Top Four Year-End IRA Reminders

IRS Special Edition Tax Tip 2014-24, December 9, 2014

Individual Retirement Accounts are an important way to save for retirement. If you have an IRA or may open one soon, there are some key year-end rules that you should know. Here are the top four reminders on IRAs from the IRS:

1. Know the limits.  You can contribute up to a maximum of $5,500 ($6,500 if you are age 50 or older) to a traditional or Roth IRA. If you file a joint return, you and your spouse can each contribute to an IRA even if only one of you has taxable compensation. In some cases, you may need to reduce your deduction for traditional IRA contributions. This rule applies if you or your spouse has a retirement plan at work and your income is above a certain level. You have until April 15, 2015, to make an IRA contribution for 2014.
   
2. Avoid excess contributions.  If you contribute more than the IRA limits for 2014, you are subject to a six percent tax on the excess amount. The tax applies each year that the excess amounts remain in your account. You can avoid the tax if you withdraw the excess amounts from your account by the due date of your 2014 tax return (including extensions).
   
3. Take required distributions.  If you’re at least age 70½, you must take a required minimum distribution, or RMD, from your traditional IRA. You are not required to take a RMD from your Roth IRA. You normally must take your RMD by Dec. 31, 2014. That deadline is April 1, 2015, if you turned 70½ in 2014. If you have more than one traditional IRA, you figure the RMD separately for each IRA. However, you can withdraw the total amount from one or more of them. If you don’t take your RMD on time you face a 50 percent excise tax on the RMD amount you failed to take out.
   
4. Claim the saver’s credit.  The formal name of the saver’s credit is the retirement savings contributions credit. You may qualify for this credit if you contribute to an IRA or retirement plan. The saver’s credit can increase your refund or reduce the tax you owe. The maximum credit is $1,000, or $2,000 for married couples. The credit you receive is often much less, due in part because of the deductions and other credits you may claim.

Ellen Goes Holiday Shopping at Target (and hilarity ensues!)

So we have never seen Ellen at the Glenbrook Target, but we did see the Oak  Ridge Boys at Cafe Rakka once!

Year End Tax Planning

Lower that tax bill!

Oh the weather outside is frightful, and so is tax planning delightful……wait, that’s not how it goes.

Well, tax planning can be delightful if you are able to lower your tax bill.

So as you get close to the end of 2014, you may want to take a good long look at what you may owe in taxes.

Below are some ways to lower your tax bill for this year:

1. Defer income – No, that’s not crazy talk.  This can lower your taxable income, if you are able to pull this off.  

You can delay billing or simply ask a few clients to pay you in January.  Quick note: don’t do this this with chronic late payers.  They do not need any additional motivation to pay late.

Keep in mind you will owe taxes on the money you push into the next tax year. 

2. Accelerate expenses – You can also hurry up expenses that can reduce the taxable amount. You can pay business expenses, such as professional membership dues, office supplies, and/or insurance or buy equipment, such as furniture, machinery, and/or computers to accomplish this.

Make sure these expenses meet IRS standards of being ordinary and necessary.  Granite countertops in your home, probably won’t count.

3. Stash cash for retirement – Unless you want to run this business forever, you need to think about retirement.  Entrepreneurs have several options when it comes to retirement plans.

There is IRA’s, SEP IRA’s, Simple IRA’s, Individual 401k’s, and a few other plans available.  Make sure to consult with your CPA and financial advisor, before selecting one.

*Disclaimer – Make sure you contact your CPA, before making any decisions on lowering your taxable income.  A good income projection will go a long way in determining which, if any of the previous methods are right for you.

Happy Holidays (yes, we include Festivus) from Hardee Accounting!