The new fad in IRA contributions is for taxpayers who have too much income to make a Roth IRA contribution to make a non-deductible contribution to a traditional IRA, then convert this to a Roth IRA. A loophole in the tax code (for now) allows this conversion to a Roth without income tax consequences. But be careful! If you already have traditional IRA accounts, trying to make this conversion can have unintended tax consequences, because all traditional IRA balances (including non-deductible contributions) are all lumped together when making distributions or conversions to Roth IRAs. See this posting in MarketWatch by Dan Moisand to get more details on this: www.marketwatch.com/story/why-you-cant-convert-a-nondeductible-ira-into-a-roth-ira-2015-06-05 So say you have $45000 in traditional IRAs, of which $25000 is contributions and $20000 is earnings. You make a $5000 non-deductible IRA contribution, which you then convert to a Roth IRA. No earnings to pay tax on, right? Wrong; you now have $50000 in traditional IRAs and only a $5000 basis (because you took a $25000 tax deduction for the original IRAs). So you owe tax on $4500 of the $5000 ‘non-deductible’ contribution. This will continue each time you try this conversion technique. I am bringing this up as an [...]
Musings of a Burbank CPA: Can states boost growth by cutting individual tax rates for the rich?
So, does reducing income taxes increase growth on a state by state basis? In the past people wanting lower taxes have said yes, people wanting higher taxes have said no. This article by Howard Glickman in the Christian Science Monitor says in actuality, it depends on the tax, the state and the economy in a lot of cases. You can see the article here and decide for yourself: http://www.csmonitor.com/Business/Tax-VOX/2015/0505/Can-states-boost-growth-by-cutting-individual-tax-rates-for-the-rich?utm_campaign=Daily+Clips&utm_source=hs_email&utm_medium=email&utm_content=17540178&_hsenc=p2ANqtz–2Gcdjpb0i8dcVumNJ4_T3WT3ITLphBclafjZ0B7Bur0pBrISa4YUY3nkMYhktLFTa1iumXWZUB5yb2mJ_L_VQkMv1uQ&_hsmi=17540178 It is interesting that property taxes have more positive economic effects that income taxes. Guess more testing is necessary to come to a consensus, since there are many still on both sides of the fence (like economists telling us where the economy is going, or weathermen telling us if it is going to rain next week.) For financial, accounting and tax musings, You can count on us to count for you! Email: bstonercpa@sbcglobal.net Phone: 818-317-6035 Website: www.briantstonercpa.com Android and the IPhone: Has been Featured On https://twitter.com/bstonercpa
CPA Tax Musings: How To Avoid a Penalty for Late Taxes If You are Self-Employed
This blog is specifically for the person who is self-employed and doesn’t know how you pay the federal government the income taxes owed to avoid an underpayment penalty. So you are now an independent contractor and receive a 1099MISC for your freelance work. This works to your “employer’s” advantage since he doesn’t have to withhold taxes for you, pay worker’s compensation insurance or unemployment insurance (which are the bad things for you, so now you are responsible for the taxes and have no unemployment or workers comp if you are injured doing work or your contract gets terminated). You now have to pay income, social security and medicare taxes on the 1099 income, but can reduce that income by any expenses you had to pay that are work related (since they will not be reimbursed by anyone.) To avoid the underpayment penalty, you have to pay taxes during the year equal to last years tax you owed or 90% of this year’s tax (during the year you would have to estimate as you go.) Figure out the lesser of the two tax amounts, 100% of last year or 90% of this year (remember to include social security (11.45% of your [...]