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Archive for the ‘Tax Deduction Limits’ Category

Question: I owe Uncle Sam money this year in taxes. Is there anyway I can invest my money so I’ll have to pay less?

I just finished doing my taxes but unfortunately, this year I owe Uncle Sam a descent amount of money (more than 5K).

I have already maxed out my 401K and I am not eligible for IRA due to income limits. So what can I do before April 15th 2009 to reduce my tax bill for 2008?

I heard you can invest in tax-deffered Annuities and claim it as tax deduction. Is that allowed? Do I have any other options to keep my money legally?

Answer: It’s too late to reduce your taxable income for ‘08 – except for deductible contributions to a traditional IRA – but since you contribute to a 401k, you’re not eligible for deductible contributions. Note that you can still contribute to a traditional IRA with post-tax dollars, and your investment growth will be tax-deferred until you retire. You may even qualify for a Roth IRA but that too is post-tax dollars (not deductible).

You can invest in muni bonds or tax-deferred annuities, but neither of those options will reduce your taxable income, they will just give you an investment vehicle where your earnings are tax-deferred until withdrawal (like the traditional IRA mentioned above). These will have a lower investment return because of the tax benefits.

Your best bet going forward is to sit down with a good CPA or a solid investment advisor in December to plan out ways to maximize your deductions (for example, paying some Deductible Expenses like your mortgage and property taxes in December instead of January). Also, if you invest in mutual funds, you can often swap funds to a bond fund or a money market in the same family of funds at no cost, avoid the year-end cap gain distributions, and then move your money back after 31 days. Be careful, because if you move your money back within 30 days, the IRS considers that a “wash sale” and you’ll be considered as having held the investment the entire time.

Hope this helps!

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Time to Get Ready for Taxes

This year’s filing season has a key difference worth noting. That’s the tax filing deadline.

Roth IRAs

Question: Had to recharacterize Roth contributions to Traditional IRA… now back to Roth in 2010?

In 2009 my husband and I each contributed $5000 to our Roth IRAs. We are a good 30 years from retirement. When we got our tax returns in order a couple of months ago we realized we had exceeded the limit for Roth and we had to recharacterize these contributions into Traditional IRAs. Now that 2010 is here and there is no income limit for rollovers, would we have to pay taxes on the rollover even though the contributions were already taxed in 2009?

A related question: If we were to contribute another $5k each for 2010 to the Traditional IRAs could we rollover this to the IRAs by the end of FY2010? In other words, is it possible to add the 2010 funds and then rollover? We are above the deductible income limit – so what taxes would then have to be paid in this scenario?

Answer: You are misusing the term “rollover.” If you are above the deductible income limit for traditional IRAs, it makes no sense to contribute to them – especially since you are 30 years away from retirement. Make your 2010 contributions directly into the Roth IRA(s) instead.

If you want to convert the traditional IRAs to Roths, 2010 is the year to do so because you can spread the tax bite out over two years.

Items on Amazon Right Now for Deductible Ira Limits 2009:

Not too early to think about 2011 taxes

The Bush-era tax cuts have been extended, the alternative minimum tax is patched and capital gains rates are set.

Question: Can’t do Roth IRA, can I do non-deductible IRA?

My wife and I have combined income in excess of the Roth IRA limit. Are we allowed to make non-deductible contributions to traditional IRAs? Since we’re both over 50, can we both contribute the maximum of $6000?

Answer: Yes, and it may be a deductible contribution. The Deductible Amount is only limited if your income exceeds certain levels, AND you’re an active participant in a company retirement plan. In other words, if there’s no company plan, you can deduct your contribution at any income level.

Hope that helps.

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DISCLAIMER: While the information in this response was obtained from sources believed to be reliable, its accuracy and completeness cannot be guaranteed. The opinion voiced in this answer is for general information only and it shall not be construed as tax, legal, or investment advice for any individual. Questioners are urged to consult with their professional advisers before making any decisions regarding their finances.

RetirementGuru
CFP® & EA in practice since 1985

Items on Amazon Right Now for Non Deductible Contributions:

Needles in brief – a collection of area events.

NEEDLES – The Needles Chamber of Commerce Morning Mixer will be held at Juicy’s Famous River Café on Friday, March 18, from 7-8 a.m.

Navajo Language Academy Summer Workshops 2007

Items on Amazon Right Now for 2009 Hsa Deductible Limits:

This is a Backgrounder On Health Care

Abstract: On its one-year anniversary, Obamacare’s unpopularity is growing. Its hodgepodge of mandates and regulations have reduced competition in health insurance markets and increased the cost of coverage.

House Session 2011-01-07 (12:04:21-13:34:46)

Question: Can anyone explain the basics of what a few of these auto insurance words mean?

Bodily Injury Limits mean what? and :
Property Damage Limit
Medical Payments Limit
Uninsured/Under insured Motorist Bodily Injury
Liability Coverage means what?

Uninsured Motorist Property Damage would be what ?
Comprehensive Coverage & Deductibles are?
Collision Coverage & Deductibles
Emergency Road Service Limits ?
Rental Car Limits ? (Does this mean they give you a rental car ?)
Customized Parts and Equipment Coverage Limits means what?
Loan/Lease Gap Coverage is what kind of thing?

Answer: Bodily Injury – this covers injuries to people in other vehicles if you’re in an accident and are at fault. For instance, if you limits are 100/300, the insurance will pay $100,000/person up to $300,000/accident.
Property Damage – covers damage to property of others if you are at fault in an accident…such as the other person’s vehicle.
Medical Payments – this is a no-fault coverage. It provides medical payments regardless of who’s at fault to other people in your vehicle.
Uninsured Motorist bodily injury – provides payments for bodily injury to yourself and other passengers in your vehicle if you are hit by an uninsured vehicle
Underinsured Bodily Injury – this kicks in if the at-fault driver doesn’t have enough insurance to cover your injuries. So, say someone else hits you and you have $50,000 of medical bills. The other driver only has $25,000 of bodily injury coverage on their policy. Underinsured motorist would kick in the other $25,000.
Liability coverage just means it covers the other people in an accident if you are at fault and provides no coverage for you or your vehicle.
Uninsured Motorist property damage – this would cover damages to your vehicle if an uninsured driver hit you.
Comprehensive – covers damages to your vehicle by anything other then collision, such as fire, animal hits, glass breakage, theft, etc. The deductible is the amount that you are responsible for paying and your insurance would pay anything over that amount.
Collision – just as it sounds, covers your vehicle if you run into another vehicle or object. Again, the deductible is the amount that you are responsible for paying before insurance kicks in.
Emergency Road Service – usually this just covers towing, but could also include, lockout, gas delivery, etc.
Rental Car Limits – if you have a covered accident, your insurance company will pay for the rental car. There is usually a per day limit up to a total amount they’ll pay. So, $30/$900 would be mean they’ll pay $30 per day for the rental car up to $900 for the total time you have it.
Customized Parts & Equipment – this would cover any non-factory add-ons that you have on your vehicle, such as that subwoofer in your trunk.
Loan/Lease Gap coverage – if your vehicle is a total loss and you owe more to the finance company then the vehicle is worth, this coverage would pay the difference.

Items on Amazon Right Now for Limits Deductibles:

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Jean Chatzky: A hard look at health care

I plan to set aside some time over the next few weeks and take a hard look at my health care costs. With all the changes last year — health care reform passed in March — this year’s due diligence is all the more important.

Tax Deduction Tips for Businesses : Filing Accrual Accounting for Taxes