Local Tax & Accounting Services .... tax tips ...

[rbonilla]

 .... Is it finally time to convert a traditional individual retirement account to a Roth? And if so, how should you do it?

We asked four IRA experts those questions and got four slightly different, but smart, answers worth considering.

This is the first year all taxpayers have been eligible to switch into Roth IRAs, which promise tax-free withdrawals in the future. With higher taxes on the horizon, many are gritting their teeth and taking the tax hit now. Fidelity Investments says that as of June 30 it had handled 100,000 conversions, four times the number for the same period last year.

But the decision to convert can be tricky, involving assumptions about future investment returns and tax laws. So we asked CPAs Ed Slott and Robert Keebler, and attorneys Seymour Goldberg and Natalie Choate what they are doing with their own accounts.

The gist: Three say they have either made Roth conversions or plan to do so soon, and the fourth says he will do so if the market tanks. Thus, all believe their own tax rates will be the same or higher in the future, and they aren't worried that Congress will curtail Roth benefits enough to make them rue the move. In addition, all say they will use non-IRA funds to pay any conversion taxes.

Beyond these general similarities, however, each has taken a different tack. Here are their strategies:

Ed: An IRA advisor and vocal Roth advocate, Ed, 56 years old, says he converted nearly all his six-figure IRA in January. With his advisor's help, he separated the funds into a half-dozen Roth accounts, each for a different asset class or sector such as energy, health care or real estate.

Ed says he plans to monitor his Roths and then reverse the conversions (called "recharacterization") of accounts that have dropped in value or lagged behind. The tax law allows this move as late as Oct. 15 of the year after the conversion date. So he has a 21-month window to decide which accounts to undo, and how much tax to pay. Yet his taxes will be figured as of his conversion date last January.

"It's the way to get the biggest bang for my tax buck," says the Long Island, N.Y., accountant. But he left a few hundred dollars in his regular IRA so that it could receive any money from reversed conversions, which cuts paperwork.

An open question: whether Ed will pay his conversion taxes at this year's top rate of 35% or elect a one-time deferral into tax years 2011 and 2012. On one hand, tax rates likely will rise after this year. On the other, the deferral combined with the six-month extension available to all taxpayers would push the payments for his 2010 conversion into 2012 and 2013. Once elected, this deferral can't be reversed, but he doesn't have to decide until October 2011, when his 2010 tax return will be due.

Robert, a CPA in Green Bay, Wis., says he plans to make a Roth conversion of about 20% of his retirement assets before 2011. He will leave the rest in a company pension plan that offers better asset protection than Wisconsin gives to Roth holders. "I've never been sued," he says, "but I think this makes sense." (State law varies on asset protection; Slott says New York's protection is ample for him.)

Working with his broker, Robert, 49, hopes to convert during the market's next tumble, but he will carefully time his state tax payments so that they fall in the same tax year as his federal tax, to avoid triggering the alternative minimum tax the following year.

Seymour Goldberg: Goldberg, an attorney in his 70s also from Long Island, says he will make a partial conversion of assets if the market craters. That is because, as a retired college professor, he is getting nearly a 5% yield from a vintage TIAA-CREF retirement account. Converting to a Roth would mean removing assets from this thriving account, so he has to assess carefully.

Natalie Choate: An attorney with Nutter McLennen & Fish in Boston, Ms. Choate, 64, switched a low-six-figure amount to just one Roth account in early July. The move fulfills her frequent advice to convert as soon as possible in order to "start the five-year clock running." To take tax-free withdrawals of earnings from a Roth, the owner must usually be at least 59 1/2 and have held the account five years.

By converting during a market dip, Choate says she hopes she won't have to reverse the switch. So far her Roth account is up more than 5%, she says, but she dreads paying the conversion taxes, which she won't defer into 2011 and 2012. The thought of writing a five-figure check to Uncle Sam has kept her up at night.

Because she advises clients to write such checks, her dread has been "instructive," she says: "Next, I have to decide whether to convert more assets or remodel my kitchen. Right now, the kitchen is winning."

[rbonilla]

Want a hot tip about how to make a financial killing this year  (  2010 )  ??

Die....

That's right. It sounds like a distasteful joke, but courtesy of the United States Congress, it's a gruesome reality.

Because of a hiccup in the convoluted tax laws, Americans who have done exceptionally well for themselves during their lives will be able to preserve an enormously greater percentage of their money, and thus be able to pass it on to their heirs, if they die before midnight on December 31.

The federal estate tax, for this calendar year only, is zero percent; at the stroke of midnight on New Year's Eve it immediately goes to a potential 55 percent for people who have managed to build up a considerable nest egg for their families. The 55 percent rate will apply to everything after the first $1 million in assets, if the current law stands. (Congress still has the beat-the-clock option to step in and change the rules for next year, but so far has not.)

The details of the back-and-forth in Congress that has led to this are enough to give you a headache, and those mice-trapped-in-a-maze legislative machinations have been exhaustively reported on and analyzed. Suffice it to say that the smart people in the world of money and investments -- the ones who always seem to know when it's time to move to municipal bonds, or to roll their cash over into some exotic derivative, or to switch to real estate -- are now saying that dying this year is a sound financial strategy.

As the Wall Street Journal recently put it: "It has come to this: Congress, quite by accident, is incentivizing death."

No one is kidding about the basic facts of this. The Bernie Madoff scheme may have been unspeakably cruel, and the tricks played by the big investment banks may have been infuriating, but at least no one was telling people that they'd better die quickly if they'd like to let their families hang on to their money.

The Journal ran a photo gallery of six prominent men who beat the system by dying this year: former TV host Art Linkletter, actor Dennis Hopper, Taco Bell founder Glen Bell, novelist Louis Auchincloss, real estate developer Walter Shorenstein and author J.D. Salinger.

The most-talked about beneficiary -- if you can call it that, which you probably shouldn't -- of this tax weirdness is George Steinbrenner, the late owner of the New York Yankees who died last month. Under the headline "Why Now Is a Great Time to Die," financial journalist Lauren Drell, who writes for AOL, calculated that by dying this year instead of next, Steinbrenner saved his relatives approximately $600 million.

What do you call a system that allows such a thing to happen? "Grisly" is the word that tax expert Barbara Weltman used when she spoke to Drell: "There's talk about pulling the plug on people on life support ... [It is] just horrible to think that taxes should play any role in life-and-death decisions."

But the same people who knew how to play all the angles to build an enviable financial life for themselves are now coming face to face with the ultimate angle. As attorney and estate planner Jack Nuckolls told The Associated Press: "If you're super-wealthy, it's a good year to die. It really is."

Last year, when the estate tax was 45 percent, people in ill health faced a different kind of challenge: If they could just hold on until the first few seconds of 2010, then they could die knowing that their money had made it into the freakish one-year holiday from estate taxes. But as sadistic as that setup was -- imagine having to fight for a few more breaths because if you made it to New Year's Day, you could do a better job of providing for your children -- at least it put a premium on living.

What's scheduled to happen in a little more than four months is the opposite. Those who die are the fiscal winners. There doesn't seem much to be done about it, except engage in dark wit. Eugene Sukup, 81, of Sheffield, Iowa, who founded a grain-bin manufacturing firm with $15,000 in 1963 and who has presided over it with such skill that today it provides jobs for 450 Iowans, told the Wall Street Journal that if he were to die this year he would not have to pay a penny in estate taxes. But if he were to live until the dawning moments of next year and then pass away, his bill could be $15 million.

He seems to have a sense of humor about this insanity (unless he's not kidding). He said:

"You don't know whether to commit suicide or just go on living and working."

That's what is so Alice-through-the-looking-glass about all of this, and that is why, in its nonsensical way, the tax situation is a parable for the financial madness of our times.

If you've been fortunate in your life, and have accumulated a sizeable amount of money and property to leave to your children and grandchildren, and your health is starting to fail, you can hope for one more springtime with your family, and a seat in front of the television set to watch the 2011 Super Bowl, and a chance to gaze upon the fireworks and the community parade next Fourth of July.

But if you do, will you feel like a sucker? Will you feel like you've wished for something foolish?

Will you weigh the joy of one more year against the empty feeling of having your pocket picked by the lunacy of this particular law?

"Happy new year," for some people, may soon enough sound like a taunt.....

[rbonilla]

In these economic times, more taxpayers are not able to fully pay their federal income taxes when due. There are several methods that may be used to pay tax liabilities in this situation, one of which is an offer in compromise (OIC).

Sec. 7122 permits the IRS to compromise a tax liability on one of the following grounds:

Doubt as to liability;
Doubt as to collectability; or
To promote effective tax administration because either collection of the full amount would cause economic hardship for the taxpayer or compelling public policy or equity considerations provide a sufficient basis for compromising the liability.
This item focuses on offers when there is doubt as to collectability.

Submitting an Offer
A taxpayer makes an offer by filing Form 656, Offer in Compromise. Form 656-B, Collection Information Statement for Businesses, contains detailed instructions for completing the Form 656. In addition to the application, the taxpayer must send a $150 application fee with the offer. This fee can be abated if the monthly household income is not more than the IRS’s low-income guidelines. Moreover, other than for the low-income exceptions, if the taxpayer makes a lump-sum cash offer, 20% of the amount offered must be included with the offer. The payment is not refundable even if the IRS denies the offer. This payment rule has been in effect since 2006 and has resulted in a decline in the number of submitted offers. One of the current administration’s legislative proposals is to repeal this requirement.

If the taxpayer makes an offer to pay the tax liability using installments, the first payment must be paid with the offer, and the installment payments must be made while the offer is being evaluated. The IRS will return the offer without any appeal rights if the taxpayer does not make the payments as outlined.

The IRS has to act on an offer within two years. If it does not accept or reject the offer within two years, the offer is considered to be accepted. The statute of limitation is suspended while an offer is under consideration.

The IRS offers three types of payment plans:

Lump-sum cash offer: The offer amount is paid in five or fewer installments;
Short-term periodic payment option: Payment is made within 24 months from the date the offer is submitted; and
Deferred periodic payment: Payment is made over the remaining statutory period (normally a maximum of 10 years) for collecting the tax.

[rbonilla]

thanx everyone, for another great tax season !!!     

[rbonilla]

I can do extensions if you need more time ( 6 mos ) ....

cheers

Richard

[rbonilla]

Many of us are already dreading April 15, the IRS deadline for most of us to file our tax returns. But believe it or not, it's also a good day for those saving for retirement. It's the annual deadline to make and maximize your IRA contributions for the previous (2009) tax year.

I meet with many folks looking for ways to increase their retirement savings, and I believe it's important to take full advantage of what you can invest in IRAs annually. If you are under age 50, the maximum amount you can put into an IRA is $5,000 per year — $6,000 if you are 50 or older. Go to IRS.gov for full details.

However, according to the Investment Company Institute, only 40% of eligible American households are contributing any amount to an IRA.

That's a shame, because IRAs are a great way to supplement 401(k) contributions, build wealth and get tax breaks on your retirement investments. Depending on what type of IRA you chose, you can either pay no taxes now (traditional IRA) or no taxes later (Roth IRA).

Also, both traditional and Roth IRAs can give you more investment choices than your typical 401(k). You can even think of them as a retirement grocery cart that you can load with various investments.

Always feel free to contact me for tax & accounting services....cheers...Richard / 970.391.6365

[rbonilla]

   WASHINGTON, April 5 (Reuters) - The Internal Revenue Service could tap individual tax returns to collect fines against people who fail to buy health insurance as required under recently enacted healthcare legislation, the U.S. tax commissioner said on Monday.
Most individuals are required to get health insurance under the new law, or face penalties that would be phased in over time. By 2016, people without coverage could see fines of 2 percent of their income.
Subsidies would help poorer people buy coverage, and states would set up exchanges to allow individuals and small groups shop for insurance.
People who do not comply would be levied penalties, and if they don't pay them the penalties could be taken out of their tax refunds.

[rbonilla]

Who is eligible?

Many job seekers aren’t even aware they qualify to deduct job-search expenses on their taxes. They assume deductions are reserved for the unemployed. Not so  ....  The IRS allows anyone, employed or not, to deduct some of the cost of finding a job from his final tax bill. The limits apply to what kind of job you’re looking for and your individual expenses.

In short, your job search must be in the same line of work in which you are currently or were most recently employed, he said. It should also be at a similar level of responsibility with duties similar to those of your most recent job. If you haven't held a job in that trade or business for an extended length of time, your job search will be considered for a new trade or business, and your deductions may not be allowed.

Recent college graduates should bear in mind these qualifications: If you held a college internship or valid job while in college and your search is for a job in the same trade or business, you will be able to deduct job search expenses. Otherwise, it is a new trade under IRS rules.

What’s OK to deduct?

Some of the most common tax deductions associated with a job search include:

1. Employment agency/career coaching fees. If you paid for a career coach or used an employment agency, most of the charges are tax deductible. If your employer paid for such services, you may actually have a tax liability. (See the attached worksheet.)

2. Resume preparation. This includes using a professional resume writer, paper, printing and postage.

3. Round-trip travel to job interviews. That includes airfare, meals (at 50 percent)  and lodging (actual expenses only). For your 2009 return, you can deduct 55 cents per mile for driving to and from interviews. In 2010, this deduction will drop to 50 cents per mile. Be warned: If you combine a vacation with a trip to conduct an interview, you could get into trouble with the IRS.

4. Advertising for a job, such as in the “job wanted” column of your local newspaper.

5. Newspapers and periodicals purchased to search through employment ads.

6. Phone charges incurred when setting up interviews.

7. Education credits for tuition, related fees and books are generally tax deductible. There are two education tax credits of which you should be aware: the American Opportunity Credit and the Lifetime Learning Credit.

The American Opportunity Credit gives credit up to $2,500 per student for postsecondary education. It breaks down to 100 percent of the first $2,000 of expenses, and then 25 percent of the next $2,000, said Melissa Labant, a tax expert with the American Institute of Certified Public Accountants. In order to claim the entire $2,500 credit, you’d spend a total of $4,000 in education expenses. This credit is more generous than others in that it not only covers tuition, but covers books and related fees as well.

Note that married couples filing jointly can get 100 percent of the American Opportunity Credit if their combined income is $160,000 or less, making it widely available to middle-class taxpayers, Labant said.

Graduate-level classes typically fall under the Lifetime Learning Credit, she said. This credit covers individuals paying qualified tuition and related expenses at a postsecondary, eligible educational institution. The IRS’ site points out that “unlike the Hope Scholarship Credit, students are not required to be enrolled at least half-time in one of the first two years of postsecondary education.”


contact me for fast tax prep or addt'l questions....Richard - 970.391.6365

[rbonilla]

1. In 2009 and 2010, the Making Work Pay provision provides a refundable tax credit of up to $400 for individuals and up to $800 for married taxpayers filing joint returns.

2. For taxpayers who receive a paycheck and are subject to withholding, the credit will typically be handled by their employers through automated withholding changes.

3. Taxpayers receiving less than the full amount of the allowable credit through reduced withholding will be entitled to claim any remaining credit when they file their tax return.

4. The amount of the credit actually received during 2009 in the form of reduced withholding will be reported on your 2009 tax return. Taxpayers who do not have taxes withheld by an employer during the year can claim the credit on their 2009 tax return filed in 2010.

5. Taxpayers who file Form 1040 or 1040A will use Schedule M, Making Work Pay and Government Retiree Credits to figure the Making Work Pay Tax Credit. Completing Schedule M will help taxpayers determine whether they have already received the full credit in their paycheck or are due more money as a result of the credit.

6. Taxpayers who file Form 1040-EZ will use the worksheet for Line 8 on the back of the 1040-EZ to figure their Making Work Pay Tax Credit.

7. In 2010, you may notice that your paychecks are slightly lower than in 2009. The slight decrease may be because of the Making Work Pay Credit. Most of the credit for wage earners is distributed through reduced withholding. The credit - which was spread out over nine months last year - is being spread over 12 months this year. A little less credit in each paycheck means slightly higher withholding. But don't worry, in the end it all adds up.

8. Certain taxpayers should review their tax withholding to ensure enough tax is being withheld in 2010. Those who should pay particular attention to their withholding include: married couples with two incomes, individuals with multiple jobs, dependents, pensioners, Social Security recipients who also work, and workers without valid Social Security numbers.

Having too little tax withheld could result in potentially smaller refunds or - in limited instances - small balance due rather than an expected refund.

9. To ensure your current withholding is appropriate for your individual situation, you can review Publication 919, How Do I Adjust My Tax Withholding? You can also perform a quick check of your withholding using the interactive IRS Withholding Calculator on IRS.gov.

10. If you find you need to adjust your withholding, submit a revised Form W-4, Employee's Withholding Allowance Certificate to your employer.

[rbonilla]

College can be very expensive. To help students and their parents, the IRS offers the following five ways to offset education costs.

1. The American Opportunity Credit This credit can help parents and students pay part of the cost of the first four years of college. The American Recovery and Reinvestment Act modifies the existing Hope Credit for tax years 2009 and 2010, making it available to a broader range of taxpayers. Eligible taxpayers may qualify for the maximum annual credit of $2,500 per student. Generally, 40 percent of the credit is refundable, which means that you may be able to receive up to $1,000, even if you owe no taxes.

2. The Hope Credit The credit can help students and parents pay part of the cost of the first two years of college. This credit generally applies to 2008 and earlier tax years. However, for tax year 2009 a special expanded Hope Credit of up to $3,600 may be claimed for a student attending college in a Midwestern disaster area as long as you do not claim an American Opportunity Tax Credit for any other student in 2009.

3. The Lifetime Learning Credit This credit can help pay for undergraduate, graduate and professional degree courses – including courses to improve job skills – regardless of the number of years in the program.  Eligible taxpayers may qualify for up to $2,000 – $4,000 if a student in a Midwestern disaster area – per tax return.

4. Enhanced benefits for 529 college savings plans Certain computer technology purchases are now added to the list of college expenses that can be paid for by a qualified tuition program, commonly referred to as a 529 plan.  For 2009 and 2010, the law expands the definition of qualified higher education expenses to include expenses for computer technology and equipment or Internet access and related services.

5. Tuition and fees deduction Students and their parents may be able to deduct qualified college tuition and related expenses of up to $4,000. This deduction is an adjustment to income, which means the deduction will reduce the amount of your income subject to tax. The Tuition and Fees Deduction may be beneficial to you if you do not qualify for the American opportunity, Hope, or lifetime learning credits.

You cannot claim the American Opportunity and the Hope and Lifetime Learning Credits for the same student in the same year. You also cannot claim any of the credits if you claim a tuition and fees deduction for the same student in the same year. To qualify for an education credit, you must pay post-secondary tuition and certain related expenses for yourself, your spouse or your dependent. The credit may be claimed by the parent or the student, but not by both. Students who are claimed as a dependent cannot claim the credit.

For more information, see IRS Publication 970, Tax Benefits for Education, which can be obtained online at IRS.gov or by calling me @ 970-391-6365 ...I am more than happy to discuss these with you...

[Jen]

Thanks Richard - if you have any good tax tips, please post those here!

[rbonilla]

bump...

[rbonilla]

I come 2 u ...  Local tax & accounting services, quickbooks,
and accounting services...50% discount hourly rate to
all school teachers ...

Thanx for the support and existing business folks of the Berthoud area !!!  

Cheers -  Richard Bonilla , mba  
www.richard.bonilla.com
970.391.6365