1. If you are caring for a friend, you can deduct their personal exemption.
This
tax break is for anyone supporting a friend financially. You may be
able to deduct your friend's personal exemption of $3,300 on your own
income tax return as long as these requirements are met;
(1) You provide more than one half of your friend's support during the year,
(2) your friend is a member of your household for the entire year,
(3) your friend's income is less than the exemption (less than $3,300) and
(4) your friend is a U.S. citizen or resident.
Why
should your friend let you use his or her personal exemption on your
income tax return? Because when people have little or no income, their
standard deduction, by itself, is large enough to squash any income tax
they might owe. They eliminate the possibility of their exemption going
to waste by giving it to someone else. Contact us to find out if this
trick applies to you.
2. You can use your credit cards for year-end tax planning.
Since
effective tax planning takes into account not only what you spend your
money on but on when you spend it, you should always think about timing
your tax-deductible expenses. Look ahead to the end of the year and
consider deductible contributions to retirement plans and estimate your
state income tax payments along with your tax-deductible purchases. The
idea is to pay for them in the order that minimizes your income tax and
maximizes your positive cash flow.
Again,
timing is everything. A credit card can give you the tax deduction that
you need at year-end. If you charge a tax-deductible purchase to a bank
credit card--not a store card--you can easily take the write-off (even
though the credit card charges will be paid after the end of the year).
Note: Try and use your card after you have already planned your current cash flow around other deductions.
There
are many different options for using this strategy and they differ
between employers and employees. We recommend you call today to find out
exactly what your options are.
3. There is a way around your current home equity deduction limits.
A
deduction for the home equity interest you already pay can mean big tax
savings! Ordinarily, this interest deduction is limited to home equity
debt of $100,000 or less. Don't shortchange yourself! Hidden in the IRS
regulations is a way for you to increase your home equity interest
expense and deduct more than is ordinarily allowed. You qualify for
these savings if you use a portion of your household for business
purposes, rent out a portion of your home, or if you use a part of your
house for any other business reasons.
The
end result is that most taxpayers are stuck with deducting home equity
interest only up to the $100,000 debt limit. Don't feel "stuck" if you
use a portion of your home for business. All you have to do is make a
special IRS election to treat your home equity debt as something other
than home equity debt. Doing this lets you take a bigger home equity
interest deduction.
4. Did you know you can use your previously funded IRA to fund the current year's deductible contribution?
Well,
you can. If you don't have enough cash to make a deducible contribution
to your IRA by April 15th, here is how you can still take the tax
deduction and have until June 12th to make the full $4,000 contribution!
To get started, all you need is an IRA funded in previous years.
Start
by having $4,800 distributed to you from your IRA on April 15th. Your
bank is required to hold 20% (income tax withholding), so you'll
actually receive $4,000. Once you have the $4,000, immediately deposit
it back into your IRA. If you do this before April 15th, this counts as
your deductible contribution for the year.
The
best part of this is that you have 59 days to "make up" the
withdrawal-or to be taxed. Simply redeposit $4,800 into the same IRA
account by June 12th. This "rollback" deposit lets you avoid the tax on
the original distribution made to you. This is a type of short-term loan
from your IRA to make this year's deductible contribution before the
April 15th due date.
Note: Not all banks
realize it is required to withhold the 20% from the original $4,800
withdrawn from your IRA. Call to find out which way we can help you work
with this "extra" amount. There are many options, so get informed
before you miss out on the full benefits of your retirement plan.
5. You can take distributions from your IRA without paying the 10% early withdrawal penalty.
We
all know that our best bet is to try and keep our retirement savings
until we retire. There might be situations that arise where you'll need
to make early withdrawals from your IRA (like helping to pay for your
child's education or caring for an elderly parent). Making these early
withdrawals puts you at risk of the early withdrawal penalty. This
penalty can seriously add up over time and can shrivel your hard-earned
retirement plan.
No matter how old you are, there is an income tax
on any distributions from your IRA. But fortunately, there's a way
around the 10% early withdrawal penalty. You can use an IRA annuity that
sets you up to make withdrawals (the size is based on life expectancy
tables provided by the IRS) until you are 59 1/2. You have to make
withdrawals for a period of five years. You can continue to make
withdrawals, or wait, to when you are 70 1/2. At that point you have to
start making withdrawals anyway. So it is a flexible plan we can help
tailor to your needs.
This strategy works very well for people in
their 50's who have unusual expenses to meet, but do not want to be
forced into withdrawing everything from their IRA before retirement.