Most people still believe they will be in a lower tax bracket when they retire. For many taxpayers, this is not true. Your bracket may decrease, however, your effective tax rate probably will not.
As you lose deductions and exemptions, you may actually pay a greater percentage of your income for federal and local taxes. Try to arrange your retirement income so that some of it is paid from tax free investments
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When going through a divorce the big items are the ones that are discussed, fought over, and settled. You discuss alimony, child support, living arrangements, dividing up assets. What about your tax return? You can file joint for that last year together if you wish. If filing joint, you may not suffer any adverse effects, if filing separate, you may.
Recently, I was asked to report the cost basis and gain/loss on some previously jointly held holdings for a divorced couple. Even though one Spouse had inherited all of the assets, they were moved to a joint ownership with the non-inheriting Spouse’s social security as primary on the account. There happens to be a taxable loss from one of the holdings that will now benefit the non-inheriting Spouse.
A final tax return needs to be discussed and written into the divorce decree. You may be leaving something on the table that you wish you had not.
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Why do I start with this quote? I have just spent time reviewing my In-laws 2010-2012 tax returns. The above sentence was what they were told by the “lovely woman” who was taking care of them. Why did they believe her? Do they suffer from dementia? They do not suffer from dementia – they suffer from “she is so nice- she loves us- she would never lie or steal from us-ities.”
If you have income that is less than $10,000, and you are under age 65 and single, you do not have to file.
My In-laws have pension, social security, and RMD income. They have to file a tax return. They are now subject to a bit of penalties for not filing.
My Husband is very involved in their financial life now, this is something they kept hidden, and they must have known it was not quite the proper advice. The moral of this story is: sometimes our Parents need to be watched, and their “friends” monitored more than our kids.
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That’s right, only 8 weeks left in 2013. Visions of holiday dinners and gift buying pop into our minds, but what about our taxes? Yes, I said taxes. It is not too late to make sure you have done all you can for yourself to avoid paying too much in taxes.
Have you fully funded your retirement plan? Have you used your flexible spending account? Have you paid your Property Tax? Have you made all of the charitable deduction(s) you wanted to? These are all important issues and you do not want to leave money on the tax table that can be left in your pocket.
One thing I have done with a couple of my clients is a “mock” tax return. We have gone to www.irs.gov, printed off a blank 2012 1040, applied what we know of the 2013 tax code, and processed a “mock” return. In one case, we were able to see how much could be pulled from the IRA account and not push the client into a higher tax bracket. Another client wanted to pay off their mortgage. We discovered that they could do this and not pay more in tax even though they no longer would have their mortgage interest as a deduction.
So go ahead, do the return. Confirm to yourself that you have done everything you can to lower your own tax picture, and then get to planning for your holidays. After all, there are only 8 weeks left!
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Q: I will be turning 70.5 in November. When do I have to take the mandatory withdrawal, and how much do I have to take?
A: You have to take your first Required Minimum Distribution no later than April 1st of 2014. Your first withdrawal will have to be 3.65% of the 12/31/12 balance of all of your Qualified Accounts. If you wait until April 1st of 2014, you will have to make two withdrawals that year. Two withdrawals in one year could increase your tax burden tremendously. You may want to take part or all of your first RMD this year to ease that potentially large tax in 2014.
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The thought that because you worked hard, lived within your means, saved money for your retirement, and hired someone like myself to help manage your retirement savings is now something to be penalized for – outrages me. We live in a country where opportunity is there for the taking. We are free to pursue the professions we choose and help others along the way. Limiting how much you can accumulate in your retirement account just so more tax dollars can go to offset the deficit is just plain wrong.
Call your congressmen, call your Senators, find websites that are against this proposal and make your voice heard.
http://www.bloomberg.com/news/2013-04-05/obama-budget-calls-for-cap-on-romney-sized-iras.html
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Q: If I start taking Social Security at age 62 vs. my full retirement age of 66, will my pension count against me for tax purposes?
A: There are two issues to look at when taking Social Security benefits prior to your full retirement age. One is will there be a penalty against your Social Security of $1 for every $2 paid. The second issue is will your Social Security benefit be taxed as ordinary income. Pension income is not considered earned income and, therefore, will not be charged the penalty. You may have to pay ordinary income tax on up to one-half of your Social Security benefits due to your pension and other forms of income.
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We are familiar with hearing about CPI, which is actually called CPI-U. This is a measure of the average expenditures on selected items by the urban shopper. Fluctuations in these prices have an impact on what the Government perceives inflation to be. In plain English, this tells us if there will be a raise in Social Security payments or not.
As part of the Fiscal Cliff negotiations we are now introduced to Chained-CPI. Chained-CPI attempts to account for how we react to inflated prices. Would we buy cheaper meat or more house brand products if we feel that prices are rising? It follows the chain of spending. But why make a change now from the standard CPI-U to Chained-CPI?
Making this change would mean paying out less in Social Security benefits over time. Chained-CPI would lead to a larger across-the-board cut in Social Security benefits and a .19% income surtax.
Will Chained-CPI become the new policy? Watch the news and the Fiscal Cliff negotiations to find out.
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