News Stories and Articles
5 new tax credits and deductions for the
2009 tax year
Tax season is upon us. And while nobody likes shelling out their hard-earned
dollars to the IRS, this year the government is offering up some new
opportunities that could save you big money. As part of the American
Recovery and Reinvestment Act, or stimulus bill, Congress introduced
several new tax goodies that could help millions of Americans save
-- as long as they know to claim them. Check
out the article by CNNMoney.com providing information for homebuyers,
students, energy savers and car buyers.
Five Steps to Retiring On Time
(Now is)... the perfect time to review your financial portfolio and
make sure your retirement plans are on track. In a recent survey of
Puget Sound-area residents, nearly 63 percent of pre-retirees (age
45 and older) said they would not or were not sure they could retire
at their ideal age. Click
here for the rest of the article illustrating the five steps.
How to Find Out if Your Bank Is Healthy
With the recent news from the Federal Deposit Insurance Corporation
that it is bracing for a new round of bank failures and has placed
702 lenders on its list of problem banks, the most since 1993, you
may be wondering about the long-term prospects of your own bank. Unfortunately,
the F.D.I.C. does not make its list of problem banks public. So checking
the health of your bank is not as simple as simply looking for it
on that list. Instead, here are some other resources to help you.
For the rest of the article, click
here.
Increased Taxes Coming?
There is speculation that by 2011, the federal income tax top rate
is likely to be 39.6%. With federal phase-outs of exemptions and loss
of part of itemized deductions, in some states the top combined rate
will exceed 50%. Not content with just income tax, the legislators
are probably going to increase the capital gains rate - probably to
20% federal, and thus to 25% combined in many states.
An IRA to Roth IRA Conversion Idea - just about
a "have your cake and eat it too."
As has been reported here before, in 2010 there are no income limits
to restrict converting pretax dollars in an IRA into after tax dollars
in a Roth IRA. There is, however, the little matter of the tax that
would be due on the conversion, as the holder would need to pay income
tax on the dollars moved.
The government has mitigated the tax burden slightly, by letting the holder pay half the tax in the 2011 and half in 2012. While the reward of tax-free growth in a Roth IRA is enticing, the taxes are burdensome. But even so, many columnists are predicting tax rates will increase in the future, further impacting traditional IRAs.
Let's look at an example. Suppose Joe Taxpayer has an IRA and will have to start mandatory withdrawals as he is 71. He doesn't need the income as he loves his work, is in good health, and will probably continue working for five more years. He'd rather keep building his account for when he actually retires. His taxable income in 2010 will put him and his wife, also 71, in the 33% tax bracket as their taxable income is just over $200,000.
Ideally, Joe would like to reduce his IRA (and the mandatory withdrawals) and take advantage of tax-free compounding in a Roth IRA without having to pay taxes on withdrawals or be forced to withdraw from it.
Joe and his wife have money in a CD currently paying 1.5%. His wife volunteers at a local charity and has been asking Joe about the possibility of making a donation. They can write a $100,000 5.3% charitable gift annuity with the local charity which will pay them $5300 a year for life. For 19.7 years, $3503.30 of the $5300 will be tax free, which means the annual annuity is equivalent to $7049.07 in fully taxable income. This is an increase in annual income of $5549.07 compared to the current CD income.
In addition, they receive a charitable tax deduction for making the
gift $30,946, which will reduce the conversion tax. All told, with
two years of higher income and the charitable tax deduction, they
have reduced the $33,000 in taxes to $11,098. Now, moving $100,000
into a Roth IRA and spreading the tax due over two years starts looking
very attractive. Plus, in addition to the potential of continuing
higher income, Joe and his wife have the satisfaction of making a
significant gift to a charity that is very important to them.
Budget Plan Revives President's Call for
New Charitable-Deduction Limit
According to a February 1 article in The Chronicle on Philanthropy,
Suzanne Perry reports that President Obama's budget proposals for
fiscal 2011 "would limit to 28 percent the tax break couples earning
$250,000 (or individuals earning $200,000) could get for their itemized
deductions, including gifts to charity." A similar proposal failed
Congressional endorsement last year.
2/2/10 Planned Giving Design Center
