organized corporation.
	Benefit Corporations often give part of their profits to a worthy cause.

While an investment in a B-Corp may not be profit maximizing, you may feel a little better about where you put your money. As with any investment, please understand your risks and ask for help before investing.

B-Corps; What are They?

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IRS Erroneously Denies Educator Deduction Claims

During its annual review of the tax filing season, the Treasury Inspector General for Tax Administration (TIGTA) discovered the IRS was incorrectly denying educator expense deductions for some taxpayers.

Teacher Desk The deduction

In 2014, qualified educators could reduce their income by up to $250 for classroom related expenses. This deduction is available whether or not a taxpayer itemizes their deductions.

The problem

The IRS was denying the deduction if the taxpayer could be claimed as a dependent on someone else’s tax return. This denial impacted young teachers and others who could use the tax benefit.

After TIGTA notified the IRS of their concerns, the IRS acknowledged their error and updated processing procedures for their tax examiners. Unfortunately, not before denying over $53,000 in deductions.

What you need to know

The $250 educator expense deduction is one of the tax provisions that is repeatedly expiring only to be extended once again by late Congressional action. As of now the benefit is not available in 2015. In all likelihood, the benefit will be available once again. In the meantime,

	If you took the deduction in 2014 and you are challenged by the IRS, ask for help. A quick review and clarifying letter should help you retain your deduction.
	If the tax law is extended unchanged into 2015, remember you can take the deduction even if you can be claimed as a dependent on someone else’s tax return.

IRS Erroneously Denies Educator Deduction Claims

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Seven Ideas to Create a Satisfying Retirement

You’ve done your retirement homework. Your assets are reviewed, you have planned your financial needs, and your retirement tax plan is in place. Are you ready to enjoy retirement? Probably, but not without a plan to address what happens to many after they retire; boredom. Here are some ideas.

	Go to school. Many colleges and communities offer classes for retired students. Pick topics of interest and take advantage of this cost effective way to stay alert through learning. Many classes can have built in activities. Examples could be local history classes with field trips, photography classes, writing, and gardening. As an added benefit, you will meet others with your shared interest while you continue learning.
	Pick up part-time work. If you are outgoing, why not pick up a few hours at a local retail establishment.
	Volunteer. Many retirees volunteer at libraries, museums, and parks. Others volunteer at their local church, deliver meals, and help young people with literacy. The possibilities are endless.

	Schedule physical activity. Staying physically active will keep your body and mind in shape. Create a weekly routine that keeps you moving. Volunteer to take the grand kids to swimming lessons while the parents are working. Bike or walk to do every-day chores.
	Look for combinations. With a little creativity you can combine some of these ideas. For example, if you coached your kids in soccer why not consider refereeing kids games? You might earn a little pay, stay connected with kids, and get some physical activity.
	Get Connected. When you retire, many of your social connections will change. This is especially true for work connections and availability of friends that are still working. Look for other ways to make new connections. Use some of the ideas here to actively get connected with others that share your interests. Participate in community events. Reach out through volunteer efforts to meet new people.
	Blend in your dreams. If you’ve always dreamed of moving to a new place in retirement, you may want to test-drive it first. A dream move, may turn out to be different than you anticipated. You may miss your kids and friends. Services and connections you take for granted may become a problem. By renting a place and staying in the new location prior to committing, you will be prepared with a fall back if it does not work.

These are but a few ideas to help transition into a satisfying retirement. There are many resources to provide additional ideas.

Seven Ideas to Create a Satisfying Retirement

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Please visit our website http://www.taxdoc4u.com for additional tax savings information. You can follow us on Twitter @taxdoc4u. Give us a call with your comments, questions, or concerns.

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Taxes Prepared the Same Day

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THEY ARE OUT TO GET YOU!

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3860 Crenshaw Bl. , #217 | Los Angeles, CA 90008
Phone: 323.292.5407 | Fax: 877.690.7818 | Ontario: 909.428.1151
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They’re Out to Get You…no really

States “creating” laws that snag taxpayers everywhere

Category:
The Audit

Category: The Audit

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New state tax laws are making more and more taxpayers tax cheats without them realizing it is happening. Think it can’t happen to you? Here are some examples.

A Florida widower with income, marries a retired woman who lived in Utah for nine months. The woman has no income. He has never been to Utah, even to visit. Per Utah tax law he must now pay income tax to Utah on his Florida income if he files a joint federal tax return.
A Delaware resident owes Minnesota income tax for consulting work even though she never steps foot in Minnesota. This is because the company who the Delaware resident did work for has its headquarters in Minnesota. The same situation is true in California and other states.
Alabama decides to ignore the Supreme Court physical presence nexus rulings and has redefined nexus to equate to dollar sales. They call this concept “economic nexus” and passed the law change without a legislative vote. They have decided to go after small and large businesses to collect and send their residents’ use tax to them or be penalized. They will do this until someone challenges them.
California routinely sends out notices to small businesses throughout the country demanding detailed sales transactions for multiple years for any of their California businesses. If you do not reply, you could be in for an audit from this state.
States are creating business fees to capture taxes from out-of-state small businesses. This is to get around the current national laws that protect interstate commerce. The new category of tax is in addition to income taxes and sales/use taxes.

Until national leadership provides unified interstate guidance, states will continue to get more aggressive in law creation. This often creates situations where two states will claim tax on your income and you are stuck in the middle facing double taxation and tax penalties.

Please ask for help if you think you may have business activity or any other financial activity in more than one state. This ever changing landscape requires annual review.

Published: 09/25/2015 12:00 PM

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PREVENT ID THEFT

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3860 Crenshaw Bl. , #217 | Los Angeles, CA 90008
Phone: 323.292.5407 | Fax: 877.690.7818 | Ontario: 909.428.1151
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How to Protect Your Social Security Number from Theft

Category:
Miscellaneous

Category: Miscellaneous

Category image

With the dramatic increase in identity theft, can be done to protect your Social Security Number (SSN) from these would-be thieves? Here are some ideas.

Do not carry your Social Security Card with you. Your parents were encouraged to do this, but times have changed. You will need to provide it to a new employer, but that is about it.

Know who NEEDS your Social Security Number. The list of those who need to have your number is limited. It includes:

Your employer. To issue wages and pay your taxes.
The IRS. To process your taxes.
The State Revenue department. To process your state taxes.
The Social Security Administration. To note your work history and record your benefits.
Your retirement account provider. To enable annual reporting to the IRS.
Banks. To enable reporting to the IRS.
A few others. Those who need to report your activity to the government (example: investment companies.)

Do not use any part of your Social Security number for passwords or account access. Many retirement plans use your Social Security Number to enable you to access their on-line tool. When this happens, reset the login and password as soon as possible.

Do not put your Social Security Number on any form. Unless a business has a legal need for your number, do not provide it. Common requestors of this number are insurance companies and health care providers. Simply write, “not available due to theft risk” in the field that requests your number. If the supplier says they need it, ask them why.

Do not note your full Social Security number on any form. If you are required to give out your number, try marking out the first five numbers. (xxx-xx-1234)

Do not put your Social Security Number on your checks. Certainly not on your pre-printed checks. If requested by the government to place your number on your check to apply your payments, simply put the last four digits on the check.

Never give your number out over the phone or in an email. The only exception is when you make the phone call to a valid source that will need the number to access your account.This list is very limited. It includes calls you make to the IRS, Social Security, your state government, and limited partial numbers to your bank and health care insurance company.

Remember to periodically check your credit with the major agencies to ensure your data has not been stolen. Once stolen, it is often difficult to get a new SSN issued.

Published: 09/18/2015 12:00 PM

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SUMMER IS GONE!

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Phone: 323.292.5407 • Fax: 877.690.7818 • Ontario: 909.428.1151 • taxdoc4u@gmail.com • www.taxdoc4u.com

Autumn Edition

Tax Doctor Newsletter

September 2015

chool bells are ringing once again as summer draws to a close. Unfortunately, at the same time 300,000 new taxpayer notices are being sent out by the IRS to inform them of a possible data theft on their tax accounts. In the meantime, please review the attached articles in this month’s newsletter. There are creative ideas to help save money and information to help make you a more informed taxpayer.

As always, should you know of someone who may benefit from this information please feel free to forward this newsletter to them.

IRS Data Theft Larger than First Reported

“Check your mailbox.”

Normally these words are used in anticipation. As children, it may be looking for a free prize. As adults, it may be the expectation of a tax refund. Now check your mailbox is in anticipation of the IRS letting you know your tax records may have been stolen.

The IRS reports that an additional 220,000 taxpayer accounts have been accessed through a breach in their “Get Transcript” application. The IRS also identified another 170,000 failed attempts to gain access to records. Because of this, the IRS is sending out announcements to affected taxpayers in addition to the 100,000+ taxpayers already identified in May.

What happened

Thieves used stolen Social Security Numbers, names, addresses, and added information to get past the IRS Get Transcript authentication protocols. The thieves could then get copies of IRS transcripts. The IRS believes thieves will try to use this information to file fraudulent tax returns in 2016.

Next steps

The IRS will be contacting the additional taxpayers shortly via mail. If you are impacted, you can sign up for free credit monitoring and the IRS will flag your account for potential theft risk.

Below is a link to the full announcement on the IRS website:
Additional IRS Statement on the “Get Transcript” Incident

IRS Data Theft Larger than First Reported

Normally these words are used in anticipation. As children, it may be looking for a free prize. As adults, it may be the expectation of a tax refund. Now it is in anticipation of the IRS letting you know your tax records may have been stolen.

Read full article

States Becoming Tax Thieves?

Small business consultants beware

Over the past few years, state revenue departments have been getting creative in making new tax laws to capture non-resident income taxes. If you are an individual operating as a sole-proprietor consultant or service provider, here is what you need to know.

This could be you

	You could owe state income taxes to a state you never visited or worked in.
	Non-resident employees doing the same work you do as a consultant may not have to pay state income taxes while you must.
	Federal law protects non-residents from state revenue attacks, but only if you sell tangible property (like pencils, watches and other physical property). It generally does not protect those who provide services.
	Every state can be different. Just because you know your state’s rules, do not assume other states follow the same guidelines. Nor should you assume other state laws are logical or reasonable.

What can you do?

If you are a consultant providing services to out-of-state customers, here are some tips.

	Research the states rules. Research your customers’ state tax laws for non-resident service businesses. Also review that state’s non-resident employee wage rules. See if they treat them both the same way.
	Become a temporary employee. If non-resident rules are different for consultants versus employees, consider becoming a part-time employee or temp employee. Adjust your bill rate to allow for the employer paying half of your Social Security and Medicare.
	Physical presence. If you conduct your work in the out-of-state location, a non-resident tax return is usually due. But this is not always the case.
	Service or product? Remember, selling product across state lines is different than providing a service. Nexus laws and tax cases make physical presence required. But here too, there can be exceptions.
	If in doubt, ask for help. The best advice is to ask for help. This area of tax code is rapidly evolving. There are no national guidelines and states like California and Michigan are very aggressive. Exceptions in state rules make mistakes easy to happen. This can lead to you owing taxes to another state based on your out-of state activities.

Small service businesses cannot readily defend themselves against large state revenue departments so they are becoming victims as one state tries to take another state’s income tax revenue. While you may receive a credit in your home state for taxes paid to another state, it is not always easy to do and penalties are often applied. Your best defense is knowledge.

States Becoming Tax Thieves?

Small business consultants beware

Read full article

Creative Ideas to Save Money

If you are like most of America, finding ways to save more and spend less is a challenging task. Sometimes all it takes is a creative solution to change your behavior. Here are some ideas.

	Turn yourself into a vendor. Each month when paying your bills, present yourself a savings invoice. Then when bills are paid, your bill to yourself pops up. Pay the savings account bill by sending a check to a specially marked savings account.
	Pay with cash. Each month pre-determine what you will spend out of your paycheck for core items like food and entertainment. Place the funds in envelopes. When the cash is gone, so is your spending money for the month.
	Put your credit cards into deep freeze. Don’t want to cut your credit card in half? Try putting it in the freezer instead. Place your credit card in a sealed water-tight plastic freezer bag. Place the bag in a container and fill it with water. Stick it in your freezer. Put an expiration date on the bag for thawing. Caution: This idea won’t help you with internet purchases.

	Put your bank on an island. Open a savings account in a bank that is inconvenient for you. Make your deposits by mail, but do not set up internet connectivity to the account. Choose a location that makes you plan for a visit to make withdrawals. This should slow down your desire to use these funds.
	Make it a game show. On large purchases, conduct research to identify your desired brand and model. Then play “Let’s Make a Deal” by negotiating with different suppliers to get the best possible price. Or try the “Price is Right”, by shopping around for your common supplies to purchase at a lower price point.
	Multiply your brain. For the next few months, never spend money or pay bills alone. Have your significant other or a friend pay bills with you and shop with you. This added spending awareness and additional voice may help rethink old spending habits.

These creative ideas all have one thing in common. They bring attention to your current spending habits with the goal of changing your spending patterns. If none of these ideas work for you, have fun and come up with some of your own.

Creative Ideas to Save Money

If you are like most of America, finding ways to save more and spend less is a challenging task. Sometimes all it takes is a creative solution to change your behavior. Here are some ideas.

Read full article

Understanding Capital Gains and Losses

Multiple tax rates hold the key

With the recent volatility in the stock market, it is only natural to want to sell your investments. While the market may panic, making an informed, calm, and planned decision can be your best option. Part of this decision-making process is understanding the tax consequences of selling your investments.

Investment Tax Rates

Investment

Tax
Classification

Holding
Period

Tax
Rate

Comments

Retirement Accounts:
401(k), 403(b), traditional IRA, SEP IRA, SIMPLE IRA

Ordinary income (when funds are withdrawn from the account)

Determined by the account type (usually withdrawals after age 59½)

0% up to 39.6%*

There is not a tax event when an investment is sold within your account. The tax rate depends on your annual income at time of fund withdrawal.

Retirement Accounts:
Roth IRA and Roth 401(k)

No tax on withdrawals

5 years and 59½ years old or older.

N/A

Earnings are not taxed as long as rules are followed.

Short Term Capital Gains (STCG)

Ordinary income

1 year or less

0% up to 39.6%*

For investment sales such as stocks and bonds

Long-term Capital Gains (LTCG)

LTCG rates

More than 1 year

0%: in 10 or 15% tax bracket

15%: in 25-35% tax bracket

20%: in 39.5% tax bracket*

For investment sales such as stocks and bonds

Depreciation Recapture

Special

Any

25%

When you sell property that has been depreciated in prior years, part of your sale price may be taxed as a recapture of this prior period depreciation.

Collectables

Special

Any

28%

A special tax rate applies to gains on the sale of items you collect; like coins and baseball cards.

Investment losses

Ordinary income

Any

Offset benefit:
0% up to 39.6%

Losses can offset income up to $3,000 each year

* a 3.8% Net Investment Income Tax may also apply to these earnings.

As the above tax rate chart suggests, understanding the tax consequence of selling an investment can be complicated. Your tax obligation could be subject to no tax or up to 39.6% plus an additional 3.8% for the Net Investment Income Tax. Here are some things to think about.

Within retirement accounts

	Selling investments within retirement accounts. Selling investments within your retirement accounts is not usually a taxable event. The potential tax event occurs when you take the funds out of your account either by a withdrawal or occasionally as a rollover into another account.
	Follow the account rules. Each of your retirement accounts has its set of rules. If you follow them, you can avoid early withdrawal penalties. Following the holding period rules within Roth accounts can also make your withdrawals tax-free.

Gains and losses outside retirement accounts

	Losses. You may deduct investment losses of up to $3,000 per year. These losses first offset any investment gains. If there are no gains your loss can offset your ordinary income. So the benefit of losses can be worth next to nothing or up to 39.6% if it offsets ordinary income.
	Non-investment losses. Unfortunately, individuals may not offset losses on the sale of non-investment property. So if you sell a car and make money, you need to report the gain. If you sell the car and lose money, there is no deductible loss unless it is part of a business transaction.
	Long-term better than short-term. Holding an investment for longer than one year is key if you want to minimize your tax obligation. Short-term gains are taxed the same as wages.

If nothing else, please remember your investment decisions can often have tax consequences. Please ask for help before taking action.

Understanding Capital Gains and Losses

Multiple tax rates hold the key

With the recent volatility in the stock market, it is only natural to want to sell your investments. While the market may panic, making an informed, calm and planned decision can be your best option. Part of this decision-making process is understanding the tax consequences of selling your investments.

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Come Through the Back Door

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3860 Crenshaw Bl. , #217 | Los Angeles, CA 90008
Phone: 323.292.5407 | Fax: 877.690.7818 | Ontario: 909.428.1151
www.taxdoc4u.com | taxdoc4u@gmail.com

Back Door Roth IRA: Look before you leap

A little tax trick that can get very tricky

Category:
Retirement

Category: Retirement

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There is a technique often used to fund a Roth IRA for those whose incomes do not qualify. It can work well if you know the rules, but there are a number of things to consider.

Background

Many taxpayers like the benefits of Roth IRAs. While funds deposited in this retirement account have already been taxed, any earnings in the account can be tax-free as long as program rules are followed. In addition, Roth IRAs are not subjected to Required Minimum Distributions and you may contribute to the account as long as you have earned income.

Annual contributions. Each year, qualified taxpayers can contribute up to $5,500 in a qualified IRA ($6,500 if age 50 or over.) However, in 2015 if you are single and earn $131,000 or more ($193,000 married filing jointly), you may not contribute to a Roth IRA.

Rollover into Roth IRAs. Recent legislation allows for rollovers into a Roth IRA from other qualified retirement accounts without income limits as long as taxes are paid on any rollovers from pre-tax retirement accounts.

The back door technique

If unable to donate to a Roth IRA, many taxpayers use a back door rollover technique to fund their Roth IRA. They do this by contributing their annual amounts into a “non-deductible” IRA. They then roll these funds into a Roth IRA, since rollovers into Roth IRAs have no income limitation. No tax is due on the contribution since it was originally funded using after-tax dollars. Tax is owed on any earnings, but when converted shortly after contributing the funds the tax amount on earnings is fairly minimal.

The benefit

The taxpayer is able to get around the income limitations of funding a Roth IRA and there is not a large taxable event when it is converted.

The technique has limits

The IRS quickly caught on to this technique and clarified that if you convert money into a Roth IRA, they will consider that it came from ALL your IRAs. You cannot stipulate that you are just rolling money from your non-deductible IRA in order to avoid the tax.

Example: Assume you have a traditional IRA with a $95,000 balance and a non-deductible IRA with a $5,000 balance. You wish to convert $5,000 into a Roth IRA. Since 95% of your IRA balances are in traditional IRAs, 95% of your conversion will be considered taxable. Only 5% of the conversion can use the back door Roth IRA technique.

To manage this rule clarification, many who wish to use this technique either have no other IRAs or have converted their other IRA accounts into other plans like 401(k)s.

What it means

The back door Roth IRA technique only makes sense under the following conditions.

Your income precludes you from directly funding a Roth IRA AND
you have little or no funds in other IRAs AND
you have taken advantage of other retirement plan funding options AND
you have already considered the option of rolling over funds from other account types into a Roth IRA.

Prior to taking any action, ask for a review of your situation to understand how it might impact you.

Published: 08/28/2015 12:00 PM

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3860 Crenshaw Bl. , #217 | Los Angeles, CA 90008
Phone: 323.292.5407 | Fax: 877.690.7818 | Ontario: 909.428.1151
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Understanding Tax Terms: Tax Expenditures

Unraveling the true level of government spending

Category:
Planning

Category: Planning

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Each year the President submits a proposed budget for Congressional review and approval. But since much of government spending is blended into the income tax code, the budget proposal runs the risk of nondisclosure on the true level of spending. So how does full disclosure of the cost of these blended spending initiatives get disclosed? Through tax expenditure reporting.

Definition

If the calculation of income tax was simple, the term Tax Expenditures would not exist, nor would the need to conduct a timely tax reduction plan. As it is, the definition of Tax Expenditures is left to OMB, the Federal Office of Management and Budget. Each year they outline expenditures built into the tax code. To clarify;

The OMB’s definition of Tax Expenditures… revenue losses from special exemptions, credits, or other preferences in the tax code.

In plain English; Tax Expenditures refers to using the income tax revenue collection system to pay out money for government initiatives.

How can this be?

Income x an income tax rate = income tax

In the simplest form, the income tax system would have you report all your income and then send a percent of it to the government in the form of income tax. Any departure from this simple equation opens the door to using the system to pay for government initiatives.

Example: Take the home mortgage interest expense itemized deduction as an example. The government foregoes potential income tax by letting you directly reduce your taxable income by your mortgage interest amount. This tax savings is provided to homeowners with mortgage interest.

How big is it?

A recent report by Federal Office of Management and Budget estimates federal tax expenditures for individuals to be in excess of $1 Trillion dollars in fiscal year 2014. Here are examples of costs for some popular items:

Mortgage interest deductibility: $69 billion
Lower tax rate on long-term capital gains: $76.1 billion
American Opportunity Tax Credit: $15.7 billion

The good news is that by knowing as much as possible about the $1 trillion in available tax expenditures, your tax plan can take advantage of those that apply to you.

Published: 08/21/2015 12:00 PM

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NO FREE MEALS

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3860 Crenshaw Bl. , #217 | Los Angeles, CA 90008
Phone: 323.292.5407 | Fax: 877.690.7818 | Ontario: 909.428.1151
www.taxdoc4u.com | taxdoc4u@gmail.com

Getting Business Meal Documentation Right

Prepare for an audit by doing the little things right

Category:
The Audit

Category: The Audit

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If recorded properly, the cost for qualified business meals is a deductible expense. Most business-related meals can be deducted for 50% of the cost. To ensure your deduction is not thrown out by an IRS auditor here are some tips.

Record date, time and amount. By keeping the receipts you have record of the expense as well as the date and time.
Record who attended the business meeting. Note on the back of the receipt who was in attendance at the meal.
Record what the meeting was about. Also record the business purpose of the meal and the business relationship between those in attendance.

Remember, some business related meals also qualify for 100% deductibility, but not without good documentation. A review of your situation may provide even higher deductibility of your business-related meals than you might expect.

Published: 08/14/2015 12:00 PM

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