Year-End Tax Planning

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Another year is rapidly coming to a close which is the perfect time to plan strategies to reduce your federal income tax for 2017.
Whether you are an individual tax filer or a business tax filer, year-end planning can save you income tax. Common ways to save tax is claiming contributions of either cash or non-cash items to charities. If you are a business owner you can be strategic about major purchases. Maximize the education credit deduction buy paying tuition by December 31.
Contributions of either cash or non-cash item
Verify that you are contributing to a qualified organization and be sure to get receipts. For contributions of property or non-cash items this more complex. It is advised to document all items that were contributed and value them based on the fair market value (FMV). FMV is what a willing buyer would pay a willing seller when neither has to buy or sell and both are aware of the conditions of the sale. Most organizations that take property contributions have valuation guides that can help assess the value.
Education Credit
By paying tuition for the Spring 2018 term by December 31, 2017, you can possibly increase the allowable education credit. Also be sure to validate that credit by downloading the account transcripts from the student account that show the amounts of payments and the dates they were paid. This is required by IRS to support your claim to that credit.
Business Expenses
Consider pulling the trigger on that larger purchase before 12/31 to be able to take a deduction in 2017. As a rule, it needs to be purchased and functioning by 12/31 to qualify BUT be cautious with this strategy. As a business owner, there are many reasons this might not work for you.
As with all issues related to income tax, there are pros and cons with these strategies. Ask us what will work best for your specific income tax situation.

Benefit from a charitable contribution deduction without using SCH A itemized deductions on your tax return

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If you are not able to itemize charitable deductions on your tax return, you can still benefit from a charitable deduction by taking a qualified charitable distribution from your IRA.
If it is structured correctly, your Required Minimum Distribution can be used as a charitable contribution and NOT taxable on your return, even if you do not have enough deductions to itemize.
What is a qualified charitable distribution?
Generally, a qualified charitable distribution is an otherwise taxable distribution from an IRA (other than an ongoing SEP or SIMPLE IRA) owned by an individual who is age 70½ or over that is paid directly from the IRA to a qualified charity.
Can a qualified charitable distribution satisfy my required minimum distribution from an IRA?
Yes, your qualified charitable distributions can satisfy all or part the amount of your required minimum distribution from your IRA. For example, if your 2014 required minimum distribution was $10,000, and you made a $5,000 qualified charitable distribution for 2014, you would have had to withdraw another $5,000 to satisfy your 2014 required minimum distribution.
Ask how you could benefit from a qualified charitable distribution.

Recordkeeping for Tax Purposes: Which records should you keep?

You should keep information that you and the IRS need to determine your correct tax. Everyone should keep the following records:
Copies of your tax returns as part of your tax records.

  • Your tax returns can help you prepare future returns and amended returns.
  • Copies of your tax returns and other records can be helpful to your survivors or the executor or administrator of your estate.
    Proof of income and expenses. Listed below are examples of income and expense documents you should keep. The list is not all inclusive.
    1. Form(s) W-2, 1099, and K-1
    2. Bank and brokerage statements
    3. Business and hobby income
    Expenses reported on tax return
    1. Sales slips, invoices, receipts
    2. Cancelled checks or other proof of payment
    3. Details of cash and noncash contributions including written communications from qualified charities
    Your Home
    1. Closing statements, including any refinance, purchase and sale documents
    2. Receipts for improvements
    3. Insurance records
    1. Brokerage and mutual fund statements along with basis documentation
    2. Form(s) 1099 and 2439
    3. Forms 1099-R, 5498, and 8606 for each year until all IRA funds have been distributed
    Records for Special Situations
    1. Alimony
    If you pay or receive alimony, keep a copy of your written separation agreement or the divorce, separate maintenance, or support decree and your former spouse’s Social Security number
    Business use of your home
    1. Keep records that show which part of your home is used for business and the expenses related to that use. Child care providers should also keep track of hours open for business, as well as hours spent in preparation and clean up
    Gambling. Keep an accurate diary of winnings and losses
    1. Required information includes: – Date and type of gambling activity – Gambling establishment name and address, and names of persons present with you. – Amount you won or lost
    Tax credits. Each tax credit includes special record requirements. Examples include:
    1. Provider’s name, address, and taxpayer ID number for the Child and Dependent Care Credit
    2. Physician’s certification for the Credit for the Elderly or the Disabled
    3. School records for the education credits
    4. Vehicle records if you use your own car for business, medical transportation, or qualifying volunteer work
    Keep a mileage log with the date, destination, and purpose of each trip.
    You also need to know how many miles you drove for other purposes, such as commuting and personal use
    Your vehicle records should include purchase or lease papers and loan records

    Does IRA Conversion and/or HSA benefit you?

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    Converting a Traditional IRA to a Roth IRA
    Special rules for rollovers
    If Roth IRAs are held long enough, the distributions are tax-free, meaning you may never have to pay tax on the earnings. This factor alone makes many taxpayers consider rolling their traditional IRA contributions over to a Roth IRA. While you certainly can do this, it’s important to note that the rules for rollover contributions differ from the rules for making regular contributions to a Roth account. Following are a few guidelines.
    Who can make rollover contributions? Anyone, no matter the filing status or modified adjusted gross income (MAGI), is eligible to rollover a traditional IRA and certain employer accounts to a Roth IRA.
    How much can you roll over? There is no limit. The rollover can come from one or more accounts and contain both deductible and nondeductible contributions.
    When can you make a rollover? There is no “grace period” in which to make a rollover. Unlike Roth IRA contributions that can be made until the due date of the return, a rollover cannot be made retroactively. Therefore, the amounts rolled from a traditional IRA to a Roth IRA during the tax year are accounted for on the tax return for that tax year.
    How are contributions taxed? Deductible contributions from a traditional IRA that are rolled into a Roth IRA are generally taxed in the same year the rollover occurs. The nondeductible amounts are rolled over into a Roth IRA tax free.
    There are plenty of other special rules that apply to rollovers to a Roth IRA, so if you’re looking to take this action, please contact us for more information.
    Tips on using your funds
    An HSA works like a savings account into which you deposit money on a tax-deductible basis for medical expenses. HSAs enable you to pay for current health expenses and save for future qualified medical and retiree health expenses on a tax-free basis. Once you reach 65, you can start using your HSA funds to pay for Medicare and other health care coverage.
    At this time, you can continue to take tax-free distributions from your HSA for qualified medical expenses.
    Nonqualified distributions will be taxable, but not subject to the 20% penalty. Once you enroll in Medicare, you can receive distributions to pay Medicare premiums, deductibles, co-pays and coinsurance under any part of Medicare, but you are no longer eligible to make contributions to your HSA.
    If you have retiree health benefits through your former employer, you can also use your account to pay for your share of retiree medical insurance premiums. However, you cannot use your account to purchase Medicare supplemental insurance, such as a Medigap policy.
    This topic can get tricky, so if you have any concerns, please give representative a call so we can answer your questions.

    Tax Planning: A Critical Factor When Investing in Retirement.

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    Managing taxes for maximum benefit in retirement requires careful planning. You’ll need to consider the tax implications of different investments. You’ll also want to think through how you make withdrawals from taxable and tax-deferred accounts. Following are a few key considerations for effective money management during your later years.
    Less Taxing Investments
    Municipal bonds, or “munis,” have long been used by retirees seeking a tax-advantaged investment. In general, the interest paid on municipal bonds is exempt from federal taxes and in some cases state and local taxes as well.1 Municipal bonds are issued by a state or local municipalities, which may support general government needs or fund a variety of public works projects, such as new roads, schools, bridges, or hospitals. Therefore, in addition to providing federally tax-exempt earnings, municipals can be a good way to invest in the growth and development of your community.
    Municipal bonds usually have a yield below the yield on corporate bonds of comparable maturity. This means that a municipal bond may potentially provide the same–or equivalent–after-tax yield as a taxable bond paying a higher interest rate. If you are in a high tax bracket, using municipal bonds in the fixed-income portion of your portfolio may be beneficial (see table for an illustration).1
    The Tax-Exempt Advantage: When Less May Yield More
    Would a tax-exempt bond be a better investment for you than a taxable bond? Compare the yields to see. For instance, if you were in the 25% federal income tax bracket, a taxable bond would need to earn a yield of 6.67% to equal a 5% federally tax-exempt municipal bond yield.
    Tax Exempt Advantage
    The yields shown above are for illustrative purposes only and are not intended to reflect the actual yields of any investment.
    Which Accounts to Tap First?
    Another major decision facing retirees is when to liquidate various types of assets. The advantage of holding on to tax-deferred investments is that they compound on a before-tax basis and therefore may have greater earning potential than their taxable counterparts.
    On the other hand, you’ll need to consider that qualified withdrawals from tax-deferred investments are generally taxed at ordinary federal income tax rates of up to 39.6%, while long-term capital gains and qualified dividends from investments in taxable accounts are generally taxed at a maximum rate of 20%.2 (Capital gains on investments held for one year or less are generally taxed at ordinary income tax rates.)
    General investment wisdom states that it may be better to tap assets in taxable accounts first, allowing assets in Traditional IRAs and other tax-deferred retirement accounts to continue compounding as long as possible. Remember that, with some exceptions, the IRS requires individuals to begin withdrawing money from taxdeferred accounts no later than age 70½, at which point you may want to rethink your withdrawal strategy. When planning withdrawals from taxable accounts, try to hold these securities long enough to qualify for the more favorable long-term tax rates on capital gains and/or qualified dividends.
    The Ins and Outs of RMDs
    The IRS generally requires that you begin taking annual required minimum distributions (RMDs) from traditional IRAs and employer-sponsored retirement plans after you reach age 70½. The premise behind the RMD rule is simple — the longer your life expectancy, the smaller the percentage the IRS requires you to withdraw (and pay taxes on) each year. Failure to take the RMD can result in a tax penalty equal to 50% of the required amount that wasn’t distributed.
    Unlike traditional IRAs, Roth IRAs do not require that you begin taking distributions by age 70½.3 In fact, you’re never required to take distributions from your own Roth IRA, and qualified withdrawals are tax free.3 For this reason, you may wish to liquidate investments in a Roth IRA after you’ve exhausted other sources of income. Be aware, however, that your beneficiaries will be required to take RMDs after your death. Strategies for making the most of your money and reducing taxes are complex. Your best recourse? Plan ahead and consider meeting with a competent tax advisor and a financial professional to help you sort through your options.
    Municipal bonds are subject to availability and change in price. They are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise. Capital gains from municipal bonds are taxable and interest income may be subject to the alternative minimum tax. If sold prior to maturity, capital gains tax could apply.
    Income from investment assets may be subject to an additional 3.8% Medicare tax, applicable to single-file taxpayers with modified adjusted gross income of over $200,000, and $250,000 for joint filers.
    Withdrawals prior to age 59½ may be subject to ordinary income taxes and a 10% additional tax.
    The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. This article was prepared by DST Systems Inc. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. We suggest that you discuss your specific situation with a qualified tax or legal advisor. Please consult me if you have any questions. LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial. Because of the possibility of human or mechanical error by DST Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall DST Systems Inc. be liable for any indirect, special or consequential damages in connection with subscribers’ or others’ use of the content.

    Applying for Social Security Benefits at Age 62.

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    Thinking about retiring?
    Early retirement is an option for many taxpayers. However, before making the decision, you need to be aware of a few facts.
    It’s important to understand that the more years of work you put in after the age of 62 (the earliest possible social security retirement age), the more social security benefits you’ll have to look forward to. Retiring at the age of 62 means that your benefits will be about 25 percent lower than they would be if you waited until you reached full retirement age.
    If you still decide to go ahead with retirement at the age of 62, be sure to apply for your benefits about three months before the date you’d like them to start. You’ll apply online at www.ssa.gov, by phone at 1.800.325.0778 or in person at your local social security office.
    During the application process, you’ll need some or all of the documents below:

    • Your social security number
    • Your birth certificate.
    • Your W-2 forms or self-employment tax return from last year.
    • Your military discharge papers, if applicable.
    • Your spouse’s birth certificate and social security number if he or she is applying for benefits.
    • Your children’s birth certificates and social security numbers if you’re applying for children’s benefits.
    • Proof of U.S. citizenship or lawful alien status if you (or a spouse or child applying for benefits) were not born here.
    • The name of your financial institution, the routing number and your account number so that benefits can be deposited directly into your account.


    Note: All documents must be original documents or copies certified by the issuing office. You can mail or bring these documents to your local social security office.
    Because your age of retirement ultimately impacts the amount of social security benefits that you can expect to receive, it’s absolutely crucial for you to consult me about the options you have available. The social security website also contains countless resources to help you make the most informed decision possible.

    The Rise of Identity Theft and Tax Scams: How to avoid being a victim

    IRS Scam WarningEach year, tax scams seem to run more and more rampant, making proper security and privacy protocols critically important. According to the Bureau of Justice statistics, approximately 1 in 18 Americans have their identities stolen each year. With such a consistent rise in identity theft and tax scams, it’s imperative that you keep your information safe and secure from criminals, not only in a work setting but also in your personal life.
    The most common form of identity theft is the use of personal information to fraudulently obtain government benefits and tax refunds. There are a variety of ways identities can be stolen, such as by accessing existing financial accounts, creating new accounts with stolen credentials, through internet services and by social impersonation.
    The consequences of identity theft can be devastating and can cause an array of financial losses. Scammers can gain access to accounts that access money, including bank accounts, retirement accounts, investment accounts and PayPal accounts. This can ultimately affect your credit score, which can take years of hard work to restore. When dealing with credit score damage, getting financing for anything can be virtually impossible. It can affect major purchases (home mortgage, auto loans, college tuition) and lines of credit (home improvement or furniture, clothing or jewelry purchases).
    Here are some methods often used by scammers:

    • Scare tactics. Sophisticated hoaxers try to scare people into making immediate payments. They may threaten arrest, deportation or the revocation of your driver’s license or professional license if you don’t pay. Emails from scammers will often contain a fake IRS document with a phone number or email address to reply to.
    • Caller ID spoofs. Scammers are known to alter caller IDs to make it appear that the IRS is calling. Callers will use IRS titles and fake badge numbers to appear legitimate. They may use online resources to get your personal information to make the call sound official.
    • Fake IRS letterhead. Scam artists will copy official IRS letterhead to use in email or regular mail sent to victims.

    Keep in mind, the IRS will never:

    • Call you about your tax bill without first sending you a bill in the mail.
    • Demand that you pay taxes and not allow you to question or appeal the amount that you owe.
    • Require that you pay your taxes a certain way. For instance, require that you pay with a prepaid debit card or any specific type of tender.
    • Ask for credit or debit card numbers over the phone.
    • Threaten to bring in police or other agencies to arrest you for not paying.
    • Threaten you with a lawsuit.

    More than anything, it’s important to remember to never give away personal information by phone or email to an untrusted or suspicious source. If you have any questions on how you can protect yourself from identity theft, please let us know.

    IMPORTANT News for Tax Season

    tax updateYour Tax Appointment
    How to come prepared


    Your tax appointment—it comes around every year and it’s always a good idea to start preparing for it early. In preparation, you should contact me soon to reserve a time for your appointment. Be sure to choose a time when you expect to have all of the documents you need for your appointment. If you’re not sure what you need to bring, give us a call and we’ll help guide you.

    If relevant to your circumstances, you may also need to bring in social security numbers for all dependents, Form 8332 (if you are a noncustodial parent), last year’s tax return and any postcards or tax booklets received from the IRS. If you have any questions about whether you have all of the documents and information you need for our appointment, feel free to give me a call. I’ll be glad to help.

    Eligibility Requirements for Two Popular Tax Credits
    IRS requires us to ask you more questions


    In an effort to prevent taxpayers from improperly claiming the Child Tax Credit (CTC) and American Opportunity Tax Credit (AOTC), the IRS is implementing additional preparer due diligence requirements and requesting preparers to verify more information from clients who may be eligible to claim these credits. Because of these new requirements, I’ll be asking more questions to verify your eligibility. Following are some of the “tests” I’ll use to determine whether you qualify.

    The CTC is a tax credit that may be worth as much as $1,000 per qualifying child, depending on your income.

    The AOTC is a credit for qualified education expenses paid for an eligible student for the first four years of higher education. You can get a maximum annual credit of $2,500 per eligible student.

    IRS To Delay Certain Refunds
    Important info for those claiming the Earned Income Tax Credit


    Per the recently enacted PATH Act, refunds for returns claiming the Earned Income Tax Credit (EITC) and Additional Child Tax Credit (CTC) will not be released from the IRS until February 15. This change will take effect this upcoming tax season.

    The IRS will start processing tax returns once the filing season begins (no change from prior years); however, returns claiming the EITC or CTC may take up to four weeks to process.

    If you claim either of these credits and usually file early, plan on a slight delay in receiving your refund next year.

    If you are not claiming either of these credits and are entitled to a refund, you can expect it in the normal time frame. The IRS issues most refunds in less than 21 calendar days.

    If you have questions, please give us a call.

    Using Dependent Care Benefits for Day Care Expenses

    Taxes 1040 w CalculatorA closer look at exclusions and deductions

    Some employers offer dependent care benefits to employees. If you receive such benefits, you may be able to exclude all or part of them from your income.


    Dependent care benefits include:

    • Amounts your employer paid directly to either you or your care provider for the care of your qualifying person while you work.
    • The fair market value or care in a day care facility provided or sponsored by your employer.
    • Pre-tax contributions you made under a dependent care flexible spending arrangement.


    If your employer provides dependent care benefits under a qualified plan, you may be able to exclude these benefits from your income. Your employer will be able to tell you whether your benefit plan qualifies.


    The amount you can exclude or deduct is limited to the smallest of:

    • The total amount of dependent care benefits you received during the year.
    • The total amount of qualified expenses you incurred during the year.
    • Your earned income.
    • Your spouse’s earned income.
    • $5,000 ($2,500 if married filing separately).


    If you are eligible to claim this exclusion, I’d be glad to help you with it.

    Qualified Charitable Distributions

    tax tipsMaking a tax-free contribution from your IRA

    Knowing the ins and outs of qualified charitable distributions (QCD) can ultimately save you time and money down the road. A QCD is generally a nontaxable distribution from your IRA account made to an organization eligible to receive tax deductible contributions. If you’re over the age of 70½, you may transfer up to $100,000 from your IRA to a charitable organization with­out having to include the income on your Form 1040. If you file a joint return, your spouse can also have a QCD and exclude up to $100,000.

    Making this type of distribution allows you to report less income, which could help reduce the impact on taxable social security benefits. Here are a few additional things to keep in mind:

    • Any QCD in excess of the $100,000 exclusion limit is included in income as any other distribution.
    • The amount of the QCD is limited to the amount of the distribution that would otherwise be included in income.
    • If your IRA includes non­deductible contributions, the distribution is first considered to be paid out of otherwise taxable income.


    A QCD will count towards your required minimum distribution; however, you cannot claim a charitable contribution deduction for any QCD not included in your income.

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