TAX TIP OF THE DAY... Market drop!!! Roth conversion anyone?
Roth IRA rules are complicated and an example of Congress "simplifying" the tax code. Yeah, right! So this topic can save you a lot, but admittedly is not a fun read. In a nutshell... IF YOU WERE PLANNING A CONVERSION, DO IT NOW. Here we go with the details. Roll tape. You can minimize the taxable amount of a Roth conversion (see definition below) by choosing to convert on a date when the value is low... such as after a drop in the market. You are taxed on the value on that one day. So choose a day when your account is LOW and celebrate the market drop!!!. Undo and Redo options: If you already did a 2015 (last year) Roth conversion... when the value was high, there is an "UNDO" available that allows you to change your mind as late as October of 2016. Use your "undo" to escape paying taxes on money that no longer exists due to a market drop. You can "REDO" the conversion and use today's date instead as your conversion date. The lower the value, the less tax you pay. So this may make sense for you if the monies are worth much less today. One small issue which can be good or bad depending on circumstances... the conversion would now be taxable in 2016 rather than 2015. What is a Roth conversion? A Roth conversion is moving money into a Roth IRA from an existing retirement plan (usually a traditional IRA or 401k). Why would you do a Roth conversion? Roth IRAs deliver tax-free distributions in later years including the investment growth along the way... ALL TAX-FREE. You should discuss first with your tax advisor to fully understand the implications and other factors that may make this a bad idea. Do I have to convert the entire balance? No. You can convert all or just portions of an existing retirement account. APOLOGY... You may need a stiff drink after reading through this. If you made it this far through, your next drink is on me. Happy weekend and use a designated driver! SHARE WITH A FRIEND. If you need any help... www.baboiancpa.com TAX TIP OF THE DAY... 10 Crazy Sounding Tax Deductions allowed by IRS Tax Court!!!
1. Breast augmentation allowed for exotic dancer Chesty Love... deductible as stage props. 2. Paying your lover... live-in girlfriend deducted as rental property manager. 3. Deducting cat food even if you don't own a cat... business owner set out cat food to attract stray cats that killed snakes and rats. 4. Drunk driver allowed to deduct resulting auto body repairs. 5. Babysitting fees... allowed as charity so Mom could do volunteer work. 6. Free beer... allowed as promotional expense by business owner. 7. Manicured lawn deducted... allowed because business customers visited the home regularly. 8. Dog moving expense allowed... finally a dog treated as a dependent!!! 9. Body oil deducted... allowed for professional body builder to "glisten". 10. Swimming pool deduction allowed... plus chemicals, pool insurance, and pool heater electric... all because a doctor recommended exercise to alleviate a medical condition. Source and more details: http://www.forbes.com/sites/robertwood/2015/01/26/10-crazy-sounding-tax-deductions-irs-says-are-legit/#2715e4857a0b13ab9b6b6505 SHARE WITH A FRIEND. If you need any help... www.baboiancpa.com TAX TIP OF THE DAY... IRS has wedding gift for newlyweds: MARRIAGE PENALTY.
Many newlyweds are thrilled to file their first tax return as a married couple until they realize that their refund is less. It's normal. It's not your fault. The MARRIAGE PENALTY affects some and not others. It can penalize you hundreds of dollars. There is no planning that can be done to avoid this other than not to get married... and the accountant that recommends that will be fired before the last word rolls off the tongue! So just live with this marriage penalty... it goes along with losing closet space. You don't have a choice, so don't complain too loudly. This is what you need to know: 1) If you are married on 12/31 of the tax year, you are considered married for the entire year. 2) The marriage penalty may not affect you if one partner's income is significantly greater than the other. 3) You can't avoid the marriage penalty by filing as "single". Once you are married you are NOT ALLOWED TO FILE AS "SINGLE". You can file separate, but that filing status is "married filing separate" which usually yields horrible results. 4) If you do file separately and one spouse deducts itemized deductions (interest, taxes, charity), the other spouse must also use itemized deductions too. It usually makes sense to file jointly for this reason. Getting married means a different set of tax rules and different tax tables. THIS POSTING SHOULD ONLY BE READ AFTER YOU ARE MARRIED!!! SHARE WITH A FRIEND If you need any help... www.baboiancpa.com TAX TIP OF THE DAY... deduct legal fees
Legal fees are deductible if associated with taxable income: 1) related to taxable LAWSUIT AWARDS 2) related to the determination of taxable ALIMONY 3) related to a DIVORCE involving a business or rental 4) to secure certain DISABILITY benefits 5) related to taxable REAL ESTATE SALES 6) related to EMPLOYMENT 7) to secure UNEMPLOYMENT benefits 8) to secure WORK ACCOMODATIONS for a physically impaired employee SHARE WITH A FRIEND. If you need any help... www.baboiancpa.com TAX TIP OF THE DAY... deduct tax preparation costs
1) Fees paid to licensed tax return preparers 2) Payments paid to unlicensed relatives, friends, helpers. Include cash, gifts, refreshments, meals, wine and aspirin. 3) Tax preparation software, electronic filing fees, web subscriptions 4) Supplies... ink, envelopes, folders 5) Postage 6) Tax planning newsletters SHARE WITH A FRIEND. If you need any help... www.baboiancpa.com TAX TIP OF THE DAY... deduct business credit card costs
1) Deduct credit card CHARGES for work or business expenses. Use the charge date, not the payment date. 2) Deduct INTEREST expense - allowed for business owners, but not allowed for employees. 3) Deduct ANNUAL FEES SHARE WITH A FRIEND. If you need any help... www.baboiancpa.com TAX TIP OF THE DAY... deduct your pet fish?
Now that I have your attention, it's time to reset your tax record keeping system for 2016. You need 5 file folders to toss receipts into throughout the year. If you don't have a receipt... toss a post it in instead with date, amount paid and details. 1) Medical, Dental, Vision 2) Taxes 3) Charity 4) Employee work expenses 5) Ask my CPA SHARE WITH A FRIEND. If you need any help... www.baboiancpa.com TAX TIP OF THE DAY... deduct your cat?
Never say never. 1) Mr. Johnson's cats helped eliminate mice from an office in his renovated barn. The cats were "extermination expense". 2) A professional home office had 2 friendly office cats. The cats were mentioned in advertising and often approached customers. The cats were "advertising" expense. These are not IRS examples. These are reasonable interpretations of IRS code section 162 which allows ordinary and necessary expenses BASED UPON THE CIRCUMSTANCES. The IRS has consistently allowed expenses that help a taxpayer increase sales or decrease expenses. When in doubt, ask a tax pro. You may be surprised what is allowable!!! Stay tuned for my next post... deduct your pet fish. SHARE WITH A FRIEND. If you need any help... www.baboiancpa.com TAX TIP OF THE DAY... deduct your Dad
Dependency rules have radically changed over the years. So ignore your prior knowledge in this area. If you support a parent, it may be possible to claim that parent even if they don't live with you. A good candidate for this deduction is a parent on social security with no more than $4k of additional income. The rules are a bit tricky to navigate. But it's a great deduction that may even extend to Head of Household benefits for certain children. There are planning opportunities based upon which parental living expenses you choose to pay for. Myth #1: you can only claim children as dependents Myth #2: you always must live in the same house as your dependent SHARE WITH A FRIEND. If you need any help... www.baboiancpa.com TAX TIP OF THE DAY... home buyer tax breaks
New home, new furniture, new TAX BREAKS! 1) a home allows many to use "itemized" deductions... mortgage interest, property taxes, state and local taxes, sales tax, charity contributions, home office deduction. 2) penalty-free IRA distributions may be available to you. 3) Hidden deductions: your HUD-1 purchase paperwork has additional deductions of taxes, certain loan fees, certain insurance. 4) moving across local Township lines results in the need to pro-rate W-2 income between the 2 municipalities on the Local tax return(s). SHARE WITH A FRIEND. Your referrals are greatly appreciated. We are currently accepting new clients. If you need any help... www.baboiancpa.com |
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AuthorDavid S. Baboian, CPA Archives
February 2018
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