Watch out for the AMT

Watch out for the AMT

As you review your income tax situation at midyear, consider your exposure to the alternative minimum tax (AMT). The alternative minimum tax involves a separate tax calculation that disallows many of the deductions and credits used to calculate regular income tax. If you have high levels of deductions or exemptions, or if you exercise incentive stock options this year, it's worth checking for possible AMT liability so it doesn't take you by surprise.

IRS issues reminder on child tax credit

IRS Issues reminder on child tax credit

Working parents should be aware that the child and dependent care tax credit is available to offset some of the expenses for child care. Six facts the IRS wants taxpayers to know about the credit:

● Children must be under age 13 to qualify for the credit.

● The credit applies whether the childcare provider is a sitter at home or a daycare facility.

● The credit applies for up to $3,000 of expenses for one child and up to $6,000 for two or more.

● The credit can be up to 35% of qualifying expenses, depending on your income.

● Overnight camps don't qualify; day camps do.

● Keep receipts for expenses, and get the employee ID number of the care giver.

Summertime Tax Tip

Summertime Tax Tip

If you itemize your deductions, you can deduct the mortgage interest and property taxes paid for your vacation home. A boat or RV can qualify as a vacation home if it has sleeping quarters, cooking facilities, and a bathroom. If a retreat also serves as rental property, you can control your tax deductions by changing the number of days you use it for vacation.

Every estate plan should have these basic documents

Every estate plan should have these basic documents

kick in only if your estate exceeds $5,430,000, there are other issues that make estate planning important for most individuals.

Start your estate planning by meeting with an attorney and your accountant. They can instruct you in the essentials of estate tax law and the requirements for establishing an estate plan. A key part of estate planning is compiling the documents that will accomplish your goals.

A basic estate plan should include the following documents:

*                    Your will, which should name the guardian you choose for your minor children and an executor (personal representative) to carry out your instructions.

*                    A listing of your assets. Include your home and other properties, pension and retirement accounts (401(k) & IRAs), investments (noting the cost basis), automobiles, jewelry, and any other assets.

*                    Life insurance information such as your insurer, your policy number, the amount of insurance, and the location of your policies.

*                    Financial and business records, including real estate deeds, tax returns and related support papers, your social security number, investment statements, and stock and bond certificates.

*                    Funeral instructions, including your burial wishes and people to be notified upon your death.

*                    Medical information and a list of your doctors.

*                    Durable power of attorney, designating the individual(s) you select to act on your behalf if you're incapacitated.

*                    Health care proxy naming the individual(s) you want to make health care decisions for you if you aren't capable.

Keep your original documents in a fireproof safe or with your attorney. Put your list of documents and the copies in a binder at home and tell your executor where the documents are located. If you would like assistance with your estate planning, please contact our office.

What every spouse should know before signing a joint return

What every spouse should know before signing a joint return

The advantage of filing a joint tax return is well known – you generally save money compared to filing separately. However, there is at least one potential disadvantage. Both spouses are jointly and severally liable for the entire income tax bill, including interest and penalties, even if one earned most or all the income.

This issue most commonly arises when there are unpaid taxes from joint filing years, and a couple later separates or divorces. The IRS can pursue either spouse for the full amount. If you're the easiest one to find, or if you have liquid assets, you can end up paying the entire bill.

When this happens, the only relief is the so-called innocent spouse rule. If you can prove that you had no reason to suspect tax shortfalls and you did not personally benefit from unreported income, or that you signed joint returns only under duress, you may get off the hook. Unfortunately, this is easier said than done. The IRS and the courts have been notoriously stingy in allowing innocent spouse relief.

What can you do to head off trouble? First, consider the obvious. If your family spends much more money than the income shown on your tax returns, warning lights should go on. If you don't understand all the tax and financial issues in the joint return, ask questions. In certain circumstances, you may even want to consider hiring your own tax professional to advise you before signing.

If you are headed toward separation or divorce, it may be best to file separately. You may pay a little more tax, but that's better than leaving yourself liable for the tax sins of someone who is no longer on your side. Don't file jointly unless you're sure that all income has been reported on the return and that the taxes have actually been paid.

Roth IRAs: A smart tax idea for children

Roth IRAs: A smart tax idea for children

Persuading your working children to make retirement contributions may not be easy, but investments in Roth IRAs may be the wisest possible use of their earnings. The nature of Roth IRAs, coupled with the effects of long-term compounding, can create exceptional returns on such early investments.

Although contributions to Roth IRAs are not deductible, earnings within the accounts (such as interest or dividends) are not taxed and qualified withdrawals are completely tax-free. Tax-free compounding can result in sizable accumulation in a Roth. For example, if a 15-year-old contributes $2,500 for each of four years, and the account earns 5% annually, the fund will be worth about $85,000 when the child reaches age sixty.

It's generally best to leave IRA funds untouched until retirement, but if necessary, your child's contributions to a Roth IRA (excluding the earnings) can be withdrawn at any time without triggering taxes or penalties. This flexibility provides an advantage over a traditional IRA, where most withdrawals before the owner reaches age 59½ will be taxed and penalized.

The owner's ability to deduct contributions is the one advantage a traditional IRA offers over a Roth IRA. However, this feature is relatively insignificant for most young earners. The first $6,300 of a child's 2015 income will be entirely sheltered by the standard deduction, and any earnings above $6,300 are likely to be taxed at very low rates.

This year, most working people can contribute up to the lesser of their earned income or $5,500 to a Roth IRA. Although Roth eligibility is phased out for individuals with income above certain ceilings (e.g., $116,000 to $131,000 for a single person in 2015), a working child's revenue rarely will approach such thresholds.

If you'd like to learn more about the benefits of setting up Roth IRAs for your children, contact us for assistance.

Create a road map to retirement

Create a road map to retirement

Preparing for your retirement is a journey. And like most journeys, success or failure often hinges on decisions made early in the trip. Consider some of these pointers as you develop your personal road map to retirement.

A solid retirement plan begins with an honest assessment of what your golden years will look like. Will they involve exotic travel, special purchases, or carefree living? Or do you plan to live modestly, perhaps working part time? A possible hint might be to consider how you are living right now. Many people assume that their living costs will decline later in life, but they often stay about the same or even increase.

Once you know how you want to live, it's time to take stock of your assets. Are your investments where they should be, or do you have some catching up to do? Keep in mind that those 50 years and older can contribute an extra amount each year into their 401(k) or IRA to help get up to speed. And no matter what career stage you are in, be sure to take full advantage of the matching provision in your employer's plan.

Like any excursion, your path to retirement will need an occasional tweaking to stay on course. As your working years draw to a close, consider shifting your asset allocation from higher risk securities to those with less price volatility and steadier cash flows. And along the way, take steps to keep your household budget in check. Think hard before incurring additional debt that might stymie your retirement plans. Analyze your spending to see what you really need to live on.

Finally, assemble a team of professionals to help chart your path. You might need to coordinate life and health insurance, estate plans, and tax issues to achieve your retirement goals. If you need assistance, give our office a call.