Q: My sister passed away and I have inherited her IRA – I am not 70.5 yrs. old yet. When do I have to take money out of her IRA?
A: As a non-spouse, you have to take a withdrawal not later than the year following the year she passed away. You can either completely liquidate the IRA, or take annual payments over your lifetime. Please keep in mind that everything that is paid out from her IRA will be taxable to you as ordinary income.
disclosures:http://www.hechteffect.net/?page_id=31
Yesterday, I started my annual party with TurboTax. It is not the best party but like most good parties, it does leave me exhausted. I am pretty used to the TurboTax system and, for my family, it is easy and works well. It did make me think about all of the others out there doing their own taxes and the common mistakes they make. Here are a few to easily avoid:
Choose the right filing status. There are 5 choices, that is it. The choice that hangs up most is Head of household. If you are not married at the end of the year, have cared for a closely-related dependent for more than ½ of the year and paid more than ½ the cost to maintain a home for yourself and said dependent, you are Head of household.
Be a good scribe or typist. The names and social security numbers for everyone on your return must be exactly as they appear on the social security card. Please double check your input to make sure you do not transpose (as I do).
Addition and subtraction errors cause the most adjusts to your return. Picture yourself signing the return and sticking it in the mail confident that it is all correct. Then weeks later, you get a lovely letter from the IRS, and they checked your math. Yes, someone with the IRS actually does that. In some cases, the error is in your favor, most often it is not.
So grab a drink, I suggest strong coffee, and attend your own tax party.
disclosures:http://www.hechteffect.net/?page_id=31
We have been hearing nothing but fiscal cliff and spending cuts lately is there a solution on the horizon? I don’t know when we will get past this but here are a couple of items that I hope do not get touched.
Employer-provided pensions, which allow companies to offer tax-deferred pensions and 401k’s could be a major target for savings. These accounts defer $163 billion in revenue that could help reduce the deficit. I would rather have that savings in my pocket – a 401k is the best way to save for retirement in my opinion.
Another cherished middle-class deduction is mortgage interest; this too is on the line. Nearly $100 billion a year. Taking away this deduction would also have a major negative impact on many people and industries, also, my opinion.
Please find out who your Congressmen & Senators are and write them regarding these issues.
Disclosures:http://www.hechteffect.net/?page_id=31
We have heard a lot of back and forth about the fiscal Cliff and the proposed changes. The following are the proposed changes by the Administration taken from the 215 pages the Department of Treasury report. All of the changes put forth the following reason – or a modification of the reason:
“Limiting the tax benefit of upper-income taxpayers’ would reduce the deficit, make the income tax system more progressive, and distribute the cost of government more fairly among taxpayers of various income levels.” That being said… here are the proposals, somewhat simplified.
Itemized deductions would be reduced by 3% of the amount by which the AGI exceeds statutory thresholds. The thresholds would be $250k for married filing joint, $200k for single taxpayers.
Reinstate the personal exemption phase-out from the current $3800 to $2500. The thresholds are the same as above.
Reinstate the 36% and 39.6% tax rates by replacing the 33% and 35% tax brackets with these rates. The thresholds are the same as above.
Tax on qualified dividends as ordinary income will expire for income that is taxable at the new 36 and 39.6% brackets. All dividends will be taxed as ordinary income for these taxpayers.
Net long-term capital gains tax restored to 20%. It would also repeal the special reduced rate on gains from assets held over 5 years. (Editorial note: keep in mind an increase from 15% to 20% is an additional 25%, not a 5% increase).
All of this will go into effect 12/31/12 if there is no compromise.
Disclosures:http://www.hechteffect.net/?page_id=31
Unless Congress acts, your tax bill will be higher next year. Top income tax rates will go from 35% to 39.6%. On top of that, a piece of the health-care reform law goes into effect: For higher-income taxpayers, the provision means an additional 3.8% Medicare tax on investment income that most people are not aware of yet. That brings the highest marginal tax rate to about 43.4% before state and local taxes, if they apply to you. So what can you do?
One solution available to most of us is our retirement accounts. Many employees are only funding their 401k accounts to the company match. If you increase that by just 3%, you will lower your tax bill but make little or no difference in your spendable income.
Another solution is to take advantage of the tax rates we are under now and look into converting part of your Traditional IRA to a Roth IRA. You will pay tax on the amount that you convert but it will be at today’s lower tax rate vs. next years’ increased rates. Converting part of your Traditional IRA to a Roth may also help with tax management in the future. When calculating your Required Minimum Distribution, the Roth balances are not included.
A comprehensive review of your retirement accounts, cash flow, and taxes should be done annually. Contact your Certified Financial Planner Professional® today.
Disclosures:http://www.hechteffect.net/?page_id=31
Q: Can my wife and I give $26,000 to each of our four sons?
A: Yes, you can each give $13,000 or $26,000 as a couple to as many people as you wish.
Q: How can I avoid paying taxes on my Social Security income?
A: If your combined income – married filing jointly – is less than $32,000, your SS income should not be taxed.
Q: I sold a mutual fund and now have a $6500 loss. Can I use this entire loss in figuring my Federal Income tax for the year?
A: If you do not have sufficient gains to offset the full loss, you can use $3000 this year then carry forward the remaining $3500 a year until it is used up.