- Should You Be Converting Your Traditional IRA Into a Roth IRA before Year’s End?
- There are two types of IRA accounts, traditional and Roth. With traditional IRAs, your contributions are generally tax-deductible when you make the contribution, and tax is not paid on earnings as they accumulate. When it is time to start withdrawing the funds, however, the subsequent distributions, including earnings, are taxable. On the other hand, while contributions to Roth IRAs are not tax deductible, earnings accumulate tax-free, and when the time comes to take distributions, all amounts distributed, including the earnings, are 100% free of tax.
- You and the New Medicare Tax
- There is a new additional Medicare tax in effect for 2013 that may require year-end actions. The new tax, which is part of the Affordable Care Act, imposes an additional 0.9% Medicare (HI) tax on some higher-income taxpayers. The threshold for paying the tax is combined wages and net self-employment income of over $250,000 for married individuals and $200,000 for others. (Taxpayers who do not have wage or self-employment income—for example, retirees or those with only investment income—are not subject to this new tax, regardless of the amount of their income.)
- Your 2013 Tax Bill May Give You A Shocker
- Many higher-income taxpayers are in for a shock when their 2013 income tax returns are prepared. In 2013, a significant number of tax increases, and new limitations on deductions, will impact higher income taxpayers. Before you decide that you are not a higher income taxpayer, keep in mind that your income does not just include your earnings from work—it also includes gains from the sale of property, investments, business assets, and other capital items. So if you have a significant gain from a sale, even though the gain can be attributed to many years of appreciation, it is all taxable in the year of sale, and could place you in the higher income category.
- Underpayment Penalties Going to Get You?
- Our “pay-as-you-go” tax system requires that you make payments of your tax liability evenly throughout the year. If you don’t, it’s possible that you owe an underpayment penalty. Some taxpayers meet the “pay-as-you-go” requirements by making quarterly estimated payments. Typically this is how self-employed individuals and those with other non-tax-withheld sources of income satisfy their prepayment obligation. When your income is primarily from wages, however, you meet the requirements through wage withholding and likely rely on your employer’s payroll department to take out the right amount of tax, assuming that you have given them accurate Form W-4 data and that this information has not changed through marital changes, a second job, or your spouse working. Unfortunately, what payroll withholds may not be enough!
- Basis Is An Important Tax Term!
- An important tax term that everyone should know is “basis.” The odds are very high that you will encounter the term sometime during your lifetime, and it can have a profound impact on your tax liability.
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