Wednesday, March 4, 2015

A Focus on Tax Strategies

Taxes and inflation erode the return you make on your investment portfolio. If you are in a 30% tax bracket and inflation is 4%, you need to earn 5.7% to earn nothing.

Any effective plan to minimize your income taxes requires an ongoing effort on your part. That means you have to plan and make adjustments year-round, not just when you fill out your tax forms. Most tax preparers are just scorekeepers. They are reactive rather than proactive. You should work with a firm available throughout the year, not just one time a year.

There are three broad categories of tax-favored investments that reduce your income taxes. These are: “Tax-Exempt”, which offers income that is not taxed by the federal government; “Tax Deferred”, which defers taxes on accumulation until it is withdrawn; and “Tax Advantaged” instruments, which provide a tax credit against taxes.

Municipal bonds and Tax Free Money Market funds are two types of tax exempt vehicles.

The most popular tax-deferred investments are 401k plans, and IRA’s - both Traditional IRA’s and Roth IRA’s. Other tax-deferred alternatives are annuities, life insurance, and individual stocks and mutual funds.

Monday, March 2, 2015

Key Points to Know about Early Retirement Distributions

Some people take an early withdrawal from their IRA or retirement plan. Doing so in many cases
triggers an added tax on top of the income tax you may have to pay. Here are some key points you should know about taking an early distribution:

  1. Early Withdrawals.  An early withdrawal normally means taking the money out of your retirement plan before you reach age 59½.
  2. Additional Tax.  If you took an early withdrawal from a plan last year, you must report it to the IRS. You may have to pay income tax on the amount you took out. If it was an early withdrawal, you may have to pay an added 10 percent tax.
  3. Nontaxable Withdrawals.  The added 10 percent tax does not apply to nontaxable withdrawals. They include withdrawals of your cost to participate in the plan. Your cost includes contributions that you paid tax on before you put them into the plan. A rollover is a type of nontaxable withdrawal. A rollover occurs when you take cash or other assets from one plan and contribute the amount to another plan. You normally have 60 days to complete a rollover to make it tax-free.
  4. Check Exceptions.  There are many exceptions to the additional 10 percent tax. Some of the rules for retirement plans are different from the rules for IRAs. See IRS.gov for details about these rules.
  5. File Form 5329.  If you made an early withdrawal last year, you may need to file a form with your federal tax return. See Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, for details.
  6. Use an authorized IRS e-file Tax Professional. Early withdrawal rules can be complex. IRS e-file is easiest and most accurate way to file your tax return. The tax professional that you use to e-file will pick the right tax forms, do the math and help you get the tax benefits you’re due. 

For more information or help on this topic, contact Northeast Financial Strategies at 800-560-4637.


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Wednesday, February 11, 2015

IRS Completes The "Dirty Dozen" Tax Scams for 2015

WASHINGTON — The Internal Revenue Service wrapped up the 2015 "Dirty Dozen" list of tax scams today with a warning to taxpayers about aggressive telephone scams continuing coast-to-coast during the early weeks of this year's filing season.

The aggressive, threatening phone calls from scam artists continue to be seen on a daily basis in states across the nation. The IRS urged taxpayers not give out money or personal financial information as a result of these phone calls or from emails claiming to be from the IRS.

Phone scams and email phishing schemes are among the "Dirty Dozen" tax scams the IRS highlighted, for the first time, on 12 straight business days from Jan. 22 to Feb. 6. The IRS has also set up a special section on IRS.gov highlighting these 12 schemes for taxpayers.

"We are doing everything we can to help taxpayers avoid scams as the tax season continues," said IRS Commissioner John Koskinen. "Whether it's a phone scam or scheme to steal a taxpayer's identity, there are simple steps to take to help stop these con artists. We urge taxpayers to visit IRS.gov for more information and to be wary of these dozen tax scams."

Monday, February 9, 2015

IRS Can Help if W-2s Are Missing

In most cases you get your W-2 forms by the end of January. Form W-2, Wage and Tax Statement,
shows your income and the taxes withheld from your pay for the year. You need your W-2 form to file an accurate tax return.

If you haven’t received your form by mid-February, here’s what you should do:

  • Contact your employer.  Ask your employer (or former employer) for a copy. Be sure that they have your correct address.
  • After Feb. 23.  If you can’t get a copy from your employer, call the IRS at 800-829-1040 after Feb. 23. The IRS will send a letter to your employer on your behalf. You’ll need the following when you call:
  1. Your name, address, Social Security number and phone number;
  2. Your employer’s name, address and phone number;
  3. The dates you worked for the employer; and
  4. An estimate of your wages and federal income tax withheld in 2014. You can use your final pay stub for these amounts.
  • File on time.  Your tax return is normally due on or before April 15, 2015. Use Form 4852, Substitute for Form W-2, Wage and Tax Statement, if you don’t get your W-2 in time to file. Estimate your wages and taxes withheld as best as you can. The IRS may need more time to

Friday, February 6, 2015

IRS to Parents: Don’t Miss Out on These Tax Savers

Children may help reduce the amount of taxes owed for the year. If you’re a parent, here are several tax benefits you should look for when you file your federal tax return:


  • Dependents.  In most cases, you can claim your child as a dependent. You can deduct $3,950 for each dependent you are entitled to claim. You must reduce this amount if your income is above certain limits. For more on these rules, see Publication 501, Exemptions, Standard Deduction and Filing Information.
  • Child Tax Credit.  You may be able to claim the Child Tax Credit for each of your qualifying children under the age of 17. The maximum credit is $1,000 per child. If you get less than the full amount of the credit, you may be eligible for the Additional Child Tax Credit. For more, see Schedule 8812 and Publication 972, both titled Child Tax Credit.
  • Child and Dependent Care Credit.  You may be able to claim this credit if you paid for the care of one or more qualifying persons. Dependent children under age 13 are among those who qualify. You must have paid for care so that you could work or could look for work. See Publication 503, Child and Dependent Care Expenses, for more on this credit.

Tuesday, January 27, 2015

Phone Scams Continue to be Serious Threat, Remain on IRS “Dirty Dozen” List of Tax Scams for the 2015 Filing Season

WASHINGTON — Aggressive and threatening phone calls by criminals impersonating IRS agents remain near the top of the annual "Dirty Dozen" list of tax scams for the 2015 filing season, the Internal Revenue Service announced today.

The IRS has seen a surge of these phone scams in recent months as scam artists threaten police arrest, deportation, license revocation and other things. The IRS reminds taxpayers to guard against all sorts of con games that arise during any filing season.

"If someone calls unexpectedly claiming to be from the IRS with aggressive threats if you don't pay immediately, it's a scam artist calling,” said IRS Commissioner John Koskinen. "The first IRS contact with taxpayers is usually through the mail. Taxpayers have rights, and this is not how we do business."

The Dirty Dozen is compiled annually by the IRS and lists a variety of common scams taxpayers may encounter any time during the year. Many of these con games peak during filing season as people prepare their tax returns or hire someone to do so. This year for the first time, the IRS will issue the individual Dirty Dozen scams one at a time during the next 12 business days to raise consumer awareness.

Phone scams top the list this year because it has been a persistent and pervasive problem for many taxpayers for many months. Scammers are able to alter caller ID numbers to make it look like the IRS is calling. They use fake names and bogus IRS badge numbers. They often leave "urgent" callback requests. They prey on the most vulnerable people, such as the elderly, newly arrived immigrants and those whose first language is not English. Scammers have been known to impersonate agents from IRS Criminal Investigation as well.

“These criminals try to scare and shock you into providing personal financial information on the spot while you are off guard,” Koskinen said. “Don’t be taken in and don’t engage these people over the phone.”

Monday, January 26, 2015

Premium Tax Credit Brings Changes to Your 2014 Income Tax Returns

When filing your 2014 federal income tax return, you will see some changes related to the Affordable Care Act. Millions of people who purchased their coverage through a health insurance Marketplace are eligible for premium assistance through the new premium tax credit, which individuals chose to either have paid upfront to their insurers to lower their monthly premiums, or receive when they file their taxes. When you bought your insurance, if you chose to have advance payments of the premium tax credit, the Marketplace estimated the amount based on information you provided about your expected household income and family size for the year.

If you received the benefit of advance credit payments, you must file a federal tax return and reconcile the advance credit payments with the actual premium tax credit you are eligible to claim on your return.  You will use IRS Form 8962, Premium Tax Credit (PTC) to make this comparison and to claim the credit. If your advance credit payments are in excess of the amount of the premium tax credit you are eligible for, based on your actual income, you must repay some or all of the excess when you file your return, subject to certain caps.

If you purchased your coverage through the Health Insurance Marketplace, you should receive Form 1095-A, Health Insurance Marketplace Statement from your Marketplace. You should receive this form by early February.

Friday, January 23, 2015

The Health Care Law - Getting Ready to File Your Tax Return

It’s always a good idea to prepare early to file your federal income tax return.  Certain provisions of the Affordable Care Act – also known as the Health Care Law – will probably affect your federal income tax return when you file this year.

You or your tax professional should consider preparing and filing your tax return electronically.  Using tax preparation software is the easiest way to file a complete and accurate tax return.

Here are five things you should know about the health care law that will help you get ready to file your tax return.

Coverage requirements

The Affordable Care Act requires that you and each member of your family have qualifying health insurance coverage for each month of the year, qualify for an exemption from the coverage requirement, or make an individual shared responsibility payment when filing your federal income tax return.

Reporting requirements

Most taxpayers will simply check a box on their tax return to indicate that each member of their family had qualifying health coverage for the whole year. No further action is required. Qualifying health insurance coverage includes coverage under most, but not all, types of health care coverage plans. Use the chart on IRS.gov/aca to find out if your insurance counts as qualifying coverage.