Tag: IRA


Can I convert Non-Deductible IRA into Roth ?

Sanjiv Gupta CPA - 8 years ago
Dear Sanjiv GuptaI have a question about the Roth IRA. I always exceed the income limits to open a Roth individual retirement account. However, I was told that I should consider opening a nondeductible IRA and then rolling it over to a Roth IRA.My question is, A.) Is this possible? B.) Can I do this again and again, meaning this rollover to be done only once, or would I be able to deposit money into a nondeductible IRA and then roll it over into the Roth IRA each year, provided there are no changes in the tax law? Is there anything else I need to pay attention to?— Devish KumarDear Devish,You should look at two aspects when considering the IRA. A.) Tax Benefits Today and B.) Tax Consequences in the future. In an ideal situation, you would like to save in both cases (as much as possible). And therefore it is important to look at the big picture. You should sit down with your tax professional and share your goals and together come up with a game plan to maximize the tax savings.Now, as to your original question, Converting Non-Deductible IRA into RothTaxpayers are limited by AGI (adjusted gross income) levels as to whether or not they can contribute directly into a Roth IRA, however, there are no income limitations in doing a conversion from a traditional IRA into a Roth IRA. Non-deductible IRA has no tax benefit for your current tax year however Roth allows you to take qualified distribution tax-free in retirement. Therefore, it makes sense to do the conversion.Now, Can you roll over your Non-deductible IRA into Roth? – Yes, you can do this every year. This process is known as Roth IRA conversion. The idea is that once you retire, you will typically have more control over investment choices and account expenses with a Roth IRA than you will with your company-sponsored retirement plan.We recommend that you should first consider contributing to your 401K plan and once you maximize there, you should consider investing in IRA. This way you can plan to save today and for the future.Do you have a question for us?You can ask your question by simply posting it as response to on our blog post and we will try to answer it in our future postings.

IRS Reminds About FBAR Requirement

Sanjiv Gupta CPA - 8 years ago
In a recent bulletin, the IRS reminded U.S. citizens and dual citizens of the United States and foreign countries who live abroad about U.S. filing requirements, including Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR).Last year IRS and Tax professional promoted the importance of FBAR requirement.  Nonetheless, many dual-citizen taxpayers may still be unaware of this requirement. So, here is another quick overview of FBAR.Generally, FBAR must be filed by U.S. taxpayer having a financial interest in or signature authority or other authority over any financial account in a foreign country if the aggregate value of the accounts exceeds $10,000 at any time during the calendar year. The filing date for FBAR is June 30 and reported on TD F 90-22.1. The form is filed with the Treasury Department and is not filed as part of the tax return of a taxpayer.  Your tax professional can help you file FBAR or you can file yourself by filling out the form TDF 90-22.1.It is estimated by the Association of Americans Resident Overseas that some 6.32 million Americans live abroad.  However, according to the Treasury Inspector General for Tax Administration, only a little more than 534,000 FBARs were filed in 2009.  To close this gap IRS introduced an offshore voluntary disclosure initiative that allowed taxpayers to settle the FBAR requirement for all previous years.Do I have to pay tax if I file FBAR?No – FBAR discloses the foreign interest or account to the IRS and does not impose a tax. However, failure to file it can incur penalties and get you in trouble with the IRS. In fact, A willful failure to file can be subject to civil penalty (up to $100,000 or 50% of the balance of the foreign account, whichever is greater) and criminal penalties.  Non-willful failure to file may be penalized by up to $10,000 per violation unless the failure was due to reasonable cause.In the fact sheet issued by the IRS gave many examples of factors that could point to the reasonable cause of non-willful failure to file an FBAR.Reliance upon the advice of a professional tax adviser who was informed of the existence of a foreign financial account;A lack of any intentional effort to conceal income or assets related to an unreported foreign account that was established for a legitimate purpose; andA lack of any material tax deficiency related to an unreported foreign account.Factors identified as potentially weighing against a finding of reasonable cause, on the other hand, were:Failure by the taxpayer to disclose a foreign financial account to his or her tax return preparer;Background and education of the taxpayer indicating that he or she should have known of the FBAR reporting requirements; andA tax deficiency related to the unreported foreign account.Statue of limitation to file the delinquent FBARs is six-year.  So even if you were not aware of FBAR requirement, you must file the FBAR for the last six years and attach a statement explaining why they are late.

How To Your Reduce AGI By $49,500

Sanjiv Gupta CPA - 8 years ago
Tax differed Retirement savings plans are huge tax shelters for individuals and small business owners.  You may find it quite obvious nonetheless it is often overlooked.  If you are looking into lowering your 2011 tax bill than here are a couple of options to consider.Profit-Sharing Contribution into 401(k) plan:  Maximum Annual contribution limit for 2011 in the 401(k) plan is $49,500.  However, as you may already know, the maximum amount an individual can contribute to their 401(k) plan is $16,500.  Then what is a maximum of $49,500?  This is an additional contribution that can be made on your behalf by your company into your 401(k) plan.  For example, you contribute $16,500 and your employer may match 100% of what you contribute making the total 401(k) contribution of $33,000.  For small business owners, this is a great tax shelter because they can contribute a maximum of $49,500 by using an individual $16,500 limit and matching $33,000 as profit share or bonus.    This will directly reduce your AGI by $49,500.  How is that for a tax discount?  Moreover, a business can also deduct the additional contribution made to employee 401(k) as a business expense and reduce its own business tax liability. I would also like you to note that the deadline for C-Corp and S-Corp tax filing has already passed.  Making any contributions to your employees 401(k) plan for the year 2011 will require you to file an amended tax return. What to do if you don’t have 401(k)?  You can contribute up to $5000 in IRA.  For individuals with no 401(k), IRA is the best option.  You can contribute up to $5000 in IRA or $6000 if you are age 50 or older. Setting up an IRA is also very easy.  You can simply contact any online brokerage to open up a new IRA account.I found a couple of very good examples of 401(k) plan options on the IRS Website.There are separate, smaller limits for SIMPLE 401(k) plans.Example 1: Greg, 46, is employed by an employer with a 401(k) plan and he also works as an independent contractor for an unrelated business. Greg sets up a solo 401(k) plan for his independent contracting business. Greg contributes the maximum amount to his employer’s 401(k) plan for 2011, $16,500. Greg would also like to contribute the maximum amount to his solo 401(k) plan. He is not able to make further elective deferrals to his solo 401(k) plan because he has already contributed his personal maximum, $16,500. He has enough earned income from his business to contribute the overall maximum for the year, $49,000. Greg can make a nonelective contribution of $49,000 to his solo 401(k) plan. This limit is not reduced by the elective deferrals under his employer’s plan because the limit on annual additions applies to each plan separately.Example 2:  In Example 1, if Greg were 52 years old and eligible to make catch-up contributions, he could contribute an additional $5,500 of elective deferrals for 2011. His catch-up contribution could be split between the plans in any proportion he chooses. His maximum nonelective contribution to his solo 401(k) plan would remain $49,000 even if he contributed the full $5,500 catch-up contribution to this plan.In addition, the amount of compensation that can be taken into account when determining employer and employee contributions is limited. In 2011, this limit is $245,000; it’s $250,000 in 2012. Want one more reason to consider setting up  401(k)  for your company?You can get up to $1500 in tax credit over the next three years ($500 credit each year for 3 years) for setting up a new 401(k) plan.  This tax credit is offered to offset set up and administrative expenses into the plan.   Your business must have less than 100 employees to take advantage of this plan.

What You Must Know About 2012 Tax Challenges

Sanjiv Gupta CPA - 8 years ago
What You Must Know About 2012 Tax Challenges2012 presidential election summons the close of all tax benefits introduced by George Bush. This would usher in an unavoidable clash because of the new tax rules, many deductions, and unchanged tax rates.It is indeed tough to prepare a perfect tax return sheet amidst changing rules and implementation of stringent penalties. Therefore in this article, we are to take a look at how to tackle the most common filing challengesNewly implemented Capital profit rulesWorried about how to calculate taxes on your invested income this year? Heres the key rule: bought stocks after Jan 1, 2011, then you are not eligible to count your cost basis or the tax-exempt investment amount. Your broker will help you calculate the amount as per your preferred method. Most brokers send notice of FIFO; First-in and First-out which reports your selling off older shares. Before filing or tax return analyze 1099 and ask your broker to mend all errors. Talking about 1099, Roman Ciosek, a wealth management assistant at HighTower’s Strata is advising customers to slow down in their tax filing process. According to Ciosek, there will be a number of amendments on the 1099s. However, if you have sold your earlier shares whether willingly or because your broker advised you then you cannot alter your cost-basis.$1billion in unclaimed tax refundsApart from what is discussed above, everything more or less remains in place. You can jolly well counterbalance your gains with losses. While doing so first take into account the long term (considered over a year) profits on assets that incurred tax at or over 15% and balance them with your long term losses; then balance short term gains taxed as minimum income with short term losses. Having calculated the long term accounts and the short term income separately, now you are required to match your long term records to the short term report.  If your loss margin is high considering deducting a little near to $3000 from your income. This way you will be able to manage all taxable amount the next year as well.How to plan: when you proceed with tax filing you can choose to toggle between accounting ways. Your common options are “last-in”, “first-out” & “Specific share identification”.Before using FIFO it is a better idea to select particular stocks/shares that you want to sell. This is more appropriate when you have pitched in at over-time stock selling program and have derived your biggest profit out of the initial batch. On the other hand, if you have a great many capital losses with which you can counterbalance your capital profits then 2012 is a good year to enjoy a good number of tax benefits.This calculation will be the same when accounting for mutual funds, dividend reinvestment plans, exchange-traded funds, and 2013 bonds. If you haven’t received any mails yet from your broker’s company, then wait till you get your options to choose a particular method of calculating your tax amount. Don’t treat the paperwork casually.Retirement plansFiling challenge: If you have plans to finance Roth IRA for 2011, then better have it done before April 17, 2012. IRA is a tax-deductible scheme that will provide you a tax concession on your investment but will calculate taxes on withdrawal of money from this traditional plan. Roth requires you/other liable people to pay upfront taxes. This is one reason why Roth is considered a good investment idea for the long-term by most tax-payers.The changes were introduced in 2010 that everyone could convert their IRA to Roth irrespective of income group. This is indeed facilitating unless you have an exorbitant tax bill. However to calculate tax-return for 2012 you have to abide by the conversions introduced in 2011.IRS warns of ‘dirty dozen’ tax scamsTo tide over your 2010 tax payments if it took you two years then you are required to clear all due amounts this filing season 2012. The time is ticking already and you have only until the filing day to undo 2011 alterations.How to plan: open or reinvest in IRA for 2012 and also transfer an existing IRA into Roth. Such conversion will help you trim down a higher tax rate during your retirement days (than what you have to pay now). For those that were planning to go ahead with conversion plans, this is the right time to take the call. If the conversion is done before the Bush tax laws expire then you won’t be required to pay more than 35% on the upturn, which by the year-end can go up much higher than what is anticipated.Home selling: Not a very good ideaFiling challenge: If you are happy to have earned much after selling off your house then wait, your profit might as well come under taxable charges. For single home sellers, anything above $250,000 will be taxable. For married couples, the same rule applies to a marginal amount of $500,000.Wondering what happens if you sell your house at an under-rated price? You will be considered unlucky, simply because you can’t file for tax-return on the initial amount/cost of your residence. However, if you lent your house out on a mortgage and the contract period was cut short by reconstruction/ restoration purpose then you might as well get a tax break. Such deals are also applicable to conditions such as a short-notice sale or when losing your home to foreclosure. This type of tax-breaks means liberation from paying due debts.Should you buy a home in 2012?How to plan: This tax-break plan closes this year 2012. So in case you want a tax break, then better not waste time.Education tax cutsFiling challenge: the American government though has been lenient with educational grants; however some important scholarships scheme as tax-cut loans. Sorting these educational tax cuts is difficult. Some of the variety of schemes is the lifetime learning credit taxable over $2,000 per return, the American opportunity credit tax-free till $2,500 per undergraduate student, the tuition and fees deduction $4,000 max for a single student per family. However, you can only file one application for the education tax cut per year.Get help to solve your tax doubtsAccording to Justine Ransome, a national tax officer at Grant Thornton the American opportunity credit is the biggest money saver scheme. Taxes are sorted as per income brackets/slabs; but American Opportunity Credit provides the highest tax-cut, $180,000 for married couples and half the amount for singles.How to plan: Bad luck the American opportunity credit expires this year but well you will have various simpler choices the following year.Health care write-offsFiling challenge: health care costs will be deductible at higher rates. This means that you can file for only those that surpass 7.5% of your Adjusted Gross Income. But it seems likely that increasing medical costs can wrap the matter neat and tidy. Allison Shipley, PricewaterhouseCoopers’ principal of personal financial services opines that if a person’s income is drastically reduced and the medical expenses increase on the other hand, then the individual can produce all medical expense bills and enjoy tax-cuts.It’s saving time:Heres what the tax-cut expenses include: general physician and dentist’s bills, doctor's prescription, medications, specs, hearing kits, wheel-chairs, patient’s transportation, consultation fees, caregiver charges, and a few insurance costs.

Strategies for Funding and Managing your 401(k)

Sanjiv Gupta CPA - 7 years ago
he 401(k) fund is undergoing a few changes that are bound to affect almost everyone in its coverage. As such, if you are planning to fund your retirement using the 401(k) accounts, it is about time that you took a keen interest in the changes that are in the offing. Of course,  the largest change is going to be in the amount that you will be required to contribute towards your retirement. The government is in the process of setting up a thrifts savings plan that will increase this value from $500—from $17,000 to $17,500. These changes are expect6ed to be in effect as of the 31st of December this year. This is a good thing for most people as it means the amount of money that will be available to you upon retirement will increase. To take advantage of these changes it is important that you perform an audit to determine that you pay as much as you can legally. In addition, some significant changes that have been added include changes in the disclosure provisions. From the start of the coming year, the first that 401(k) participants will be eligible to receive quarterly and annual statements listing fees, which are to be charged to the account.So what are some of the strategies that you can put in place in order to ensure that you maximize the 401(k) strategy? To start with, you should be keen on the amount that you pay in fees. The percentage that you pay in order to manage your account may at the end of the day be more than you can actually handle if care is not taken. If it is possible for you to minimize the amount that you pay in fees, then the better for you. You can minimize these fees by investing in low-cost index funds or by managing the fund yourself. It is also important that you keep yourself from trying to tap into your retirement funds at an early age. The temptation is often great especially if you are going through some tough economic times. However, keeping yourself aware of the danger you pose through such an action goes a long way in keeping you level headed.

Four Commonly Missed Tax Breaks

Sanjiv Gupta CPA - 7 years ago
Once the tax returns are filed, people generally want to forget income taxes for a while. This is not the right approach. The time just after filing the returns is the apt time to think over and reflect on the process, what could have saved tax and what to do better next year to reduce tax payments in a big way. This is the time when the rules and policies are fresh in the minds so as to proceed with the tax-saving benefits analysis. Here are some of the benefits, which people usually miss to consider while filing returns.Roth IRA – The retirement benefits of IRA can be considered as a good option to invest money in, thereby reducing the taxable income portion for the current year. However one tends to forget that future withdrawals from the 401K plan attract at least minimum tax rates. This is the reason why most of the younger generation today opts for the Roth IRA schemes.The youth, at the start of their careers, are eligible for a lower tax bracket and they contribute to the Roth IRA schemes from after-tax money. The best benefit of this scheme is that in the future, when these people become old and tend to withdraw money, both the contribution and the earnings of this scheme that can be withdrawn is totally tax-free.Flexible Spending accounts – These accounts are the only way out to save taxes on expenses related to medical, child care and other personal reasons.  Most of the companies offer their employees, a part of their salary in the form of these FSAs. The traditional IRS rule does not allow any deductions for medical expenses if these expenses do not exceed 7.5% of the adjusted gross income. Hence this scheme is taken by people who do not have huge medical expenses and yet need deductions that can be offset by other deductions that are not allowed like property tax and state income tax.Proper Asset Location – Classifying assets is more important than holding the assets themselves. It is important to classify the assets correctly into the taxable, tax-deferred and tax-free pockets of one’s portfolio. It is a smart move to place the bonds in the tax-deferred category as even if one gets to sell these instruments, the tax need not be paid immediately. It is also wise to keep stocks in the taxable category because this is sold rarely and tax needs to be paid only upon sales.Performing a Roth conversion in a Low-income year – When income levels drop, there is an option to convert the benefits from the IRA model to the Roth model for a nominal charge. This converts the income from the taxable category to the tax-free category. Partial conversion of benefits into the Roth model is also possible.These are the schemes that are part of the daily lifestyle of the taxpayers. However one needs just to twitch in here and there to maximize these for one’s benefits.

IRA and Roth Tax Perks Get Better

Sanjiv Gupta CPA - 7 years ago
There were some changes introduced in January, by the American Taxpayer Relief Act. These changes brought some good news for the investors of the IRA (Individual Retirement Account) and Roth IRA. Workers in the US, now find it very easy to switch from the IRA to the Roth IRA provided their companies have the latter type of account.One of the major changes that took place was the benefits that the workers got, from donating a part of their IRA account. These donations to charity were eligible for a tax deduction. This benefit was traditionally setting off to nil benefits for workers. Michael S. Jackson, a partner in tax services with Grant Thornton LLP, Philadelphia, further explained that there were two methods of doing it initially.One was where the employee used to withdraw his contribution fully, pay the tax component, donate to charity and then claim the charitable deduction for that particular amount. The second method was where the employees used their Individual Retirement Accounts directly to make the donation to charity, thereby not incurring any tax component at all. These benefits were considered to yield no benefits because the income claimed and the deduction made were netting off to zero.This is where the recent law changes come into play. The important change in this law is that the deductions towards charity were kept under control based on the gross income of the employee. This law was designed with the top taxpayers ‘benefits in mind. This change was announced by Jackson in the MarketWatch, which was hosted by the editor of Market Watch’s Retirement e-Newsletter, Robert Powell.Jackson also clarified that this adjusted gross income-based tax rate slabs are going to help the worker save some extra money if the calculation and donations to charity are carried out in a very accurate way. This change found positive reviews among all the attendees of the MarketWatch Retirement event, including Mary Kay Foss, a director with Sweeney Kovar Financial Advisors Inc. Foss also explained that this change, which is called charity rollover rule, is beneficial in a way that does not increase the gross income even if there is no charitable deduction. Hence the amount that is left in the Social Security tax is lesser prone to tax.In cases of charitable donations, it is still beneficial because the deductions are not itemized and the employee ends up getting the tax benefit. This scheme is hugely welcomed by all as it is a mutually beneficial solution both for the employer and the employee. The conditions to avail of these benefits are; the person must be minimum 70.5 years old when making the donation and the amount is fixed at a maximum of $100,000. The limits can be discussed locally with the IRA custodian and checked for transfers of small amounts, as some of the firms think twice while dealing with small transfers. This changed scheme helps the employee to make donations to more than one charitable organization.

Self Directed IRA – Caution

Sanjiv Gupta CPA - 7 years ago
Self-directed IRA schemes have a great chance of being involved in a prohibited transaction and hence the owner of these retirement benefits face the potential danger of their IRA account being disqualified. This was discussed and decided in the Peek V. Comr. Case. The details of this case are explained below.A fire safety business was considered a potential investment opportunity by two taxpayers. A broker, who was facilitating the sale, connected these taxpayers to a third party agent who managed the process further. This agent explained a technique to the taxpayers which involved them to set up a self-directed IRA, move funds from their existing IRA schemes to the self-directed schemes, set up a company, sell shares of the company and direct the funds into the self-directed IRA scheme and finally use these funds to buy a business interest.The paperwork for this scheme suggested that any prohibited transaction undertaken would prove harmful for the whole objective of this strategy. The paperwork was also accompanied by a letter from the firm’s accountant explaining the prohibited transaction rules clearly, though no personal guaranties were specified.The scheme went as per plan and the transferred funds were used to purchase the assets of the fire safety business. This transaction included a promissory note from the company to the sellers for one-fifth of the total sales price. A couple of years later, the taxpayers moved to Roth IRAs from their original IRAs and hence when the company was finally sold, the payments were finally transferred to Roth IRAs.The taxpayers’ income was fully adjusted to include the capital gains acquired from company stock sales by the IRS and the justification provided by them was that personal guaranties were equivalent to prohibited transactions. The assets from the IRA were deemed to have been distributed to these guaranties. The IRS reasoned that section 4975©(1) (B) disallows taxpayers from creating loans or loan guaranties indirectly to their IRAs. The Roth IRAs discontinue its existence if it is funded by company-owned stock.The taxpayers had to suffer an additional burden of 20% in penalties for not declaring the sales of the company. Their tax advisers could not be trusted upon, because they were the promoter of this sales strategy. The advisers were not given full information either because they were not transparent with the advisors and did not inform them about their decision to personally guarantee their loans.This is a good example for investors to understand the prohibition rules clearly and what transactions to proceed with and what transactions to avoid. It becomes doubly complicated when dealing with investment in retirement funds as the rules pertaining to the IRA accounts are more comprehensive than the other funds. This case also explains the need to be fully transparent with the tax advisers as they are the ones who represent a particular tax strategy and no transaction should be carried out without their knowledge.

2013 Year End Tax Planning Ideas

Sanjiv Gupta CPA - 7 years ago
We are now accepting appointments for the year-end tax planning.  October and November are great months to get your financial books in order and plan for the year-end tax.  We would like to see you in our office to discuss your unique needs.  While you set up that appointment consider some of these ideas:Charitable gifts of appreciated propertyThe tax advisers suggest the taxpayers that they can donate to charitable organizations through stocks, bonds, exchange-traded funds and mutual funds instead of donating through cash. Donating through these appreciating financial instruments can attract tax deductions.Tax-deferred vs. Taxable investmentsIt requires some prudence to classify the investments intelligently so as to save tax. High income-producing assets like stocks and other high dividend-paying financial instruments should be classified in the deferred tax accounts, so that tax can be paid only when income arises from it. If these are classified in the category of the taxable account, then taxes paid on these would have to be frequent. The intelligent classification of products can help to save reasonable amounts of taxes. It is the duty of the tax adviser to suggest these classifications to his client.Fund Roth IRAs for working teens and twenty-somethingsFund Roth IRAs are an excellent option for the younger generation and working teenagers. Usually the young are very interested to put in their hard-earned money in tax savings schemes so that they can save for college education, buying property or even to maximize retirement benefits. Roth IRAs are an option where the working younger generation invests after-tax funds.The young generation is eligible for a lower tax bracket and hence pays limited tax and invests in these accounts. When the fund reaches its maturity or when the individual attains full retirement age, the benefits of the Roth IRA can be withdrawn free of any income taxes.Loan money to kids for college or home purposesThe usual practice of the kids is to get a student loan for higher education if their parents’ income level is too high to qualify for financial aid. However, these do not qualify for any tax deductions. Instead, the other way to get a tax deduction is for the parent to give a family loan to the kid for higher education. To claim tax deductions on these family loans, the paperwork is very important. It should be in writing and the interest rates should be similar to what the bank rates are and upon good performance through grades, the parents can write off a part of the loan in the future.Converting IRA into a Roth IRASome of the employers give their employees an option to convert their Individual Retirement accounts into Roth Accounts as the latter helps to withdraw the retirement benefits at a future date without any tax charges. The Roth IRA is very helpful for the younger generation as they need to pay only a minimal amount of tax while investing in these accounts.

What Is The New Home Office Deduction?

Sanjiv Gupta CPA - 6 years ago
The new deduction for people that work from home could save taxpayers money and time when it is time to file tax returns. There are millions of people that work from home every day in the United States. The Internal Revenue Service has created a new option for these people so that they are able to deduct some of the expenses on their federal income tax returns.The home office deduction is currently in effect for the 2013 tax year. Workers based out of their home will be able to claim a tax deduction of $5 sq. ft for 300 sq. ft of workspace or less. The total deduction will be up to $1,500 depending on the amount of office space they are using. Space must meet requirements set by the IRS. Space must be used exclusively and regularly for the purpose of business. Save Time On Record-keeping And PaperworkThe internal revenue service is estimating that this new option for home office expenses will save more than 1.6 million hours for small businesses in paperwork and record-keeping. However, taxpayers will still have the old option to use Form 8829 in order to calculate the deduction if they choose to. Is The New Home Office Deduction The Best Option?The new home office tax deduction is not going to be the best option for all small businesses. It will be the best option for taxpayers who have less than $1,500 each year in-home office expenses and if the home office is smaller than 300 sq. ft. The best thing to do is to calculate whether your expenses will be more than $1,500 or if you will have a lot of depreciation. If your expenses are much higher than $1,500, then using Form 8829 will be the best option for you. Your tax advisor can also assist you in determining the option that is best based on your individual situation.This option may be easier for more workers that are based out of their home to be able to get a deduction. In the past, the home office deduction was a red flag for IRS audits. Many people were afraid to take the deduction because they were afraid that they would not have the proper records to back up the deduction. The new home office deduction is a safe harbor method taxpayers can choose to use.If you work from home, now you can take the new home office deduction when you file your federal tax return this year. The first thing you need to do is determine if you meet all of the IRS requirements for a home office. Next, determine if the new deduction will be the best option for you. Consider speaking with a tax advisor to help you decide what makes the most financial sense for you. Remember, you do not have to use the new home office diction option. You can still use Form 8829 if it will provide a higher deduction for you.

There Is Still Time To Cut Your Taxes!

Sanjiv Gupta CPA - 6 years ago
Even though the tax year is over, you still have opportunities to reduce your 2013 taxes. Many strategies for tax planning need to be done by December 31st; however, there are others that you can still take advantage of before you file your taxes. The best thing you can do is do not leave any viable deductions on the table.Maximize Contributions To Your IRASelf-employed individuals and small business owners have until April 15th to contribute to their SEP-IRA for the prior year. The limits are the lesser of 25% or $51,000 in 2013. If you get an extension, you will have until October 15th to fund your SEP-IRA for the 2013 tax year.  The SEP-IRA is much more flexible than a Roth IRA or a regular IRA because it gives you an opportunity to make a contribution when you receive higher profits later in the year.The New Deduction For A Home OfficeIf you did not keep good records of your home office expenses in 2013, you do not have to scramble around looking for them with the new simple home office deduction. This deduction lets you take a $5.00 deduction per sq. ft. for the place in your home that you use for work. Many people do not claim any deductions for their home office because they feel it will trigger an audit. With the new standard home office deduction, anyone who uses a home office should claim it this year.Look For Miscellaneous Tax CreditsTake time to go through your receipts to see if you have anything that qualifies for tax credits. Tax credits reduce your tax liability dollar for dollar. See if you bought anything that qualifies for the energy-efficient tax credit. You will find a list on the IRS website of all eligible Energy Star appliances and electric and hybrid vehicles that qualify for a credit up to $7,500.If you have children in college or are in college yourself, you could offset some of the expenses using the LLC (Lifetime Learning Credit) or the AOTC (American Opportunity Tax Credit).Get OrganizedBefore you start preparing your tax return, make sure you organize all of your documents and receipts. This will help you identify any deductions you might not have thought of and will make sure your tax return is accurate.Organizing your tax records and financial documents now will make the process of filing your taxes easier. Take a little time each day to go over your bank statements, credit card bills and charitable contributions you made in 2013 to make sure that nothing is overlooked.Keep all of the 1099s and W-2s you receive in one secure location so they do not get misplaced forcing you to file a late tax return or an incomplete tax returnThere is a lot you can still do between now and when taxes are due on April 15th to lower your tax liability. You can cut your taxes considerably by claiming all of the tax credits you are eligible for and making all prior-year contributions.
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