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Inherited IRA Tax Planning

Posted by Admin Posted on July 03 2013

The IRA's beneficiaries are set on Sept. 30 of the year following the death of the IRA owner. Normally, heirs get to take distributions from inherited IRAs over their lifetimes. But if just one beneficiary of the account isn't an individual, the IRA has to be cleaned out within five years for all beneficiaries. The problem can occur when the owner names a charity or college as one of the beneficiaries.

If the charity, school, etc., is paid off by Sept. 30, the remaining individual beneficiaries can take distributions over their lives, enjoying more tax free buildup inside the IRA.

Tips to Start Planning Next Year's Tax Return

Posted by Admin Posted on Apr 24 2013


For most taxpayers, the tax deadline has passed. But planning for next year can start now. We want to remind taxpayers that being organized and planning ahead can save time and money in 2014. Here are five things you can do now to make next April 15 easier.

1. Adjust your withholding.  Each year, millions of American workers have far more taxes withheld from their pay than is required. Now is a good time to review your withholding to make the taxes withheld from your pay closer to the taxes you'll owe for this year. This is especially true if you normally get a large refund and you would like more money in your paycheck. If you owed tax when you filed, you may need to increase the federal income tax withheld from your wages.

2. Store your return in a safe place.  Put your 2012 tax return and supporting documents somewhere safe. If you need to refer to your return in the future, you'll know where to find it. For example, you may need a copy of your return when applying for a home loan or financial aid. You can also use it as a helpful guide for next year's return.

3. Organize your records.  Establish one location where everyone in your household can put tax-related records during the year. This will avoid a scramble for misplaced mileage logs or charity receipts come tax time.

4. Consider itemizing deductions.  If you usually claim a standard deduction, you may be able to reduce your taxes if you itemize deductions instead. If your itemized deductions typically fall just below your standard deduction, you can bundle your deductions. For example, an early or extra mortgage payment or property tax payment, or a planned donation to charity could equal some tax savings. See the Schedule A, Itemized Deductions, instructions for the list of items you can deduct. Planning an approach now that works best for you can pay off at tax time next year.

5. Keep up with changes. Check-in periodically with us for updates and various tax law changes that may effect your current year and future year taxes.

Six Tips for Taxpayers with Foreign Income

Posted by Admin Posted on Mar 27 2013

U.S. citizens and residents who lived or worked abroad in 2012 may need to file a federal income tax return. If you are living or working outside the United States, you generally must file and pay your tax in the same way as people living in the U.S. This includes people with dual citizenship.

Here are six tips taxpayers with foreign income should know:

1. Report Worldwide Income. The law requires U.S. citizens and resident aliens to report any worldwide income. This includes income from foreign trusts, and foreign bank and securities accounts.

2. File Required Tax Forms. In most cases, affected taxpayers need to file Schedule B, Interest and Ordinary Dividends, with their tax returns. Some taxpayers may need to file additional forms. For example, some may need to file Form 8938, Statement of Specified Foreign Financial Assets, while others may need to file Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts, with the Treasury Department.

3. Consider the Automatic Extension. U.S. citizens and resident aliens living abroad on April 15, 2013, may qualify for an automatic two-month extension to file their 2012 federal income tax returns. The extension of time to file until June 17, 2013, also applies to those serving in the military outside the U.S. Taxpayers must attach a statement to their returns explaining why they qualify for the extension.

4. Review the Foreign Earned Income Exclusion. Many Americans who live and work abroad qualify for the foreign earned income exclusion. This means taxpayers who qualify will not pay taxes on up to $95,100 of their wages and other foreign earned income they received in 2012.

5. Don't Overlook Credits and Deductions. Taxpayers may be able to take either a credit or a deduction for income taxes paid to a foreign country. This benefit reduces the taxes these taxpayers pay in situations where both the U.S. and another country tax the same income.

6. Get Tax Help Outside the U.S. Taxpayers living abroad can get IRS help in four U.S. embassies and consulates. IRS staff at these offices can help with tax filing issues and answer questions about IRS notices and tax bills. The offices also have tax forms and publications. To find the nearest foreign IRS office, visit the website. At the bottom of the home page click on the link labeled, Contact Your Local IRS Office. Then click on International.

Seven Important Tax Facts about Medical and Dental Expenses

Posted by Admin Posted on Mar 04 2013


If you paid for medical or dental expenses in 2012, you may be able to get a tax deduction for costs not covered by insurance.

1. You must itemize.  You can only claim medical and dental expenses for costs not covered by insurance if you itemize deductions on your tax return. You cannot claim medical and dental expenses if you take the standard deduction.

2. Deduction is limited.  You can deduct medical and dental expenses that are more than 7.5 percent of your adjusted gross income.

3. Expenses paid in 2012.  You can include medical and dental costs that you paid in 2012, even if you received the services in a previous year. Keep good records to show the amount that you paid.

4. Qualifying expenses.  You may include most medical or dental costs that you paid for yourself, your spouse and your dependents. Some exceptions and special rules apply.

5. Costs to include.  You can normally claim the costs of diagnosing, treating, easing or preventing disease. The costs of prescription drugs and insulin qualify. The cost of medical, dental and some long-term care insurance also qualify.

6. Travel is included.  You may be able to claim the cost of travel to obtain medical care. That includes the cost of public transportation or an ambulance as well as tolls and parking fees. If you use your car for medical travel, you can deduct the actual costs, including gas and oil. Instead of deducting the actual costs, you can deduct the standard mileage rate for medical travel, which is 23 cents per mile for 2012.

7. No double benefit.  Funds from Health Savings Accounts or Flexible Spending Arrangements used to pay for medical or dental costs are usually tax-free. Therefore, you cannot deduct expenses paid with funds from those plans.

Social Security Benefits and Your Taxes

Posted by Admin Posted on Mar 01 2013

Some people must pay taxes on their Social Security benefits. If you get Social Security, you should receive a Form SSA-1099, Social Security Benefit Statement, by early February. The form shows the amount of benefits you received in 2012.

Here are five tips from the IRS to help you determine if your benefits are taxable:

1. The amount of your income and your filing status affect whether you must pay taxes on your Social Security.

2. If Social Security was your only income in 2012, your benefits are probably not taxable. You also may not need to file a federal income tax return.

3. If you received income from other sources, then you may have to pay taxes on your benefits.

4. You can follow these two quick steps to see if your benefits are taxable:

? Add one-half of the Social Security benefits you received to all your other income, including tax-exempt interest. Tax-exempt interest includes interest from state and municipal bonds.

? Next, compare this total to the ?base amount? for your filing status. If the total is more than your base amount, then some of your benefits may be taxable.

The three 2012 base amounts are:

$25,000 for single, head of household, qualifying widow or widower with a dependent child or married individuals filing separately who did not live with their spouse at any time during the year;

$32,000 for married couples filing jointly; and

$0 for married persons filing separately who lived together at any time during the year.

2013 IRS and CA Tax Rates

Posted by Admin Posted on Feb 22 2013

In 2012, the highest income tax rate (U.S./California combined tax rate) was 42.99%: Federal tax rate: 35%; California tax rate: 12.3%.

In 2013, the highest income tax rate is 51.7% (Federal tax rate: 44.3%, California tax rate: 13.3%; the 51.7% tax rate applies to wage earners).

For investors the top rate on net investment income is 50.92% (Federal tax rate: 43.4%, California tax rate: 13.37%) (A 20% tax increase over 2012).

The top tax rates apply to U.S. taxpayers who earn income over certain levels, see below.

2013 Income Taxes (U.S./California)

California Income Tax
Income over $250,000 is taxed at 12.3%. Income over $1,000,000 is taxed at 13.3% (don't forget the additional 1% mental health tax). These tax rates will apply through 2018.

2013/Highest California Tax Rate: 13.3%

U.S. Income Tax (2013)


Individuals (over $400,000), Heads of Household (over $425,000); Marrieds (over $450,000)  Tax Rate is: 39.6%

Medicare Surtax

Net Investment Income

Individuals/Heads of Household
(Modified Adjusted Gross Income ("AGI") over $200,000)

Married Taxpayers (over $250,000)

Married filing separately (over $125,000)  Tax: 3.8%

The 3.8% Medicare surtax on net investment income is levied on the lesser of:
1. Taxpayer's net investment income; or

2. The excess of modified adjusted gross income over the applicable dollar threshold (modified AGI is AGI plus any tax-free foreign earned income).

Investment income includes: interest, dividends, capital gains, annuities, royalties and passive rental income. Tax-free interest is exempted, along with pay-outs from retirement plans such as 401(k)s, IRAs, deferred pay plans and pension plans.

Earned Income
(Wages and Self-Employment Income)

Individuals/Heads of Household
(Total Earnings over $200,000)

Married Couples
Joint Returns/Earnings over $250,000
Filing Separately/Earnings over $125,000  Tax: 0.9%

This surtax applies only to the employee's share of Medicare tax. Employers don't owe it. Employers will withhold the surtax once an employee's wages exceed $200,000. Employees will then calculate the actual tax due on their Form 1040 tax returns.

2013/Highest U.S. Tax Rate: 44.3%
(Includes Medicare Surtaxes on Net Investment Income and Earned Income)

Summary 2013/Combined U.S./California Tax (Top Rates): 57.6%

"Blended" U.S./California Tax (Top Rates): 51.7%

For taxpayers (individual) who have income over $400,000, including net investment income over $200,000 (modified adjusted gross income), and earned income over $200,000 (wages and self-employment income), the combined top tax rate is 57.6%, the "blended" top tax rate is 51.7%.

For investors (who do not have wages and self-employment income) the combined top tax rate is 56.7%; the "blended" top tax rate is 50.92%.

In addition, taxpayer wages of $113,700 (maximum Social Security wage base/2013) are subject to an additional $8,698 in "payroll tax", paid by taxpayer (who is an employee or self-employed), calculated as 7.65% of $113,700 (which includes 6.2% Social Security (FICA) tax, 1.45% Medicare tax).