With all the recent changes to the U.S. tax code, it’s a good time to revisit different tax planning strategies. One strategy I’m often asked about is whether a Roth conversion is a good idea. The universal answer to that question is “maybe.” Unfortunately, there isn’t a simple rule of thumb that applies to everyone. There are many factors that need to be examined, and my goal is to tell you the most common reasons you might want to do a Roth conversion.
Before I do that, it’s important to note a particular change in our tax code with the passage of the Tax Cuts and Jobs Act (TCJA) of 2017. In the past, a recharacterization was done if you needed to “undo” the Roth conversion. Starting in 2018 and beyond, this is no longer allowed for Roth conversions. An exception is if you make a Roth contribution, and then learn that you earned too much income during that year. A recharacterization will still be allowed in this case so that you’re not subject to the excess contribution penalty tax. (more…)
Tax documents are arriving and it’s time to get organized. This is the first year that incorporates changes from the Tax Cuts and Jobs Act passed in December 2017. These are some of the biggest changes to the tax code in 30 years. (more…)
The American Taxpayer Relief Act, passed by Congress on January 1, 2013, contains many far-reaching tax provisions. In addition to extending many tax items that had expired or were due to expire, the act also made permanent many provisions of previous tax acts. The tax features of this act are too numerous to list here, but the most comprehensive description of these changes I have found is this Journal of Accountancy article.
I highly recommend you read this article or consult a qualified tax professional to assess the impact of this act on your personal situation.
It seems like every year there’s a slew of tax breaks in danger of expiring. Sometimes Congress extends the tax break, other times they actually expire and fall by the wayside. 2011 is no different, with 3 potentially useful tax breaks on the cutting room table. Those who may be able to benefit from these tax breaks should consider taking advantage of them soon, before it’s too late.
Sales Tax Deduction – Individuals who itemize their deductions can elect to deduct their sales tax or their state and local income taxes, whichever is greater. There are seven states without a state income tax, so those residents would surely elect the sales tax deduction. Residents of other states may find that they paid very little in state income taxes and may decide to elect the sales tax deduction instead. For those who are taking the sales tax deduction and considering a large purchase, such as a new car, it may be worthwhile to complete the purchase this year in order to maximize this tax benefit while it’s still available.
Energy Efficiency Credit – Individuals can take a credit of up to $500 for making energy efficient improvements to their homes, including upgrades for roofs, doors, insulation, windows, furnaces, air conditioners, and many others. There are limitations on the amount of eligible credit for the various improvements, and you can find a list of those here. It’s also important to note that unlike many other credits, this one is a lifetime credit–so if you’ve utilized all of the $500 credit in the past, you cannot take any more regardless of your qualified expenditures now. However, if you haven’t benefited from this tax break yet, and are considering making energy efficient improvements to your home, you may want to do so before year end.
Qualified Charitable Distributions from IRAs – Individuals older than 70 ½ can make tax-free distributions from their IRA to qualified charities. The distribution is not includable in the donor’s income, but it is not deductible as a charitable donation either. This provision primarily benefits individuals who are charitably inclined but don’t have enough deductions to itemize. The qualified charitable distributions will count towards an individual’s required minimum distribution (RMD) for the year, allowing those who don’t need the money from their IRA to donate it without being taxed on it. With year-end fast approaching, individuals who have yet to take their RMD may want to consider this option.
Each of the tax breaks above had been due to expire at some point in the past but was subsequently extended at the last minute. It is possible that Congress will extend these breaks again, but nothing is certain given the deficit and debt problems currently facing our country.
If you think you may benefit from any of these tax breaks, please be sure to consult with your accountant to see how these tax savings may apply to your specific situation.
Stay Informed
Get the latest blog posts delivered directly to your inbox
Merriman Wealth Management, LLC, an independent wealth management firm with over $3.5 billion in assets under management, is pleased to announce the promotion of two new principals – Wealth Advisors Aimee Butler, CFP®, and Chris Waclawik, AFC®, CFP®.
Merriman Wealth Management, LLC, an independent wealth management firm with over $3.6 billion in assets under management, is pleased to announce the additions of Geoffrey Curran, CPA/ABV, CFA, CFP® and Paige Lee, CFA, CFP®, CSRICTM to the firm’s investment committee.
Over the past few years, we’ve been asking our clients—to hear it in their own words—about the value they gain from working with us. Check out these top ten reasons why clients hire us.
I was recently reminded of a troubling statistic: Two-thirds of women do not trust their advisors. This is troubling, largely because it’s so preventable. Check out these tips all women should be aware of to improve this relationship and strengthen their financial futures.
One of the provisions of the CARES Act was a suspension of 2020 Required Minimum Distributions (RMDs). For individuals who took a distribution early in 2020, they were given the opportunity to “undo” part or all of that distribution by returning funds to their IRA by August 31, 2020. Learn more about the tax reporting.
Tax documents are arriving and it’s time to get organized. This is the first year that incorporates changes from the Tax Cuts and Jobs Act passed in December 2017. These are some of the biggest changes to the tax code in 30 years. 
The American Taxpayer Relief Act, passed by Congress on January 1, 2013, contains many far-reaching tax provisions. In addition to extending many tax items that had expired or were due to expire, the act also made permanent many provisions of previous tax acts. The tax features of this act are too numerous to list here, but the most comprehensive description of these changes I have found is 
