Making an IRA change could be tax-smart

Making an IRA change could be tax-smart

Did you convert all or part of a retirement account to a Roth during 2014? And do you now wish you hadn't? Here's some good news: You have until October 15, 2015, to change your mind, even if you already filed your federal income tax return.

The tax term for undoing the conversion and switching your funds back to a traditional IRA from a Roth is "re characterization." You can re characterize any amount of your original conversion, no matter your income, and for any reason. When you re characterize the entire conversion amount, you put yourself back in the position you were in originally.

Why would you want to re characterize? Perhaps you're now in a higher tax bracket than you expected and reconverting will reduce your income. Or maybe your investments didn't do as well as you anticipated and the value in your account has declined. Leaving the money in the new Roth means you pay tax on the original amount you converted. Re characterizing means you save tax dollars.

Here's another beneficial re characterization

rule: You don't need to worry about being locked out of future transfers. You can reconvert the same funds to a Roth after a waiting period.

If you're considering undoing last year's Roth conversion, please call for more information. We're here to help you make the right decision.

Business Tip: Don't sell property; exchange it

Business Tip: Don't sell property; exchange it

A tax-deferred exchange is a tax planning technique which should be considered by any taxpayer that is relocating or disposing of property. Often referred to as a "tax-free exchange," the tax-deferred exchange allows you to exchange certain business or investment property for other "like-kind" business or investment property and pay no income taxes currently. Your tax liability is deferred until you later dispose of the property for which you traded. Exchanges require careful planning and professional assistance.

Should you incorporate your business?

Should you incorporate your business?

One of the first decisions you face as a new business owner is whether or not to incorporate your business. The biggest advantage of incorporating is limitation of your liability. Your responsibility for debts and other liabilities incurred by a corporation is generally limited to the assets of the business. Your personal assets are usually not at risk, although there can be exceptions to this general rule. The trade-off is that there is a cost to incorporate and, in some cases, tax consequences.

Consult our office and your attorney for guidance in selecting the legal entity that is best for your business.

Marital status affects your taxes

Marital status affects your taxes

Your marital status can have a major impact on your taxes. Sometimes changing the date for a wedding or the timing of a divorce can be a major tax saver. If you and your spouse-to-be have similar incomes, you may become subject to the marriage penalty and pay higher taxes as a married couple than you would as singles. A divorce certainly requires some tax planning. How you structure support payments, who gets to claim the tax exemptions for dependent children, and how you split up assets can make a huge tax difference to both parties.

Don't overlook above-the-line deductions

Don't overlook above-the-line deductions

Even if you don't itemize deductions on your tax return, you may be entitled to certain "above-the-line" deductions. These deductions are subtracted from your income to arrive at your adjusted gross income, an important number because it determines your qualification for certain tax credits and various tax breaks. Above-the-line deductions include such things as IRA contributions, health savings account contributions, student loan interest, moving expenses, health insurance and retirement plan contributions if you're self-employed, and alimony paid.

Summer job tax tip

Summer job tax tip

If your child has a summer job, consider opening an IRA for him or her. According to the tax rules, anyone under age 70½ who has earned income can contribute to a traditional IRA. There's no age restriction for Roth accounts, though the amount of the contribution phases out at higher income levels. The advantage of a Roth over a regular IRA is that withdrawals in retirement will be tax-free. The contribution limit for both kinds of IRA for 2015 is the lesser of the child's earned income or $5,500.

Midyear tax planning tip

Midyear tax planning tip

Take time this summer to examine your investment portfolio for potential tax savings, such as selling stocks that are worth less than you paid to offset your capital gains. You might also donate appreciated stock that you have held for more than one year to charity and avoid capital gains altogether – plus getting a deduction for the stock's fair market value if you itemize. Another step to consider: Buy investments that pay tax-free income, such as municipal bonds, if you're going to be subject to the new 3.8% tax on unearned income.