Monday, April 15, is the deadline for filing certain returns and taking certain tax-related actions. Here are the major deadlines.
Under the new tax law, it is now easier to convert
your employer-sponsored retirement plan such as
a 401(k), 403(b), or 457 into a Roth IRA account.
This is similar to converting your traditional IRA
into a Roth IRA, but with one very significant
When you convert a traditional IRA into a Roth IRA, you can change your mind and undo this conversion (also known as a recharacterization) by October 15 of the following year. This may make sense when the value of the account has dropped since you did the conversion, because you do not want to pay tax on a higher value than the account currently has.
When you convert an employer-sponsored retirement plan, you do not have the option of undoing the conversion by October 15. Once you convert your employer-sponsored retirement plan into a Roth IRA, it cannot be undone.
If you decide to convert your entire 401(k) into a Roth IRA, the entire balance will be taxable in the year of the conversion.
If you want to take advantage of this new provision, please contact our office first because there are some very important tax planning consequences to consider. If done without proper tax counsel, you may be paying more taxes than you should. In light of the new tax law, there are now more variables that need to be considered in your tax planning.
With a franchise, you don’t have to start a company from scratch. Whether the business sells fast food, automotive services, gourmet coffee, or dry cleaning, successful franchises are usually based on a proven business idea and a recognized brand name. The best franchisors can jump start a business by providing staff training, location advice, and detailed operations manuals. And some have ongoing relationships with financial institutions, which can help when you’re searching for start-up capital. But buying into a franchise requires careful analysis and a healthy dose of skepticism. Before taking the plunge, watch for these hazards:
If franchises are on your mind, give us a call for help with your analysis.
THere are some of the key strategies to consider
when giving children and grandchildren a
financial boost. There's no one-size-fits-all
answer: The right choice for your situation will
depend on how much you intend to give as well
as on your grandchild's life stage and the goal of
Set up a UGMA/UTMA account: UGMA/UTMA accounts provide a way to save on behalf of a minor child without setting up trust funds or hiring attorneys. As a donor, you appoint yourself or other adults (such as the child's parents) to look after the account. One of the key advantages with UGMA/UTMA accounts is flexibility: You can put a huge range of investment options inside a UGMA/UTMA, including stocks and mutual funds. If you're saving fairly small sums, these accounts can be a decent way to go, but there are two major hitches. The first is that the assets become the child's property when he or she reaches the age of the majority (18 or 21, depending on state of residence). This leaves the donor with no real control over how the money is spent. The second is that for college-bound children, substantial UGMA/UTMA assets can tend to work against them in financial-aid calculations.
Contribute to a 529 Plan: These plans may build college savings while possibly obtaining a tax break. If you're saving for a college-bound child or grandchild, section 529 college-savings plans may help you avoid the two key pitfalls of UGMA/UTMA accounts. First, the assets are the property of the account owner, not the child. So if one grandchild doesn't end up going to college, you can use the 529 assets for another grandchild. Second, because 529 plan assets are considered the property of the account owner, they can have a relatively limited impact on financial-aid eligibility. In addition, you won't owe taxes on 529 plan investment earnings from year to year, and withdrawals from a 529 plan account will be tax-free provided you use them to pay for qualified higher-education expenses, such as tuition and room and board. Finally, you may be eligible for a state tax break on your contribution to a 529 Plan. The availability of such tax or other benefits may be conditioned on meeting certain requirements.
Fund a Roth IRA: If your grandchild is older and working, you can contribute an amount equal to his or her earned income, up to $5,000, to a Roth IRA. As with a UGMA/UTMA account, you can put a range of investments inside a Roth; there are no investment minimums or age limits on contributions. The money inside the Roth can grow tax-free until retirement, and the vehicle also offers some flexibility for withdrawals before that time. Specifically, contributions to a Roth IRA can be withdrawn at any time and for any reason, to pay for college or anything else. Those who need to tap the investment-earnings piece of an IRA will owe income tax on that portion of the withdrawal, but they'll circumvent the 10% penalty on early withdrawals if they use the money for qualified college or certain other expenses. Despite the big tax benefits, Roth IRAs for children carry one of the key drawbacks that also accompany UGMA/UTMA accounts: The child maintains control over the assets and can use the money for whatever he or she wants at the age of majority.
Funds in a traditional IRA grow tax-deferred and are taxed at ordinary income tax rates when withdrawn. Contributions to a Roth IRA are not tax-deductible, but funds grow tax-free, and can be withdrawn tax free if assets are held for five years. A 10% federal tax penalty may apply for withdrawals prior to age 59 1/2. Please consult with a financial or tax professional for advice specific to your situation. 529 plans are tax-deferred college savings vehicles. Any unqualified distribution of earnings will be subject to ordinary income tax and subject to a 10% federal penalty tax.
Tax-exempt organizations are required to file
annual reports with the IRS. Those with gross
receipts below $50,000 can file an E-postcard
rather than a longer version of Form 990.
The deadline for nonprofit filings is the 15th day of the fifth month after their year-end. For calendar-year organizations, the filing deadline for 2012 reports is May 15, 2013.
We thought you would appreciate having references, citations, and additional reading sources on topics in each issue of the Monthly Newsletter.
Article: “You can’t change your mind after you convert”
– American Taxpayer Relief Act of 2012
Article: “Watch for hazards when buying a franchise”
Article: “The Best Ways to Give a Financial Gift to Children”