The Diversified Blog

A wealth management blog dedicated to creating a long lasting sustainable retirement.

9 Places to Find Free Money

Here is a nice article provided by the Editors of Kiplinger's Personal Finance:

 

By the Editors of Kiplinger's Personal Finance | August 2017 

 

State treasuries and other agencies are holding more than $40 billion in unclaimed assets, according to the National Association of Unclaimed Property Administrators (NAUPA). Some of it could be yours.

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17 Red Flags for IRS Auditors

Here is a nice article provided by Joy Taylor of Kiplinger:

 

By Joy Taylor, Assistant Editor | March 2017

 

Ever wonder why some tax returns are eyeballed by the Internal Revenue Service while most are ignored? Short on personnel and funding, the IRS audited only 0.70% of all individual tax returns in 2016. So the odds are pretty low that your return will be singled out for review. And, of course, the only reason filers should worry about an audit is if they are fudging on their taxes.

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The Alternative Minimum Tax -- Not Just for the Wealthy

When first introduced, the alternative minimum tax (AMT) was widely acknowledged to be a rich person's 's tax -- a fallback tax for those wily taxpayers with big incomes and numerous deductions. However, as finances evolved and incomes grew, more and more people found themselves subject to the AMT, even after the introduction of automatic inflation adjustments in 2013. That's why a general understanding of how the tax works can help you avoid it and even use it to your advantage.

The Other Federal Tax

The AMT truly functions as an alternative tax system. It has its own set of rates and rules for deductions, and they are more restrictive than the regular system. Taxpayers who meet certain tests essentially have to calculate their net tax liabilities under both sets of rules, and then file using whichever calculation yields the greater tax assessment.

The AMT can be triggered by a number of different variables. Although those with higher incomes are more susceptible to the tax, factors such as the amount of your exemptions or deductions can also prompt it. Even commonplace items such as a deduction for state income tax or interest on a second mortgage can set off the AMT. To find out if you are subject to the AMT, fill out the worksheets provided with the instructions to Form 1040 or complete Form 6251, Alternative Minimum Tax -- Individuals.

AMT rates start at 26%, rising to 28% at higher income levels. This compares with regular federal tax rates, which start at 10% and step up to 39.6%. Although the AMT rates may appear to cap out at a lower rate than regular taxes, the AMT calculation allows significantly fewer deductions, making for a potentially bigger bottom-line tax bite. Unlike regular taxes, you cannot claim exemptions for yourself or other dependents, nor may you claim the standard deduction. You also cannot deduct state and local tax, property tax, and a number of other itemized deductions, including your home-equity loan interest, if the loan proceeds are not used for home improvements. Accordingly, the more exemptions and deductions you normally claim, the more likely it is that you'll have an AMT liability.

There's also an AMT credit that allows you to claim a credit on your tax return in future years for some of the extra taxes you paid under the AMT. However, you can only use the AMT credit in a year when you're not paying the AMT. To apply for the credit, you'll need to fill in yet another form, Form 8801, to see if you are eligible.



Averting Triggers for the AMT

Because large one-time gains and big deductions that trigger the AMT are sometimes controllable, you may be able to avoid or minimize the impact of the AMT by planning ahead. Here are some practical suggestions.

Time your capital gains. You may be able to delay an asset sale until after the end of the year, or spread a gain over a number of years by using an installment sale. If you're looking to liquidate an investment with a long-term gain, you should review your AMT consequences and determine what impact such a sale might have.

Time your deductible expenses. When possible, time payments of state and local taxes, home-equity loan interest (if the loan proceeds are not used for home improvements), and other miscellaneous itemized deductions to fall in years when you won't face the AMT. Since they are not AMT deductible, they will go unused in a year when you pay the AMT. The same holds true for medical deductions, which face stricter deduction rules for the AMT.

Look before you exercise. Exercising ISOs is a red flag for triggering the AMT. The AMT on ISO proceeds can be significant. Because ISO tax issues are complex, you should consult with your tax advisor before exercising ISOs.



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© 2017 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.


Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail This email address is being protected from spambots. You need JavaScript enabled to view it. .

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.



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How Do I Know If My IRA Contributions Are Tax Deductible?

Contributions to a traditional IRA are tax deductible if you don't already participate in an employer-sponsored retirement plan. For 2015, the maximum you can contribute to an IRA is $5,500. If you are age 50 or over, you can make an additional "catch-up contribution" of $1,000.

 

If you do participate in an employer-sponsored plan, your contributions still can be fully or partially deductible, up to certain income thresholds. For 2015, those limits are between $61,000 and $71,000 for single filers and $98,000 and $118,000 for married couples filing joint returns.

 

If you are ineligible to make deductible contributions to a traditional IRA, you may want to investigate a Roth IRA. Contributions to a Roth IRA are made with after-tax dollars and are not tax deductible, but distributions are tax free. Be aware that there are income thresholds to contribute to a Roth. For 2015, those limits are between $116,000 and $131,000 for single filers and $183,000 and $193,000 for married couples filing joint returns.

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New IRS Ruling Eases Plan-to-Plan Rollover of Assets

In an effort to ease the administrative burden placed on plan sponsors and to foster portability of retirement savings for plan participants, the IRS has issued guidance that simplifies the transfer of assets between all types of qualified retirement plans.

 

IRS Revenue Ruling 2014-09, published in April, allows the plan administrator for the receiving plan to forego the burdensome task of verifying the legitimacy of the incoming plan -- a process that typically involved multiple rounds of communication and paperwork between the two plans with the employee acting as the middleman -- and thus ease and expedite the rollover process for both the employer and the employee.

 

Now, the plan administrator for the receiving plan need only access the most recently filed Form 5500 (annual report) for the incoming plan that is stored online on the EFAST2 database maintained by the Department of Labor. The guidance is effective immediately.

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Following Court Ruling, IRS Clarifies IRA Rollover Rule

A U.S. Tax Court ruling on IRA rollovers has the IRS changing its longstanding position.

 

In January of this year the U.S. Tax Court ruled that the "once a year" IRA rollover rule applies to all of an individual's IRAs, not to each separately. The court's decision conflicts with a longstanding IRS position (as outlined in IRS Publication 590) that states the rule applies separately to each IRA owned, thus allowing multiple rollovers if taken from separate accounts during a 365-day period -- as opposed to a calendar year period.

 

For its part, the IRS had not publicly indicated how it would handle the court's decision until recently, when it announced that it would uphold the court's decision and revise its rules and publications accordingly.

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