Archive for October, 2014


October 28th, 2014 No comments

While most persons would be hesitant to represent themselves in court, there are those taxpayers who not only prepare their own tax returns, but decide to represent themselves when audited by the IRS. The problem with a taxpayer representing themselves or using their accountant or CPA who does not specialize in working with the IRS is that the taxpayer or the inexperienced representative can be bullied by an IRS agent, be unaware of the taxpayer’s rights, and how to support a tax deduction being challenged by the IRS to avoid a tax assessment.

According to an audit report for fiscal year 2014 published by the Treasury Inspector General for Tax Administration (TIGTA), IRS managers and employees may have improperly used records of tax enforcement results in employee performance evaluations. Specifically, Read more…



October 21st, 2014 No comments

Tax preparation and tax planning strategies need to be considered when converting a traditional IRA to a Roth IRA. When a taxpayer converts a traditional IRA to a Roth IRA, the taxpayer is increasing his/her taxable income (if no other tax strategies are implemented). Accordingly, we believe that no person should do a Roth conversion without first consulting with his/her tax professional. There are various tax strategies and tax factors to consider when a conversion is done and these need to be carefully considered and analyzed.

Most persons realize that increasing taxable income may trigger some “hidden” tax increases. These unexpected tax increases can include, depending upon the taxpayer’s Adjusted Gross Income (AGI), the loss of itemized deductions and personal exemptions, increased amounts of social security benefits being taxed, and loss of certain tax credits.

Financially secure seniors may wish to do a Roth conversion because they realize that their current tax rate is substantially less than their children’s future tax rates who may be in their peak earnings’ tax years. By doing the Roth conversion, the seniors pay taxes today at their lower rate. If the children (or grandchildren) inherited a traditional IRA, required minimum distributions (RMDs) would be taxed at their children’s higher tax rates. This “family strategy” is used when the seniors do not need the IRA RMDs to sustain their life style and wish to pass on to future generations as much wealth as possible by reducing the taxes paid on those IRA distributions.

While most savvy taxpayers are aware that there are income tax consequences to making the Roth conversion, few are aware that recognizing additional income can also affect the premiums they pay for Medicare Part B insurance. Most Medicare enrollees Read more…



October 14th, 2014 No comments

We have discussed in prior posts about the importance of thinking of tax preparation as more than an annual tax compliance function, but to view it as one step in your tax planning strategies to reduce taxes and to increase your financial wealth. All taxpayers should periodically meet with their tax professional to discuss planned financial transactions and how best to accomplish them.

Let’s consider the following scenario. Your financial advisor recommends that you invest a portion of your IRA in a limited partnership to increase your investment returns and to diversify your portfolio. There is nothing wrong with this picture . . . or is there? Read more…



October 7th, 2014 No comments

Tax preparation and tax planning strategies are unfortunately often an after-thought by the taxpayer. What every tax professional detests is telling a client that had the client notified the tax advisor in advance of the financial action that was being contemplated by the taxpayer, rather than the tax advisor learning of the transaction when reviewing the client’s annual tax information to prepare Form 1040, the financial results of the client would have been vastly improved. All taxpayers should consider meeting at least annually with their tax professional to discuss planned financial transactions and how best to accomplish them. In other words, rather than thinking of tax preparation as merely an annual tax compliance function, it should be viewed as a strategic tax planning opportunity to reduce taxes or to increase financial wealth.

For example, let’s consider a scenario where grandmom (and/or grandpop) has contributed to the grandchild’s 529 plan. There is just enough money in the 529 plan to pay for one year of qualified educational costs. The parents apply for FAFSA financial support and are successful in getting financial aid. The parents are relieved to learn that the value of the 529 plan assets held by the grandparents is not includable in the financial aid application. The grandparent’s 529 monies are used to pay for the child’s freshman year expenses. The distribution would be considered non-taxable on Form 1040 since the funds were used to pay for qualified educational expenses.

All is well . . . or is it? Read more…

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