Show #406 Airing Sunday 11/4/07
It isn't even the holidays yet, but I already get to act like the Grinch that stole Christmas because I'm here to say that it's time to start thinking about taxes. Here to explain why Scrooge had the right idea is little Timmy, er, rather Tony Mercuri from Ta-Check Tax Service.
Question: 2007 isn't even over, and it's definitely not April 15th, so why do we already have to be thinking about taxes?
Answer: Our goal is to build your wealth and decrease your taxes. To reach that goal, there are several reasons why it is important for a November tax review. There are also a few events that, if they happen, you should definitely consult your advisor.
Question: You've made us a list of reasons why a November tax review should be on out list. First is Financial Impact of Retirement.
Answer: When you decided to retire, you will typically move into a lower tax bracket. Therefore, we should start looking at what is the best way to take your income and how it affects you.
For example, in the years leading up to retirement we might encourage tax-deductible contributions to IRAs and other retirement accounts. Once you hit retirement, we often suggest withdrawals from retirement accounts, especially if you can make tax-free withdrawals.
We also look at how your social security income is taxed, and we take steps to reduce or eliminate unnecessary tax reductions of your social security payments.
Question: Next, the death of a spouse or other family member.
Answer: If a spouse or family member has died, there may be tax consequences to you or the estate. For example, if income is inherited from an IRA or 401(k), you have many options for taking distributions and the tax consequences vary. In some cases you may roll an inherited IRA into your own IRA. In other cases, you might leave the inherited IRA in the deceased person's name and just take disbursements.
Question: Third, planning for a child or grandchild's education.
Answer: It may be time to consider several tax-favored options available for college savings, such as a 529 plan or an education IRA. With a 529 plan, for example, you can defer and possibly eliminate income taxes on investments.
Question: What if you're considering selling investments?
Answer: If you time a sale correctly, you can reap tax benefits. This should be discussed before you take action. For example, you should hold appreciated stock long enough to get long term capital gain tax treatment instead of short term gain. And some of us have stocks that have gone down that may sell to offset gains.
Question: Another reason for a November tax review: Contributions to a traditional IRA or a Roth IRA.
Answer: Each has different tax consequences. Now is the time to decide what might be right for your specific situation. With a regular IRA, contributions are deductible but you pay tax from when you make withdrawals. With a Roth, you opt no deductions, but you pay no tax later.
Question: We may also need advice concerning charitable contributions.
Answer: Whether or not one can itemize deductions may determine when it is best to make certain contributions. And itemizing depends on your taxable income.
Question: And finally, if you have changed jobs or moved.
Answer: In some cases, moving expenses and job search expenses can be deductible. Don't forget these!
If you'd rather keep your money instead of sending it to Uncle Sam next April, now's the time to start tax planning. To learn more, give Ta-Check Tax Service a call at the number that's next. My thanks to Tony Mercuri.
