Tax Planning TipsAt D'Alessio + Tocci, LLP we try our best to help our clients
plan correctly in order to reduce their year-end tax bill. These
are 5 of our firm's top income tax planning tips. |
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| Deduction phased out | No deduction allowable | |
| Filing Status | if Modified AGI between | if Modified AGI exceeds |
| Single/Head of household | $34,000-$44,000 | $44,000 |
| Married-joint | $54,000-$64,000 | $64,000 |
| Married-separate | $0-$10,000 | $10,000 |
If an Employer covers your spouse sponsored plan: |
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| Deduction phased out | No deduction allowable | |
| Filing Status | if Modified AGI between | if Modified AGI exceeds |
| Married-joint | $150,000-$160,000 | $160,000 |
| Married-separate | $0-$10,000 | $10,000 |
In addition to the traditional IRA, taxpayers can contribute to a Roth IRA. As opposed to the traditional IRA, contributions made to a Roth IRA are non-deductible while earnings accumulate tax-free. In order for withdrawals of earnings to be tax-free, distributions must be qualified. Distributions are considered qualified if the taxpayer is age 59 1ž2 or older and has had the Roth IRA for five years. *Note: If you have held your IRA for five years and you are taking a distribution for first-time home purchasing expenses, your distribution is qualified and is not subject to the 10% early withdrawal penalty. (This first-time homebuyer benefit has a $10,000 lifetime limit.) (2.) Choose your investments wisely The maximum capital gains rate is 20% on most investments that are held for at least one year. The rate falls to 10% if the gain were to be taxed at the taxpayer's ordinary rate of 15%. Any capital gains on investments that were held for one year or less are taxed at the taxpayer's ordinary rate. Capital losses can offset capital gains and ordinary income up to $3,000 per year. Any excess loss can carry forward to future years. Any gain of $250,000 or less ($500,000 if married filing jointly) on the sale of your principal residence is tax-free. This benefit can be used once every two years if you owned the home as your principal residence for at least two of the five years prior to sale. (3.) Be aware of tax benefits related to paying for higher education The Hope Scholarship credit and the Lifetime Learning credit are two tax credits available for taxpayers with qualified tuition and related expenses. A taxpayer can claim only one of these nonrefundable credits per year, so it is important for you to examine your options. Hope Scholarship Credit This credit is available for you; your spouse or your dependent for the first two years enrolled in a post-secondary education program on at least a half-time basis. The maximum allowable credit is $1,500 per year. The credit allowed is limited to 100% of the first $1,000 of expenses and 50% of the next $1,000 of expenses for each student. Lifetime Learning Credit This credit is available for you, your spouse or your dependent for qualified post-secondary education expenses, but is not limited to the first two years. This credit would benefit those in the latter years of an undergraduate program or a graduate program. The maximum allowable credit is $1,000 per year. The credit allowed is limited to 20% of the first $5,000 of qualified expenses for each taxpayer. *Note: Neither of these credits can be claimed if your filing status is married filing separately. *Note: A distribution from an Education IRA will not be tax-free in the year that the Hope Scholarship or the Lifetime Learning Credit are taken. Deduction for student loan interest Taxpayers who are repaying student loans may be eligible to deduct up to $1,500 of interest paid as an "above-the-line" deduction. Only the first 60 months of interest payments are deductible. Education IRA Contributions of up to $500 per child under age 18 can be made to an Education IRA. Contributions made are non-deductible, although earnings accumulate tax-free and withdrawals are tax-free if used to pay for the child's qualified education expenses. (4.) Be aware of the benefits given to the self-employed Self-employed health insurance If you are self-employed you can deduct 60% of health insurance costs for you, your spouse and any dependents. The 60% deduction is "above-the-line". The remaining 40% of the costs are reported as a medical expense itemized deduction. Self-employment tax deductions A self-employed individual can take an above-the-line deduction for half of the self-employment tax paid on self-employment income. (5.) Maximize "Above-the-line deductions Deductions to income that are taken "above-the-line" (used to determine your adjusted gross income) are often most advantageous. These deductions can be taken in addition to your standard deduction or itemized deductions. Another advantage is that the eligibility for many credits, exemptions and deductions is determined by a taxpayer's AGI. Some examples of "above-the-line" deductions are: contributions to a IRA, one half of the self-employment tax, 60% of self-employed health insurance, and certain moving expenses. Contact D'Alessio + Tocci, LLP for more information on how to plan ahead. Early planning can make a significant difference. info@dalecpa.com |
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