Archive for the ‘Personal Finance’ Category

How To Prepare For A Federal Tax Return Headache

Tuesday, January 20th, 2015

Planning to buy a new big-screen television? Airline tickets for that Caribbean vacation you’ve been looking forward to?  A new car? You might want to wait a little longer.

IRS Commissioner John Koskinen recently warned American taxpayers that some federal refunds could be delayed for a week or more because of recent budget cuts. So, if you file your tax return on paper, before you start spending that income tax refund check, you might want to wait for the cash to actually find its way into your bank account. Expect to feel a little discomfort during this tax season.

Refund Delays

Historically, refunds for electronically filed federal returns were processed within 21 days of the e-filing acceptance date. Paper returns were typically processed within six to eight weeks from the date they were received. Amended tax return refunds take even longer – the turnaround for these returns were typically 12 weeks.

“People who paper file tax returns could wait an extra week – or possibly longer – to see their refund,” said Koskinen in a memo sent to IRS staff. “Taxpayers with errors or questions on their returns that require additional manual review will also face delays.”

In his memo, Koskinen didn’t explicitly address electronically filed returns, but it wouldn’t be a surprise for these refunds to be delayed (at least a little bit) as well.

Phone Jams

Nearly eight out of ten taxpayers receive an average tax refund totaling $2,800, which prompts many taxpayers to check in on the status of their refunds by calling the IRS. The agency is predicting an abysmal connection rate of these calls this year – 43 percent connection rate with a hold time of 30 minutes or more.

Instead, if you would like to track the status of your refund, hang up the phone and log onto the IRS’s website to use its Where’s My Refund feature.

Time will only tell how these budget cuts will impact next year’s tax return process, as well as other services provided by the IRS. In the meantime, start preparing to file your tax return as early as possible to avoid additional delays. Email Rea & Associates to learn more.

By Meredith Mullet, CPA (Wooster office)

 

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File Faster With This Tax Prep Checklist

Tuesday, January 20th, 2015

It’s that time of year again – time to gather your information and prepare to file your tax return. If you want the process to go smoothly, make sure to gather and organize your information before sitting down with your tax preparer. You may be surprised how fast the entire filing process goes if you spend a little time preparing!

Here’s a list of some items to compile before you get started.

Personal Information

Hopefully you know YOUR social security number and date of birth by heart. But do you know your spouse’s SSN? Your kids? Make sure you remember to bring the social security numbers and birth dates of everybody who will be claimed on your tax return.

Income Info

While your W-2 is important, there are many other pieces of information you will need to collect before you will be able to get started. Gather the following pieces of relevant information:

  • W-2s for you and your spouse.
  • Investment income: This type of income will be listed on various 1099 forms including –INT, -DIV, -B, etc). You may also have K-1s and stock option information to provide to your tax preparer.
  • Income received from state and local income tax refunds and/or unemployment. This income can be found on the Form 1099-G.
  • Gather information about any alimony you may have received.
  • If you are a business owner or farmer, don’t forget to provide a profit/loss statement and capital equipment information.  And if you use your home for business, your tax preparer will need to know the size of your house, the size of your office and what you have paid to maintain your home and office.
  • You will need to provide your IRA/pension distributions as well. This information will be provided to you on Forms 1099-R or 8606.
  • If you rent a home or other type of property, be sure to gather that information that proves the profit or losses you realized as a result of the rental.
  • Be sure to claim any Social Security benefits you may have received. This information is found on Form SSA-1099.
  • If you sold your house in 2014, you must provide your tax provider with Form 1099-C, which will include the income you received from the sale of the property. Your preparer will also take the home’s original cost and cost of improvements, the escrow closing statement and cancelled debt information into consideration.
  • Some other information you will need to pass along to your tax preparer includes items such as jury duty, gambling winnings, scholarships, etc.

Adjustments To Your Income

Now that you have collected all the information you can to adequately identify your income in 2014, some adjustments may need to be made. Making the following adjustments to your income may help increase your tax refund or lower the amount you owe to the government. If you have documentation of any of the following information, be sure to bring them to your appointment.

  • IRA contributions
  • Student loan interest
  • Medical Savings Account contributions
  • Moving expenses
  • Self-employed health insurance payments
  • Pension plans such as SEP and SIMPLE
  • Alimony you paid
  • Educator expenses

Itemized tax deductions and credits

This is another way to increase your refund or reduce what you owe. The following deductions and credits help lower the tax burden on individuals. Be sure to collect this information before filing your return.

  • Child care costs – child care provider’s name, address, tax ID number and amount paid
  • Education costs – these can be found on Form 1098-T
  • Adoption costs – the SSN of the child as well as legal, medical and transportation costs associated with the adoption
  • Home mortgage interest and points you paid, which can be found on Form 1098
  • Investment interest expense
  • Charitable donations that were made to not-for-profit organizations. Make sure you have the amounts and value of the donated property, and any out-of-pocket expenses you may have accrued in your effort to make the donation, including transportation costs. Include receipts for any contribution over $250

o   Losses you realized as a result of casualty and loss (the cost of the damage and insurance reimbursements

  • Medical and dental expenses
  • Energy credits
  • Other deductions include items such as union dues, unreimbursed employee expenses, such as unreimbursed employee expenses

New for 2014 returns

For the first time, you will need to provide information about your health insurance coverage to your tax preparer. Be prepared to answer questions such as these:

  • Was everyone claimed on your tax return covered by health insurance?

o   If not, why?

  • Did you or anyone on your return obtain health insurance coverage through Healthcare.gov or through a state run exchange in 2014?

o   If yes, did any of those individuals receive a premium tax subsidy, cost reduction, or premium tax credit? If yes, provide Form 1095-A.

It’s likely that you have already started receiving tax forms in the mail from various places. It’s easy to misplace these documents if you’re not careful. If you haven’t already, set aside a place for these items until you have collected them all. Once you have everything you need, you can set an appointment to file your taxes with your financial advisor or tax preparer. For additional tax information, or to speak with a tax expert, email Rea & Associates.

By Lesley Mast, CPA (Wooster office)

 

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Theft Safeguards To Cause Tax Return Delays In Ohio

Tuesday, January 20th, 2015

If time is money then the new security measures to protect Ohio taxpayer’s returns and prevent identity theft comes at a price. The Ohio Department of Taxation (ODT) said that in an effort to boost security and prevent tax-fraud in the state, Ohio will implement an “up-front filter to all tax-refund requests to analyze the demographic information reported on the return.”

According to Joe Testa, the state’s tax commissioner, the ramped up security is in response to increased fraud attempts. The Columbus Dispatch reports that the state foiled $250 million in attempted tax fraud during the 2014 tax season, which is a significant increase over the foiled tax fraud average of $10 million in previous years. Figures of how much fraud went undetected last year or in previous years are not available.

The Tax-Fraud Quiz

If your tax return is flagged as a result of anomalies in reported demographic information then you will have to complete an Identification Confirmation Quiz, according to Testa. If you are selected to take the quiz, you should expect a delay as to when your funds will be dispersed. Traditionally, it takes up to 15 days to process refunds that will be distributed to the taxpayer via electronic deposit. Those who opt to receive their refunds in check form could wait 30 days to receive their money. This year, those who must take the quiz to validate their identities, may have to wait longer than they have in previous years to receive their refunds.

Which Returns Will Be Flagged?

On its website, the ODT says that tax returns will be analyzed for certain inconsistent data points against public and commercial data sources. For example, in the Dispatch article, taxation spokesman Gary Gudmundson said that “names and Social Security numbers that show up in a different part of the state, or in another state, after being located for years in a specific area of Ohio” may be flagged. This means that if you moved this year, your return may flagged as one that has a higher probability of fraud. The next step is to take the quiz to verify your identity. If the return is flagged, the taxpayer will be required to complete the quiz or prove their identity through documentation before the tax return will be processed.

How To Know If Your Return Was Flagged?

The ODT will send a letter to taxpayers who are required to take the identification quiz. Those who don’t receive a letter will not be able to complete the quiz. Those who are selected will have 60 days to complete the multiple choice quiz. The quiz will be timed and it must be completed online. The state agency has provided answers to Frequently Asked Questions about the quiz on its website. You can also view a video tutorial on the Ohio Department of Taxation’s YouTube channel to learn more about the quiz and what to expect if you are selected to participate in this identity theft safeguard.

Contact your financial advisor or seek out a tax professional to help guide you through these security measures. Email Rea & Associates for more information about this and other tax-related concerns.

By Lisa Beamer, CPA (New Philadelphia office)

 

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Take Control Of Your Financial Wellness In 2015

Monday, January 5th, 2015

Are you still looking for the perfect New Year’s resolution? What about challenging yourself with one that could put you financially ahead? Here are 15 ways you can start your year off on the right foot.

15 Tips For A Prosperous 2015

Adjust your 401(k) plan contribution.

If you have a 401(k) plan, your contribution limit will increase to $18,000 in 2015, and if you’re 50 years or older, you can contribute an additional $6,000 into your plan. When it comes to retirement savings, every little bit helps, so even if you can’t afford to contribute the maximum, at least consider increasing your contribution a little bit over what you put into it last year.

Pay off your debt.

Make 2015 the year you pay off all debts. Once you settle past debts, it will be easier to save for future expenses and retirement. For example, do you have credit card debt? Pay off the cards with the highest interest rates first. Once you have caught up, make it your goal to pay any outstanding balance monthly.

Set up a budget and follow it.

Review your monthly income and expenses and allocate money toward savings, debt resolution and other financial goals. Once you have a plan in place, stick to it. Try to set aside some time to review your budget to make sure you are on track.

Build a “rainy day” fund.

Some people say that you should have enough money saved to cover your expenses for at least six months to protect you and your family against unforeseen events that could impact your finances. Don’t let the timeline intimidate you, though. Get your rainy day fund up to one month’s worth of expenses and build from there.

Work with your significant other – not against them.

If you are planning to strengthen your financial foothold in 2015, make sure you have support from your significant other. If you and your significant other are on the same page, then you will have a better chance for success. For example, coming to an agreement on how much you each can spend on unnecessary expenses early on can save unnecessary drama in the future – and costs less than a divorce.

Review your company’s Section 125 plan.

If your employer offers a Cafeteria Plan to its employees, make sure you are aware of what benefit options are available to you and your family and that you taking full advantage of the pretax nature of these benefits. Benefits offered as part of your employer’s Section 125 plan could include health savings accounts, dependent care assistance, adoption assistance, group-term life insurance and others. If you are not sure what benefits are available to you or would like to make sure you are receiving the maximum benefit, set aside some time to speak with your company’s human resources department.

Know your credit score – then improve it.

An excellent credit score is one that is between 760 and 850. If you’re not sure what yours is, request your free copy and find out. Companies such as Experian, Transunion and Equifax will provide you with a free copy of your credit score. Once you know your score, work to increase your rating. This can be done any number of ways, but it takes time and hard work. And don’t be discouraged if you don’t see a massive increase over the next year. Even 20 points is considered a significant improvement.

Set up your will and power of attorney.

Don’t put off this critically important responsibility. If you haven’t already, make it a priority to establish your will and power of attorney as soon as possible. Or if you already have one in place, make sure it is not outdated. Set aside some time to review your current documents with your significant other and update it if needed.

Plan for the inevitable.

If something happens to you, will your family be able to carry on? Meet with your HR department to make sure you are taking full advantage of your life insurance options and disability plan.

Schedule a wellness visit for your mortgage.

When was the last time you reviewed your home mortgage? If it’s been awhile, you should review the interest rate and conditions of your loan. If you have been in your home for a while, you may be surprised to learn that there might be options out there that could save you money.

Organize, organize, organize.

Improving organization is one of the more popular resolutions to make. While you may be eying your closets, garage or basement, I suggest taking a look at your mailbox. Resolve to gather and organize your tax information as it is received. Doing so will ensure that you are not wasting time trying to find a piece of mail you misplaced a month ago and it will help you cut down on random clutter.

Review your retirement plan.

A new year means that you have another birthday on the horizon, which also means that you are another year closer to retirement. Schedule a time to meet with your financial advisor to determine if you should rebalance your portfolio to remain in line with your retirement goals.

Set up a 529 plan.

Are you saving for your children’s or grandchildren’s college education? Set up a 529 plan today and contribute to it early in the year to earn a return all year long. Earnings generated as a result of your contributions are not subject to federal or state taxes when used for qualified education expenses.

Find savings around the home.

If you take a hard look at your reoccurring monthly expenses, you may find that you don’t really need a lot of the services and utilities you are paying for. For example, does your home internet really need to be turbo-charged? Do you ever use the call forwarding or call waiting options on your home phone? Do you use your home phone at all? Are you paying for extra insurance to protect against a gas line leak? Depending on your circumstances, you could find significant savings by cutting back on some utilities you barely use.

Pass on the product warranties.

While it may seem like a good idea to pay a little extra for a warranty on that new appliance, a better option might be to put that money toward your rainy day fund instead. Sure, warranties are great for your peace of mind, but so is your rainy day fund. By opting out of the product warranty you will be able to put more money away while maintaining the freedom to spend it a way that makes more sense in the future.

Do you want this year to be filled with prosperity for you and your family? Email Rea & Associates to get more information on how you can succeed financially in 2015.

By Dave McCarthy, CPA, CSEP (Medina office)

 

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Put Your Property Easement Agreement To Work

Tuesday, December 16th, 2014

The shale oil and gas play has spurred a significant amount of pipeline and infrastructure activity throughout certain areas of the United States. As a result, many landowners are now being approached by landmen armed with cash offers and easement agreements in the hopes of acquiring the right to use your property to process and transport oil and gas related products. Before you sign on that dotted line, be sure to seek advice from someone well versed in the complexities of property easements.

Be An Informed Property Owner

You probably want to keep as much money in your bank account as possible. So when it comes to paying your taxes, you probably have no intention of giving the government more than its fair share, right? Did you know that when you enter into certain agreements, such as land easements, you may be able to dictate the type of tax treatment your income receives? The trick is to fully understand the tax consequences of language in the agreement.

The tax treatment of a land easement typically is determined (at least in part) by the easement agreement itself. The easement language will either determine if the agreement is for a permanent (or perpetual) easement period, which is exclusive in nature; or if it’s a temporary easement, which will be effective for a finite period of time.

Understand Your Options

If you enter into a permanent easement agreement, the taxable part of the transaction could qualify for capital gains, which may result in an opportunity to save some money during tax season. If you are able to apply the capital gains tax treatment to the income generated from the land easement contract, as opposed to the ordinary income tax rate, you could stand to see your tax rate that is applied to this income drop by almost half.

  • Capital Gains tax rate = 20 percent
  • Regular Income tax rate = 39.6 percent

On the other hand, if you are looking for another option, which could eliminate current payment of tax all together (defer the tax consequence into the future), you might consider the like-kind exchange tax planning strategy. Like-kind exchange rules require the property that is exchanged and the property that is acquired to be held for productive use or investment purposes.

Agreements that receive like-kind treatment under U.S. Code 1031 may result in the deferral of your taxes being due until well into the future or until you dispose of the property acquired in the like-kind exchange. For this to work, the easement agreement must be considered perpetual or permanent and must also involve real estate that is used as part of your trade or business or that is being held for investment purposes.

Don’t Disqualify Yourself

While the thought of exchanging your land easement for other real estate while deferring your taxes may seem attractive, the process of entering into, and maintaining, a like-kind exchange is very complex and must be strictly adhered to. In other words, you will need to seek out help to navigate the waters. If you would like to see if you qualify for a like-kind exchange, email Rea & Associatesfor more information. And remember to always consult your current financial advisor or another professional well versed in like-kind exchange taxation, before signing any land easement contract. Failure to do so may disqualify you from favorable like-kind exchange treatment.

By Jim Fracker, CPA (Zanesville office)

 

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The Tax Professional’s Christmas List

Friday, December 12th, 2014

Move Over Santa, This One’s For Congress

While the holidays typically bring about feelings of joy and comfort, they can also be a time of stress. And as the year comes to a close, many individuals are left to frantically resolve a number of tasks that they had hoped would be completed before the end of 2014 – yet they are still lingering on their to-do lists.

If tax professionals across the country were to compose a letter this holiday season, it wouldn’t be sent to Santa. Instead, it would pass over the North Pole en route to Washington D.C. – and it would be addressed to the members of the United States Congress.

This year, all we want for Christmas is for our congressional leaders to extend the more than 50 tax provisions that were left to expire at the end of 2013 – before the end of the year. Failure to do so could have a negative impact on the 2015 tax season.

While it is possible for Congress to wait until the New Year to enact these provisions next month, a retroactive approach would ultimately hurt the IRS, tax professionals and software providers. This is why it is so important for the provisions to be extended before Dec. 31.

Furthermore, postponing this legislative action could postpone the start of the 2015 tax season, which would delay refunds to millions of American taxpayers.

What tax provisions are at risk?

Individual tax payers are at risk of losing:

  • A $250 above-the-line tuition deduction
  • An election to deduct state and local sales tax
  • Tax-free charitable distributions from individual retirement accounts (IRAs)
  • The private mortgage insurance (PMI) itemized deduction
  • The energy efficient home improvement tax credit

Popular business tax benefits at risk of disappearing include:

  • The work opportunity tax credit
  • A research credit
  • The Section 179 expensing limit
  • Bonus depreciation

This holiday season, it is our hope that Congress will move quickly to resolve this issue in a way that is favorable for American tax payers. Doing so would not only provide the IRS and tax professionals with the time they need to prepare for the 2015 tax season; such legislative action would help promote the financial wellbeing of the American taxpayers.

Would you like to discuss tax planning options for yourself or your business? Email Rea & Associates to speak with a tax professional today. Will you want help filing your 2014 business taxes and/or personal taxes? Would you like a little extra help preparing for the 2015 tax season, our tax experts will work with you to make your experience as worry-free and seamless as possible.

By Lisa Beamer, CPA (New Philadelphia office)

 

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New Year, New Mileage Rates

Thursday, December 11th, 2014

Every mile you drive for business will be worth a little more next year, according to a recent IRS announcement. Beginning Jan. 1, 2015, the optional standard mileage rate for those calculating the deductible costs of driving for business will be 57.5 cents, which is up from 56 cents.

Based on a study of the fixed and variable costs associated with operating an automobile, the standard mileage rates take into consideration vehicle depreciation, insurance, repairs, maintenance, gas, etc. However, if you don’t intend on tracking your mileage, you also have the option of claiming deductions based on the actual costs of using your own vehicle rather than the standard mileage rates. Just be aware that you will not be allowed to claim both.

For example, if you have plans of claiming an accelerated depreciation on your vehicle, then you will not be able to claim the business standard mileage rate as well. If you are a business owner, you should also note that the standard rate is not available to fleet owners, or those who use more than four vehicles simultaneously. Additional details and rules can be found in Revenue Procedure 2010-51.

While the standard mileage rate for the business miles you drive will increase in 2015, those who use their vehicles for medical or moving purposes will see a reduction of half a cent in their mileage rates. Starting Jan. 1, the miles you drive for medical or moving purposes will be calculated at 23 cents per mile driven. And those driving their vehicles as a service to charitable organizations may calculate their deductions at 14 cents per mile driven.

Also in its announcement, the IRS noted an adjustment to the standard automobile cost allowable under the fixed and variable rate (FAVR) plan, which considers the costs taxpayers incur by driving their own vehicles for work-related purposes. In 2015, standard automobile costs may not exceed $28,200 or $30,800 for trucks and vans.

Do you use your vehicle for business? Make sure you track of your mileage. Every mile you travel is an opportunity to realize real tax savings. Our expert financial advisors can help professionals like you find opportunities you never even knew existed. Email Rea & Associates today and start the New Year out right.

By Lesley Mast, CPA (Wooster office)

 

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Save More For Retirement in 2015

Tuesday, December 2nd, 2014

As you work to secure your retirement, you may be pleased to find out about changes to several retirement-related items that may allow you to put a little more cash away in 2015. In October, the IRS announced several adjustments to the limitations previously set on retirement planning tools as a result of an increased cost-of-living. So what does that mean to you and your retirement plan(s) of choice? Take a look:

  • If you contribute to a 401(k), 403(b), 457 plan or a Thrift Savings Plan, the following changes could impact how you contribute:

-        You can now invest up to $18,000 annually – this is an increase up from $17,500.

-        If you’re 50 years old or older and are trying to catch-up on your retirement savings, you may now invest $6,000 annually. The previous catch-up contribution limit was $5,500.

  • If you contribute to an individual retirement account (IRA), you will see the following changes in 2015:

-        The annual limit and additional catch-up contribution limit for an IRA for individuals 50 years old and older will not change in 2015. The annual contribution is $5,500 and the catch-up contribution is $1,000.

-        Single filers and heads of household who are covered by a workplace retirement plan and have adjusted gross incomes (AGI) between $61,000 and $71,000 will no longer be eligible to receive a deduction for contributing to their traditional IRA. This has increased from $60,000 and $70,000 in 2014.

-        Married couples who file jointly, where one spouse makes an IRA contribution that is covered by a workplace retirement plan, will see an increased income phase-out range for taking the deduction as well. The new range is $98,000-$118,000 – up from $96,000-$116,000.

-        If you’re an IRA contributor, not covered by a workplace retirement plan, but are married to someone who is covered, the deduction is phased out if you and your spouse’s income falls between $183,000 and $193,000 – up from $181,000 and $191,000.

-        The phase-out range for a married taxpayer who files a separate return and who is covered by a workplace retirement plan will not change in 2015. The range remains $0 to $10,000.

  • If you make contributions to a Roth IRA, you will see the following changes:

-        The phase-out range for married couples filing jointly is $183,000 to $193,000 – an increase from $181,000 to $191,000.

-        The phase-out range for single filers and heads of household is $116,000 to $131,000 – an increase from $114,000 to $129,000.

-        The phase-out range for a married individual who files a separate return is unchanged.

As we approach the end of the year, there’s not a better time to evaluate your current retirement plan situation and determine if you need to make any changes for 2015. To learn more about how these retirement plan changes could impact your financial situation, email Rea & Associates.

By Paul McEwan, CPA, MT, AIFA (New Philadelphia office)

 

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Manage Your Business’s Ethical Framework After You’re Gone

Tuesday, November 18th, 2014

While the reasons for drafting an ethical will may seem more personal than business-related, an ethical will can be an effective way for business owners to pass along their vision for the future of their company after they are gone.

A properly drafted last will and testament is critical to ensure your estate’s financial well-being. Perhaps equally important is your responsibility to manage your intellectual assets, including knowledge and ethical values. An ethical will, also known as a legacy letter, is a way for you to pass along information to family, friends, colleagues and even communities.

Ethical wills have been around for many centuries. They were very prevalent in Medieval Times, but lost much of their popularity in modern times. Over the past couple of decades, they have regained their popularity.

While a last will and testament details how a person’s possessions will be distributed after death, an ethical will is a way to pass on a person’s values, hopes, dreams and life lessons – among other viewpoints. Though an ethical will is not a legal document, Business Week has described it as an aid to estate planning.

What should I include in my ethical will?

  • Your personal values – the importance of honesty, integrity and personal responsibility.
  • Your views on work ethic, dedication to one’s chosen profession and work-life balance.
  • Your views on charitable giving and community responsibility.
  • How to develop and cultivate personal and business relationships.
  • Your hopes and dreams for your spouse, children and other family members.
  • Anything that you have learned in life and would like to pass on to others.

When should I draft my ethical will?

  • Marriage
  • Birth of a child
  • Children leaving for college
  • When drafting a succession plan for your business
  • End of life
  • Or anytime

An ethical will can be an integral part of your overall estate plan, so consider putting one together today!

By Cathy Troyer, CPA (New Philadelphia office)

 

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Retirees Get Cranky Over Tax Returns

Tuesday, November 4th, 2014

Tax preparation and tax payments often become MORE complicated in retirement. Why? Because retirement taxation is new for a retiree so there’s a learning curve. Here are a few cliff notes to help new retirees navigate these uncharted waters:

Social Security

The money you receive from Social Security will likely be taxable. Fifteen percent of your Social Security benefit is a return on your lifetime payroll deductions and your employer’s match. Eighty-five percent of your Social Security is the excess benefit payment, or “growth,” in your benefit account and, thus, your untaxed benefit. That 85 percent may be taxable depending on the amount of your other income. This calculation is complex and the tax is difficult to avoid, but it is possible.

IRA Distributions

You must take your IRA distributions when you have reached the age of 70-½. The Required Minimum Distribution (RMD) can be managed and will impact your taxable Social Security. Planning is essential.

Capital Gains

As your lifetime investments are sold to help pay for retirement, capital gains is another obstacle to overcome. Here are a few tips to make them more manageable:

  • It may take a little time, but document when you bought those investments and what you paid for them. Once your record is complete, give the information to your broker to record in your investment account statement.
  • If you own your investments directly, gather them up and put them into an investment account to simplify your tracking, cost barriers, tax preparation and estate administration.

Itemized deductions

The good news is that you have likely paid off your mortgage. The bad news is that you may no longer exceed the standard deduction to itemize. So then why do you keep tracking medical bills if you can’t itemize? “Bunching” deductions may be a planning option. For example, every OTHER year, I have my Mom pay her real estate taxes, Ohio tax estimates and charitable contributions she made during the year. Then I have her prepay next year’s real estate taxes, charitable contributions and Ohio estimated taxes in December. That doubles her itemized expenses and raises her total above the standard deduction. Then, I have her take an additional IRA distribution equal to the excess itemized deductions. That excess distribution equates to a tax-free payment because it is offset by the excess itemized expenses! This option is available to you too!

Estimated tax

You are required to calculate and pay your income tax by managing your social security and IRA retirement tax withholding, along with quarterly tax estimate payments. You must project and declare your taxable income by April 15 in the new-year. And remember, there are NO excuses for not paying them on time.

Complexities You Can Avoid

  1. Watch those managed stock accounts. The amount of programmed buying and selling creates more work for your CPA and will raise your tax preparation fee. Ask yourself if that activity really did make you more money after the incurred income tax and preparation fee. If it didn’t, revisit your managed stock accounts.
  2. Understand the publicly-traded LLCs recommended by your broker and know that you may need to extend your tax return because of the K-1 you will receive to report the income. Your preparation fee will be raised as well. Again, if you didn’t make any money after the incurred taxes and preparation fee, is it really worth it to continue?

The transition into retirement is not easy. Unfortunately, your money management and tax filing won’t be easier either. Our tax experts are always happy to answer any question you may have. Email Rea & Associates to learn more about your options for managing your retirement.

Author: Lee Beall, CPA (Dublin office)

 

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