Monday, January 31, 2011

Tax Tips for Self-employed Individuals

If you are in business for yourself, or carry on a trade or business as a sole proprietor or an independent contractor, you generally would consider yourself self-employed and you would file IRS Schedule C, Profit or Loss From Business or Schedule C-EZ, Net Profit From Business with your Form 1040.

Here are five things the IRS wants you to know about self-employment:
  1. Self-employment can include work in addition to your regular full-time business activities, such as part-time work you do at home or in addition to your regular job.
  2. If you are self-employed you generally have to pay Self-employment Tax. Self-employment tax is a social security and Medicare tax primarily for individuals who work for themselves. It is similar to the social security and Medicare taxes withheld from the pay of most wage earners. You figure SE tax yourself using a Form 1040 Schedule SE. Also, you can deduct half of your self-employment tax in figuring your adjusted gross income.
  3. If you are self-employed you generally have to make estimated tax payments. This applies even if you also have a full-time or part-time job and your employer withholds taxes from your wages. Estimated tax is the method used to pay tax on income that is not subject to withholding. If you don’t make quarterly payments you may be penalized for underpayment at the end of the tax year.
  4. You can deduct the costs of running your business. These costs are known as business expenses. These are costs you do not have to capitalize or include in the cost of goods sold but can deduct in the current year.
  5. To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your field of business. A necessary expense is one that is helpful and appropriate for your business. An expense does not have to be indispensable to be considered necessary.

Friday, January 28, 2011

FREE INCOME TAX PREP -This Weekend at the Fuzion Sports Club Open House

Thursday, January 27, 2011

First-Time Homebuyer Credit

First Time Home Buyer Credit Letter

Did you receive a Letter about the First Time Home Buyer Credit?

IRS is notifying taxpayers who claimed the first-time homebuyer credit. There are different IRS letters for different situations including purchase of a home in 2008, 2009 or 2010, repayment schedule for homes purchased in 2008 or the sale or change in the use of the main home. If you rec'd a letter (or any other letter form the IRS or state taxing authority), please contact me office for assistance.

Wednesday, January 26, 2011

Special Needs Planning & the Special Needs Trust in NFS January Retirement Readings

Obama Calls for Tax Reform

WASHINGTON DC - President Obama urged Congress to work across party lines on an overhaul of both corporate and individual taxes to reduce tax loopholes during his State of the Union address on Tuesday night.

“Over the years, a parade of lobbyists has rigged the tax code to benefit particular companies and industries,” he said. “Those with accountants or lawyers to work the system can end up paying no taxes at all. But all the rest are hit with one of the highest corporate tax rates in the world. It makes no sense, and it has to change. So tonight, I’m asking Democrats and Republicans to simplify the system. Get rid of the loopholes. Level the playing field. And use the savings to lower the corporate tax rate for the first time in 25 years—without adding to our deficit.”

Obama also called for simplifying the individual tax code. “In fact, the best thing we could do on taxes for all Americans is to simplify the individual tax code,” he said. “This will be a tough job, but members of both parties have expressed interest in doing this, and I am prepared to join them.”

Obama cited some of the progress made in the past year on taxes during his hour-long speech, including the budget deal he worked out last month to extend the Bush-era tax cuts. “Thanks to the tax cuts we passed, Americans' paychecks are a little bigger today,” he said. “Every business can write off the full cost of the new investments they make this year. These steps, taken by Democrats and Republicans, will grow the economy and add to the more than one million private sector jobs created last year.”

However, Obama cautioned that the tax cuts extension should not be made permanent for the wealthy in order to deal with the growing budget deficit. “And if we truly care about our deficit, we simply cannot afford a permanent extension of the tax cuts for the wealthiest 2 percent of Americans,” he said. “Before we take money away from our schools, or scholarships away from our students, we should ask millionaires to give up their tax break. It's not a matter of punishing their success. It's about promoting America's success.”

However, Obama did call for making the tuition tax credit permanent. “To compete, higher education must be within reach of every American,” he said. “That's why we've ended the unwarranted taxpayer subsidies that went to banks, and used the savings to make college affordable for millions of students. And this year, I ask Congress to go further, and make permanent our tuition tax credit—worth $10,000 for four years of college."

He described the efforts he planned to rein in spending and tackle the budget deficit by freezing annual domestic spending over the next five years, making cuts in programs such as defense, and consolidating government agencies that deal with matters such as exports and housing policy. However, he also emphasized the need to invest more money in education, technology, infrastructure, transportation, and clean energy development to ensure U.S. competitiveness against other countries, likening it to the space race against the Soviet Union.

“This is our generation’s Sputnik moment,” he said.

Obama suggested the money for clean energy technology could come from rolling back tax breaks and other federal aid for the oil industry. "With more research and incentives, we can break our dependence on oil with biofuels, and become the first country to have 1 million electric vehicles on the road by 2015," he said. "We need to get behind this innovation. And to help pay for it, I'm asking Congress to eliminate the billions in taxpayer dollars we currently give to oil companies. I don't know if you've noticed, but they're doing just fine on their own. So instead of subsidizing yesterday's energy, let's invest in tomorrow's."

He cited the work of the bipartisan deficit commission as a starting point for negotiations on how to control the budget deficit. "The bipartisan Fiscal Commission I created last year made this crystal clear," he said. "I don't agree with all their proposals, but they made important progress. And their conclusion is that the only way to tackle our deficit is to cut excessive spending wherever we find it – in domestic spending, defense spending, health care spending, and spending through tax breaks and loopholes."

Obama also called for Republicans and Democrats to work together to improve the health care reform law, but not to fight battles over repealing the law. He indicated his willingness to repeal the expanded 1099 reporting provisions, however. “Now, I've heard rumors that a few of you have some concerns about the new health care law,” he said. “So let me be the first to say that anything can be improved. If you have ideas about how to improve this law by making care better or more affordable, I am eager to work with you. We can start right now by correcting a flaw in the legislation that has placed an unnecessary bookkeeping burden on small businesses.”

In the official Republican response to Obama’s speech, Rep. Paul Ryan, R-Wis., emphasized the dangers of the growing budget deficit and the need to control spending. “Our nation is approaching a tipping point,” he warned. “We are at a moment where if government’s growth is left unchecked and unchallenged, America’s best century will be considered its past century.”

Another Republican lawmaker, Rep. Michele Bachmann, R-Minn., delivered the first-ever Tea Party Caucus response to the State of the Union address after Ryan spoke, emphasizing the growth in the unemployment rate and the budget deficit after Obama took office. However, she agreed with the need to reduce corporate taxes. “We need to start making things again in this country, and we can do that by reducing the tax and regulatory burden on job-creators,” she said. “America will have the highest corporate tax rate in the world. Think about that. Look no further to see why jobs are moving overseas.”

By Michael Cohn

Tuesday, January 25, 2011

Tax Help for Small Businesses and Self-Employed

The IRS Small Business and Self-Employed Tax Center at offers extensive resources and online tools designed to help small businesses and self-employed persons.

The IRS Small Business and Self-Employed Tax Center on the IRS website offers the following resources:

  • Small business forms and publications
  • Employer Identification Number online application
  • Employment tax information – federal income tax, Social Security and Medicare taxes, FUTA and self-employment tax
  • Tax-related news that could affect your business
  • Small business educational events
  • IRS videos for small businesses
  • A-Z Index for Business – find information fast using the A-Z listing

 The site provides important tax information available for all stages of owning a business. Whether you’re starting, operating or closing a business, visit for all your federal income tax information.

Other resources available on the IRS website include a virtual small business tax workshop, video and audio presentations, a guide to IRS audits, and a tax calendar designed for small business taxpayers.

The IRS Video Portal:

Tax Questions? Learn about tax topics through video and audio presentations on the IRS Video Portal. The video portal contains archived versions of live panel discussions, archived webinars, video clips, and audio archives of national phone forums.

IRS Audits Video Series:

"Your Guide to an IRS Audit” takes the viewer through the steps of an audit from notification to closing. The video series is composed of scenarios that demonstrate the stages of each type of audit: correspondence, office and field. The scenarios address issues that are common to audits of small businesses.

Virtual Small Business Tax Workshop:

The IRS Virtual Small Business Tax Workshop is an interactive resource to help small business owners learn about their federal tax rights and responsibilities. The workshop contains nine stand-alone lessons that can be selected and viewed in any sequence. The workshop is available online 24 hours a day, seven days a week from any computer. It can also be ordered on CD.

Tax Calendar for Small Business Taxpayers:

The Tax Calendar for Small Businesses and Self-Employed – Publication 1518 – is available online or as a printable PDF file. This 12-month calendar is filled with information on general business taxes, IRS and Social Security Administration customer assistance, electronic filing and paying options, retirement plans, business publications and forms, and common tax filing dates. Each page highlights different tax issues and tips that may be relevant to small-business owners, with room on each month to add notes, state tax dates or business appointments. You can also download the tax events into your calendar or subscribe to the tax calendar events. The calendar provides the small business owner with a ready resource for meeting their tax obligations.

If you have any additional small business questions, feel free to contact my office. 

Monday, January 24, 2011

Four Tax Tips about Tip Income

If you work in an occupation where tips are part of your total compensation, you need to be aware of several facts relating to your federal income taxes. Here are four things the IRS wants you to know about tip income:

1. Tips are taxable. Tips are subject to federal income, Social Security and Medicare taxes. The value of non–cash tips, such as tickets, passes or other items of value, is also income and subject to tax.

2. Include tips on your tax return. You must include in gross income all cash tips you receive directly from customers, tips added to credit cards, and your share of any tips you receive under a tip–splitting arrangement with fellow employees.

3. Report tips to your employer. If you receive $20 or more in tips in any one month, you should report all of your tips to your employer. Your employer is required to withhold federal income, Social Security and Medicare taxes.

4. Keep a running daily log of your tip income. You can use IRS Publication 1244, Employee's Daily Record of Tips and Report to Employer, to record your tip income.

For more information see IRS Publication 531, Reporting Tip Income and Publication 1244 which are available at or contact my office at 800-560-4NFS.

Friday, January 21, 2011

Upcoming FREE Evening Workshops for the Home Buyer/Owner/Seller

Attend our FREE Evening Workshops for the Home Buyer/Owner/Seller

  • Are you looking to buy your first home? 
  • Are you looking to sell your current home and buy a new one? 
  • Do you have questions about the mortgage process? 
  • Do you have questions about Homeowner’s Insurance or Mortgage Protection Insurance? 
  • Do you know the tax breaks and benefits of owning a home and getting a mortgage?

Join us as we answer all of these questions and more at one of our FREE Workshops. Bring your Questions and we will provide the answers!

Presented by Your Home Services Team:
  • Brian Schwartz – Omega Mortgage Corp
  • Amy Abrams – Century 21 O’Neil & Associates
  • Andrew Corndell – Liberty Mutual
  • Jeffrey Schweitzer – Northeast Financial Strategies, Inc.
Upcoming Workshop Dates: 
Register on Facebook Page or call / email Jeff at 800-560-4637 x14 or

Five Important Facts about the Making Work Pay Credit

Many working taxpayers are eligible for the Making Work Pay Tax Credit in 2010. The credit is based on earned income and is claimed on your 2010 tax return when you file your taxes in 2011.

Here are five things the IRS wants you to know about this tax credit to ensure you receive the entire amount for which you are eligible.

The Making Work Pay Credit provides a refundable tax credit of up to $400 for individuals and up to $800 for married taxpayers filing joint returns.

Most workers received the benefit of the Making Work Pay Credit through larger paychecks, reflecting reduced federal income tax withholding during 2010.

Taxpayers who file Form 1040 or 1040A will use Schedule M to figure the Making Work Pay Tax Credit. Completing Schedule M will help taxpayers determine whether they have already received the full credit in their paycheck or are due more money as a result of the credit.

Taxpayers who file Form 1040-EZ should use the worksheet for Line 8 on the back of the 1040-EZ to figure their Making Work Pay Credit.

You cannot take the credit if your modified adjusted gross income is $95,000 for individuals or $190,000 if married filing jointly or more, you can be claimed as a dependent on someone else return, you do not have a valid social security number or you are a nonresident alien.

Feel free to contact me for more information about the Making Work Pay Credit.

Thursday, January 20, 2011

IRS to Start Processing Delayed Returns on Feb. 14; Most People Unaffected and Can File Now

WASHINGTON — The Internal Revenue Service plans a Feb. 14 start date for processing tax returns delayed by last month’s tax law changes. The IRS reminded taxpayers affected by the delay they can begin preparing their tax returns immediately because many software providers are ready now to accept these returns.

Beginning Feb. 14, the IRS will start processing both paper and e-filed returns claiming itemized deductions on Schedule A, the higher education tuition and fees deduction on Form 8917 and the educator expenses deduction. Based on filings last year, about nine million tax returns claimed any of these deductions on returns received by the IRS before Feb. 14.

People using e-file for these delayed forms can get a head start because many major software providers have announced they will accept these impacted returns immediately. The software providers will hold onto the returns and then electronically submit them after the IRS systems open on Feb. 14 for the delayed forms.

Taxpayers using commercial software can check with their providers for specific instructions. Those who use a paid tax preparer should check with their preparer, who also may be holding returns until the updates are complete.

Most other returns, including those claiming the Earned Income Tax Credit (EITC), education tax credits, child tax credit and other popular tax breaks, can be filed as normal, immediately.

The IRS needed the extra time to update its systems to accommodate the tax law changes without disrupting other operations tied to the filing season. The delay followed the Dec. 17 enactment of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, which extended a number of expiring provisions including the state and local sales tax deduction, higher education tuition and fees deduction and educator expenses deduction.

Wednesday, January 19, 2011

What Conditions Must Be Met to Fix the Value of Your Business for Estate Tax Purposes?

Tuesday, January 18, 2011

IRS Begins Accepting E-file Returns

The Internal Revenue Service opened its 21st season of electronic filing Friday with a reminder to taxpayers that e-file remains the best way to get fast refunds and ensure accurate tax returns, particularly following several tax law changes in December.

IRS e-file is approaching the milestone of 1 billion returns processed. The electronic transmission system, which has revolutionized the way the IRS processes tax returns and made speedy refunds possible, has safely and securely processed 892 million tax returns since its national debut in 1990. In 2010, nearly 100 million people - 70 percent of the taxpayers - used IRS e-file.

“IRS e-file is the best option for everyone, especially for people impacted by recent tax law changes,” said IRS Commissioner Doug Shulman in a statement. “E-file ensures people can file accurately and get refunds quickly. With a new legislative e-file mandate for tax preparers, we anticipate that more tax return preparers will be using e-file this year, and we urge people who prepare their own taxes to give it a try. IRS e-file is now the norm, not the exception.”

The IRS also announced today it anticipates starting to process tax returns impacted by December’s tax law changes by mid-February. The IRS continues working to reprogram its computers to reflect new tax law changes enacted by Congress and signed by the President in December.

The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act extended a number of tax deductions and credits for 2011 and 2012 such as the American Opportunity Tax Credit and the modified Child Tax Credit, which help families pay for college and other child-related expenses. The Act also provides various job creation and investment incentives including 100 percent expensing and a two-percent payroll tax reduction for 2011. Those changes have no effect on the 2011 filing season.

Generally, taxpayers who itemize their deductions by using Schedule A, who claim the higher education tuition and fees deduction or who claim the educator expense deduction must wait a few more weeks to file their returns. Based on historical filing patterns, the IRS anticipates the delay impacts about 9 million taxpayers; in 2010, the IRS received more than 141 million tax returns. While the delay impacts both paper and electronic tax returns, most taxpayers can file immediately. More details are available on

Although the IRS has not announced a specific mid-February start date for accepting the delayed tax returns, many people using e-file can get a head start. Many major software providers have announced they will accept these impacted returns immediately. The software providers will hold onto the returns and then electronically submit them after the IRS systems open in mid-February for the delayed forms.

Taxpayers using commercial software can check with their providers for specific instructions. Taxpayers should check with their tax return preparers, who also may be holding prepared returns until the updates are complete.

Even with the delay, IRS e-file remains the fastest option for taxpayers, and e-file returns will be processed and refunds issued much faster than paper returns. It will take less than two weeks to process an e-filed return, but as many as four to six weeks to process a paper return.

In general, for people concerned about security, e-file has proven itself year in and year out as a safe and secure method of filing a tax return. E-file has a proven track record. Software vendors and preparers use the latest encryption technology. Plus, within 48 hours, taxpayers receive an electronic acknowledgement that their return has been received by the IRS and either accepted or rejected.
With most people receiving a refund, the fastest way to get a refund is by e-filing and using direct deposit. Taxpayers can get their money automatically in as few as 10 days. For people who owe taxes, e-file offers payment alternatives such as filing now and paying prior to the April tax deadline. Taxpayers who still want to pay by check can do so by e-filing and then mailing a payment voucher.
Contact my office if you need help e-filing your return this tax season. For an inexepsnvie online option to prepare you own taxes, please visit the NFS Online Tax Prep Page.
Accounting Today

Thursday, January 13, 2011

Woman Owes $1.7M in Taxes from Adult Web Sites

SANTA FE, NM - A Santa Fe, N.M., woman and her husband have pleaded guilty to conspiracy to defraud the federal government, and she has been ordered to pay over $1.7 million in taxes from operating an adult entertainment Internet business.

Carolynne Tilga, 50, and her husband Michael Chandler, 51, pleaded guilty last Thursday to conspiring to defraud the United States by impeding the lawful functions of the Internal Revenue Service before United States Magistrate Judge W. Daniel Schneider.

Tilga and Chandler each pleaded guilty to Count 1 of a 10-count indictment charging them and their codefendant Helen Geer, also of Santa Fe, under plea agreements with the U.S. Attorney's Office.

At sentencing, which has yet to be scheduled, Tilga and Chandler each face up to five years imprisonment. Under the terms of her plea agreement, by her sentencing date, Tilga must file amended tax returns for tax years 1998 through 2004 and pay a minimum of $1,735,025 to the United States to cover her outstanding tax debt for those years.

The agreement also requires that Tilga file amended tax returns for tax years 2005 through 2009, and pay any taxes due and owing on the amended returns. The indictment in the case, which was filed on April 9, 2009, alleges that, from 1998 through 2006, Tilga owned and controlled various businesses involved in adult entertainment Internet services.

Chandler worked with Tilga in several of Tilga’s businesses during this period, according to prosecutors, and Tilga employed Geer as an in-house accountant for her businesses from 2002 through 2004.

The indictment further alleges that, from 1998 through 2006, Tilga and Chandler took steps to conceal from the IRS a significant amount of taxable revenue generated by Tilga’s adult entertainment Internet businesses, and that Geer aided the couple’s unlawful conduct from 2002 through 2004.

According to the indictment, Tilga and Chandler purchased numerous off-shore entities designed and used to conceal Tilga’s income and assets from the IRS. They did not report the revenue, and they filed false tax returns with the IRS. Tilga and Chandler then used the money in the off-shore entities to purchase real estate and vehicles, including multi-million dollar residences in Santa Fe and Kilauea, Hawaii; a residence and other real estate in Taos, N.M.; real estate in Telluride and Mount Crested Butte, Colo.; and a Lexus and a Mercedes Benz.

In her plea agreement, Tilga admitted that, since the late 1990s, she has been a minority owner of certain Canadian Internet businesses that provide computer billing services to entrepreneurs who market online pornographic materials to adults.

Tilga also admitted that the Canadian businesses generated substantial revenues between 1999 and 2006, and that she directed her share of the revenues to the off-shore entities identified in the indictment. Tilga did not report the revenue generated by the Canadian businesses or pay taxes on that revenue. Instead, Tilga used the revenue to purchase real estate properties, to renovate real estate properties she purchased, and to purchase vehicles, including the real estate and vehicles identified in the indictment.

Tilga admitted that, as a result of her unlawful conduct, she owes, and will pay by her sentencing date, taxes in an aggregate amount of $1,735,025.00 to the IRS.

In his plea agreement, Chandler admitted that, beginning in 1998 or 1999, he agreed to assist Tilga in moving money from off-shore trusts to purchase property in the United States, and that he knew that the off-shore trusts were used to evade their tax obligations.

Their co-defendant, Geer, has entered a not guilty plea to the indictment and her trial is pending.

An indictment is merely an accusation, and a defendant is presumed innocent unless proven guilty, prosecutors noted.

By Accounting Today Staff

Wednesday, January 12, 2011

How to Handle a Roth Recharacterization

Another great client question....

Q: I would like to roll over a portion of my Traditional IRA to my Roth IRA. Should it be rolled over to the existing Roth IRA account or to a separate new Roth IRA account? I do not want to lose the ability to recharacterize the rollover should my investment diminish. Does putting the rollover money in an existing account disallow recharacteriztion?

A: The fact that you might want to recharacterize means that you should consider establishing a separate Roth IRA for the amount being converted. If you use the existing Roth IRA for the conversion it would not prohibit you from recharacterizing. It would, however, make it more difficult because you would have to consider all the assets in the account for gains and losses that must be attributed to the amount being recharacterized.

Tuesday, January 11, 2011

Tax Filing Season is Here! Free Organizers & Discounts from NFS!

WRENTHAM, MA - Tax Season is HERE!! Well, almost anyway. Some people hire a tax professional and some people choose to do it themselves - either way - NFS has an option for you!!

No matter where in the world you are, NFS can help you to prepare your US Federal and State Income Tax Returns. In person, by mail or email, we are here to help! With pricing less than most national chains, we can prepare your taxes and maximize your refund or minimize your balance due if you are one of those folks who has to pay.

All new clients receive a $30 DISCOUNT and exisiting clients should inquire about other discounts that may be available to them. NFS also offers free Income Tax Organizers for you to save time & money!

For those deciding to do it themselves, we offer an option to prepare your own returns directly from our Do It Yourself Online Tax Prep Website with FREE (1040EZ) & Affordable options & in most cases less than the "Boxed Software" or other popular online tax prep websites!!

If you have any questions or want to set up an appointment, feel free to drop me an email or give me a call toll free at 800-560-4NFS x 14.

Monday, January 10, 2011

Unemployment Dips to 9.4%

The unemployment rate fell four-tenths of a percentage point to 9.4 percent in December, as nonfarm payroll employment increased by 103,000.

Employment rose in leisure and hospitality and in health care, but was little changed in other major industries, according to the U.S. Bureau of Labor Statistics on Friday.

“From a recent low point in December 2009, payroll employment has risen by 1.1 million, or an average of 94,000 per month,” said BLS Commissioner Keith Hall.

Average hourly earnings of all employees on private nonfarm payrolls rose by 3 cents in December to $22.78. Over the past 12 months, average hourly earnings have risen by 1.8 percent.

The number of unemployed persons also declined over the month, from 15.0 million to 14.5 million, largely reflecting a decrease in the number of unemployed adult men. Among the unemployed, 44.3 percent had been jobless for 27 weeks or more in December, up from 40.1 percent a year earlier.

The labor force participation rate edged down in December to 64.3 percent and was slightly lower than a year earlier (64.7 percent). The number of persons working part time who would have preferred full-time employment was essentially unchanged in December at 8.9 million. The number of discouraged workers grew over the year by 389,000 to 1.3 million in December (not seasonally adjusted). Discouraged workers are persons outside the labor force who are not looking for work because they believe their job search efforts would be unsuccessful.

The leisure and hospitality sector added 47,000 jobs over the month, with continued gains in food services. Employment also rose in amusements, gambling, and recreation. Since a recent low point in leisure and hospitality employment in December 2009, the industry has added nearly a quarter of a million jobs.

Health care employment expanded by 36,000 in December and by 266,000 in all of 2010. Over the month, employment continued to rise in several health-related services, including outpatient care centers, hospitals, and nursing and residential care facilities. Employment in temporary help services also continued to trend up in December and has increased by 495,000 since a recent low in September 2009.

Over the month, job growth continued in support activities for mining operations; the industry has added 77,000 jobs since a recent low in October 2009.

Construction employment changed little in December and, on a net basis, has been essentially flat since March. In contrast, job losses from August 2006 through February 2010 totaled 2.1 million. In December, retail trade employment was little changed, although job gains in the industry totaled 116,000 for all of 2010. Over the month, motor vehicle and parts dealers added 8,000 jobs, in line with the trend since July. December's employment gain among motor vehicle and parts dealers was offset by a loss of 8,000 in health and personal care stores.

Manufacturing employment was little changed over the month. Following modest job growth earlier in 2010, manufacturing employment has been relatively flat, on net, since May. The factory workweek for all employees was down 0.1 hour in December but was 1.5 hours above the low point of 38.7 hours in June 2009.

Wednesday, January 5, 2011

Tuesday, January 4, 2011

What if I don't have Earned Income, can I contribute to an IRA?

I received this question from a client of mine and wanted to share it.

Q: I am a retiree and my wife and I have been talking about planning (even more than we already have) for our retirement in retirement. I want to know if I can contribute to a Roth IRA with no "W2" income, but instead with company pension income and taxable Social Security income? What are the rules on this?

A: IRA contributions can be made ONLY if you have earned income. The safe harbor is "W2" income. Pension and Social Security income are NOT considered earned income. If your spouse has enough earned income, a contribution can be made based on her income. Contributions can be made to a Roth IRA regardless of age (as long as you have earned income and income does not exceed certain levels). Contributions to traditional IRAs cannot be made once you reach the year you turn 70 1/2.

Monday, January 3, 2011

In 2011, Many Tax Benefits Increase Slightly Due to Inflation Adjustments

WASHINGTON — In 2011, personal exemptions and standard deductions will rise and tax brackets will widen due to inflation, the Internal Revenue Service announced today.

These inflation adjustments relate to eight tax provisions that were either modified or extended by the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 that became law on Dec. 17. New dollar amounts affecting 2011 returns, filed by most taxpayers in early 2012, include the following:

The value of each personal and dependent exemption, available to most taxpayers, is $3,700, up $50 from 2010.

The new standard deduction is $11,600 for married couples filing a joint return, up $200, $5,800 for singles and married individuals filing separately, up $100, and $8,500 for heads of household, also up $100. The additional standard deduction for blind people and senior citizens is $1,150 for married individuals, up $50, and $1,450 for singles and heads of household, also up $50. Nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions, such as mortgage interest, charitable contributions and state and local taxes.

Tax-bracket thresholds increase for each filing status. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket is $69,000, up from $68,000 in 2010.

The maximum earned income tax credit (EITC) for low- and moderate- income workers and working families rises to $5,751, up from $5,666 in 2010. The maximum income limit for the EITC rises to $49,078, up from $48,362 in 2010.The credit varies by family size, filing status and other factors, with the maximum credit going to joint filers with three or more qualifying children.

The modified adjusted gross income threshold at which the lifetime learning credit begins to phase out is $102,000 for joint filers, up from $100,000, and $51,000 for singles and heads of household, up from $50,000.

Several tax benefits are unchanged in 2011. For example, the monthly limit on the value of qualified transportation benefits (parking, transit passes, etc.) provided by an employer to its employees, remains at $230. Details on these inflation adjustments can be found in Revenue Procedure 2011-12.

By law, the dollar amounts for a variety of tax provisions, affecting virtually every taxpayer, must be revised each year to keep pace with inflation. Most of the new dollar amounts, including retirement-plan-related adjustments, were announced in October. To avoid confusion, the eight provisions released today were not included in the October announcements, due to the anticipated impact of extender legislation.