photo by Shabby Chic

This Thursday is the deadline to file your taxes. If you have put it off until now, here is some last minute advice to keep in mind.

Last Minute Tax Tips

Article taken from cbsnews.com

April 15th is quickly approaching. Do you have your taxes done? Nearly half of all tax returns are filed after April 1st. If you are one of the last-minute filers, here are five tips to maximize refunds, avoid errors and get a little something extra back.

First be sure to sign your 1040. It’s a silly mistake, but one plenty of people make - especially if you’re filling out forms online and then printing them to mail. Review page-by-page to make sure your signature is in all the right places.

Next, review tax changes. There were plenty, especially for homeowners. If you made energy-efficient upgrades to your home, check to see if you qualify for a tax credit of up to $1,500. Non-itemizing homeowners are allowed to deduct an extra $1,000 in property taxes, and anyone who bought a car after February 16th of 2009 can deduct sales tax paid up to a certain extent.

Be sure to e-file. If you’re owed a refund, filing electronically can get you your check up to a week sooner. Many taxpayers can also e-file for free. Go to IRS.gov for details on the free-file program.

If for whatever reason you just can’t file by April 15 file an extension. Make sure you send in a Form 4868, which requests an automatic six-month extension. That gives you until October to get your paperwork in order. Just remember to pay now what you owe or face penalties and interest down the line.

Hunt for freebies because they are out there. Cinnabon, Maggie Moo’s and Taco del Mar are among the businesses offering consumers a little tax relief, in the form of free food. Check the websites of your favorite chains to see if any are offering tax day promotions. Keep in mind it’s participating locations only, and while supplies last.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

photo by Avery Products

With less than 10 days until the tax deadline for 2009, its not too late to trim your tax bill. One way to do this is by making sure you have fully funded your IRA.

The IRS has provided the following tips for those contributing to an IRA. 

Ten Tips for Taxpayers Contributing to an Individual Retirement Plan

Taken from irs.gov

1. You may be able to deduct some or all of your contributions to your IRA. You may also be eligible for the Savers Credit formally known as the Retirement Savings Contributions Credit.

2. Contributions can be made to your traditional IRA at any time during the year or by the due date for filing your return for that year, not including extensions. For most people, this means contributions for 2009 must be made by April 15, 2010. Additionally, if you make a contribution between Jan. 1 and April 15, you should designate the year targeted for that contribution.

3. The funds in your IRA are generally not taxed until you receive distributions from that IRA.

4. Use the worksheets in the instructions for either Form 1040A or Form 1040 to figure your deduction for IRA contributions.

5. For 2009, the most that can be contributed to your traditional IRA is generally the smaller of the following amounts: $5,000 or $6,000 for taxpayers who are 50 or older or the amount of your taxable compensation for the year.

6. Use Form 8880, Credit for Qualified Retirement Savings Contributions, to determine whether you are also eligible for a tax credit equal to a percentage of your contribution.

7. You must use either Form 1040A or Form 1040 to claim the Credit for Qualified Retirement Savings Contribution or if you deduct an IRA contribution.

8. You must be under age 70 1/2 at the end of the tax year in order to contribute to a traditional IRA.

9. You must have taxable compensation, such as wages, salaries, commissions, tips, bonuses, or net income from self-employment to contribute to an IRA. If you file a joint return, generally only one of you needs to have taxable compensation, however, see Spousal IRA Limits in IRS Publication 590, Individual Retirement Arrangements for additional rules.

10. Refer to IRS Publication 590, for more information on contributing to your IRA account.

If you have additional questions, or would like to make your 2009 IRA contribution, please contact an advisor at Paragon Wealth Management at 800-748-4451.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

photo by Mike Baird

If you are thinking about a tax delayed savings plan, there are some things to consider. Below is an article taken from the Money Wise Blog with some information about tax delayed savings. Feel free to leave comments or questions.

Tax Delayed Savings
Written by Money Wise Blog

As you approach your golden years, you may be wondering about the various advantages and disadvantages of tax delayed savings plans. Although the idea not to pay taxes on their savings may seem attractive, there are fees to consider.

Another difficulty lies in determining which tax delayed savings plans your family is entitled to receive. Before you decide, you should carefully examine all options to determine which screen saver you.

There are many types of tax delayed savings. The most common is 401k. 401k employee pension plan offers a high maximum contribution limit and the ability to maintain interest over time. Just follow the 401k withdrawal rules and I understand that you have to pay taxes on the lump sum you take.

If you leave your place of work to the appropriate age for retirement, you will need to pay taxes and a penalty at the time - or roll your money into a IRA.

Individual retirement accounts (IRA or, for short), allows you to make thousands of dollars for your retirement, even though less than 401k. You do not have to pay taxes on income only after age 59 1 / 2.

You can see all the different types of MDR to see what you are entitled to, including: marital Pension IRA Deductible IRA or Roth IRA. In both 401ks and Franchise MRK, you only pay taxes when you begin withdrawing retirement.

Most people are not encouraged to go with their employers sponsoring retirement savings plan, if the company agrees to match your contributions.

Further, analysts recommend that you get into the money into your account IRA Roth; but you still pay taxes on your contributions, as usual, you can withdraw money at any time without penalty and your withdrawal will be tax-free from age 59 1/2 .

Tax delayed repayment of trust funds, consisting of various bonds, stocks and cash, are a good, low-maintenance place to invest your money.

To understand the difference between savings and taxed delayed tax savings, let’s look at some specific figures. If your monthly retirement savings contribution is $250, in 20 years you could save $81,897 after taxes.

Investing in a tax delayed savings plan, you would save $106,753, even after tax lump! Are you interested in the establishment must provide a significant cushion for your retirement.

You can jump for joy, that Uncle Sam’s cut you break. This, of course the generous thing, but as with anything, there are potential pitfalls. You may find that the administration, management, insurance and annual maintenance fees of records exceed the tax delayed savings you would get - especially if you are tempted to use your funds before you turn 60.

Many early retirees have been saddled with 10% fine or get stuck paying hefty tax when they prefer to take all their money in a lump-sum retirement benefits.

If you worry about your money and take advantage of any protection plan at your disposal, you can feel that hard FDIC does not cover tax delayed retirement, leaving you to pay for a separate defense.

Financial representative can help you determine if the tax delayed savings may be very suitable for your lifestyle. If you have some financial planning for retirement now, you can pave the way to your golden years with ease.

istock photo

If you are thinking about converting your traditional IRA to a Roth IRA in 2010, you may want to consider the pros and cons. Below is an informative article about this topic written by Darrell J. Canby.

 

FINANCIAL SENSE: Roth ‘n’ Roll in 2010

By Darrell J. Canby/Local columnist

November 23, 2009

Unless Congress passes legislation to alter the current law before the end of the calendar year, the potential for Roth IRA conversions in 2010 is vast.

Roth IRA conversions are not new. However, until now only taxpayers whose income was less than $100,000 were eligible to convert traditional IRAs to Roth IRAs. Effective in 2010, there will be no income limitation. As a result, many people should review their situation to determine if a conversion would be beneficial for them and would help them achieve their long-term financial goals.

To determine whether a conversion would benefit you, consider the differences between traditional IRAs and Roth IRAs. Contributions to traditional IRAs are tax-deductible, within certain limits, during the year the contribution is made. Income taxes are deferred on earnings. Income is taxable when funds are withdrawn from the traditional IRA.

For many people, Roth IRAs offer a better opportunity. Funds are contributed on an after-tax basis, but they can grow on a tax-free basis and taxes will never be due on Roth earnings, as long as the assets are held in the Roth IRA for at least five years and any withdrawal occurs after the individual reaches age 59 1/2.

Tax landscape
This advantage is especially important because taxes are scheduled to increase.

Earlier in this decade, tax legislation was enacted that, among other things, lowered individual income tax rates and raised the asset level at which an estate would be taxable. The law also provided that the estate tax would be zero in 2010. It then provided that, effective in 2011, individual income tax rates would revert back to pre-legislation levels, the exemption for estate taxes would decrease to $1,000,000 and estate tax rates would increase back to a maximum rate of 55 percent. The same legislation eliminated the income limitation for Roth IRA conversions.

Unless Congress changes the law, taxes will increase automatically. If you pay taxes at a 25 percent rate today, you will be paying at a rate of 28 percent in 2011; the next two brackets will increase by 3 percent as well, and if you pay at the current maximum 35 percent rate, your rate will increase to 39.6 percent.

In addition, further tax increases may be necessary. This year’s deficit alone is projected to be $1.4 trillion. Billions spent on the financial crisis, plus potential spending on healthcare reform, could result in a future tax increase. So your tax rate could be higher in years to come than it is today.

The amount of a Roth conversion creates taxable income. For conversions in 2010, the tax can be paid as part of your 2010 tax return at the rates in effect for 2010. You can also choose to report the 2010 conversion income 50 percent in 2011 and 50 percent in 2012 and pay tax at the prevailing rates at that time. Keep in mind that the rates in 2011 will automatically be higher unless Congress changes the provisions of the current law.

In order to enjoy the tax free benefits of a Roth IRA, there is a waiting period of five years and upon distribution, you must be at least age 59 1/2. So if you execute a conversion on Jan. 1, 2010, you need to wait until Jan. 2, 2015, before taking a distribution to insure the distribution will be tax free.

Advantages of Roth conversions
So what are the advantages of converting to Roth IRAs? Should you convert some or all of your IRA assets to Roth IRAs? Should you convert all in one year or over several years?

It would be wise to consult with your tax adviser to answer these questions, but the following factors are key:

Tax free build-up of converted assets. The major advantage is that all of the growth in value of the Roth IRA from the conversion date will be tax free forever, as long as you meet the five year rule and are at least age 59 1/2 when you take distributions.

Hedge against increasing tax rates. If tax rates increase, keeping your assets in a traditional IRA may mean you will pay higher taxes on the future distributions than the rate you may pay now on the conversion.

The performance of your portfolio. If your portfolio lost a lot of its value in the recent bear market and has not fully recovered, you can save on taxes by converting now, before your portfolio recovers, because taxes will be based on the value of your IRA at the time of conversion.

Allows for tax diversification in the future. You could take a portion of your income needs from a traditional IRA and some from the Roth IRA to avoid going into a higher tax bracket. You can also use this flexibility to keep the taxation of social security to a minimum and to potentially lower your costs for Medicare.

Increase in taxable income could absorb losses. Some people have experienced business losses in their S Corporation, partnership or LLC that could be used to offset the income associated with a Roth conversion. There also may be some people that have large charitable contributions that were limited due to their income. The income associated with a Roth conversion could be offset in part by these deductions.

Required minimum distribution eliminated. When you reach the age of 70 1/2, you are required to take a minimum distribution from your retirement assets in most cases. Required minimum distributions were relaxed in 2009 due to the financial crisis. Minimum distributions are not required for Roth IRAs. Some people do not wish to take distributions, because they want them to grow for the benefit of their heirs. Roth IRAs allow taxpayers to save for this objective.

Your age. If you’re young and have many years until retirement, Roth IRAs are especially attractive, because your investments should be able to grow tax-free for many years before you use them.

Legacy asset. If you leave your children a traditional IRA asset, they will be responsible for income taxes as they make withdrawals. If they inherit a Roth IRA, there will be no income taxes, so it will be less of a burden on their children.

Disadvantages of Roth conversions
While it is important to consider all of the potential advantages of Roth IRAs, you should also be aware of the disadvantages.

Immediate tax cost. There is an immediate tax cost that reduces your investment assets available for your retirement.

Tax at a higher rate. The conversion amount produces income that may cause the effective tax rate to be higher, due to phase outs of certain deductions.

Insufficient assets outside of retirement plans to pay the tax. The general rule is that you do not want to use retirement plan assets to pay the tax associated with a Roth conversion. So if you do not have assets outside of retirement assets, you probably should not consider a Roth conversion. As with any of this advice, you should consult a tax professional to be sure.

Tax rates will be lower in retirement. Your situation may suggest that your income tax rate may be lower in retirement. You would not want to pay tax now at a higher rate than you would otherwise be paying in retirement.

Need to have distributions prior to five-year waiting period. If you will need to make withdrawals from your IRA assets within five years, you will not want to have to use any converted assets. Keep enough assets outside of the Roth to avoid such a withdrawal need from that account.

Your age. If you have attained a level of maturity that would limit the amount of time for the tax-free benefits, you may not have a significant advantage from a conversion.

Your tolerance for risk. If your IRA money is invested in low-interest certificates of deposit or other investments that are expected to earn little, you’re likely better off keeping your money where it is and deferring taxes.

Recharacterization
An IRA that was converted to a Roth IRA can be recharacterized back to a traditional IRA before a timely filed tax return. For example, if you converted $10,000 of your traditional IRA to a Roth IRA on Jan. 15, 2010, you could convert that back to the traditional IRA by April 15, 2011, (or as late as Oct. 15, 2011, if you filed a proper extension of time to file your 2010 return). So if you did execute a conversion and decided it was a mistake, the opportunity to convert back is available. A timely recharacterization avoids paying the tax on the conversion.

Summary
This is a complex area with many implications. Therefore it is best to consult with your tax adviser before making any moves. Weigh the advantages and disadvantages to determine if a conversion is in your best interest.

It may be best to convert some, but not all, of your retirement assets to Roth IRAs. One reason is to start the five-year waiting period, because once it is completed you can alleviate that requirement on conversions in the future.

Another reason to have both a taxable IRA and a non-taxable IRA is that it allows you to combine the two as part of a tax strategy to lower your overall taxes. Taxes on 401(k) plans and traditional IRAs, for example, are deferred until income is distributed. You can take income from these tax-deferred retirement accounts up to the point where you would be entering a higher tax bracket, and then you can take additional distributions from your Roth IRAs without incurring additional taxes.

For many taxpayers, it will make sense to convert as much as possible to Roth IRAs in 2010. The younger you are when you convert your IRAs, the longer the timeline during which they will be able to grow tax-free.

Congress will be looking for new sources of revenue, thus rules for Roth IRAs could change, making them less attractive. Roth IRAs may be too good to last.

Darrell J. Canby, CPA, CFP^@, is president of Canby Financial Advisors, LLC, a registered investment adviser at 161 Worcester Road, Suite 408, Framingham. He offers securities as a Registered Representative of Commonwealth Financial Network, Member FINRA/SIPC. He can be reached at 508-598-1082 or dcanby@canbyfinancial.com.

This communication is strictly intended for individuals residing in the states of AZ, CA, CO, CT, DC, DE, FL, MA, ME, MI, NC, NH, NJ, NY, OH, OR, RI, TN, VA, VT, WA.  No offers may be made or accepted from any resident outside these states due to various state regulations and registration requirements regarding investment products and services.

Due to regulatory requirements, I am unable to respond to any comments posted to this site.  If you would like to contact me, please e-mail me at my address above.

Visit http://www.metrowestdailynews.com/business/x1945263240/Roth-n-roll-in-2010 to see the original article.

Written by Dave Young, President and Founder of Paragon Wealth Management

For people who invest in the stock market (and even those who don’t), taxes have always been a hot topic.

Unfair taxation caused many of our forefathers to abandon England and start their own country—and eventually hold a certain famous tea party in Boston Harbor.

Fortunately, we don’t have to resort to such drastic measures today, but taxes are still an emotional issue. Just look at what you’re up against: You work hard to earn a paycheck. But before you ever see the check, you give a portion of it to pay state and federal income taxes. Then, you pay social security and Medicare. After you deposit the rest in your bank account, you still have to pay sales tax on anything you buy. Then, you’ve got property taxes, taxes on your cars, taxes on gasoline, and the list goes on and on. Finally, when you die, you get taxed on whatever is still left of your estate.

In other words, you get taxed when you earn it, spend it, and ultimately die with it.

We’ve all participated in more than a few heated debates about who should pay more taxes and who should pay less. The only agreement I’ve ever heard regarding taxes is that someone else should pay them. With all of the rhetoric and emotions surrounding taxes, I decided to find out who really pays the most taxes. Here’s what I found out:

The Top 1% of income earners pay 34 % of all taxes
The top 10% of income earners pay 66 % of all taxes
The bottom 50% of income earners pay 3 % of all taxes

Studies by the Tax Foundation show that approximately 136 million income tax returns are filed in April. Of these, about 43 million families will show no tax payable. Since another 15 million families file no returns at all, about 58 million Americans will pay zero tax.

This means that 40 percent of all Americans pay zero taxes.

I found this interesting, because many popular media outlets love to preach about how the rich are not paying their fair share of the taxes in this country. There has also been a great deal of discussion about how tax cuts are unfair, because they benefit the rich. The reality is that they do benefit the rich, but that is only because the so-called rich (anyone with a middle-class income or better) already pay the bulk of all of the taxes.

This write-up from Growth Stock Outlook reprinted in The Chartist service was an interesting presentation. I hope you find it entertaining.

Let’s put tax cuts in terms everyone can understand. Suppose that every day, 10 men go out for dinner. The bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this. The first four men — the poorest — would pay nothing: the fifth would pay $1; the sixth would pay $3; the seventh $7; the eighth $12; the ninth $18. The tenth man — the richest — would pay $59. That’s what they decided to do.

The 10 men ate dinner in the restaurant every day and seemed quite happy with the arrangement — until one day, the owner threw them a curve. “Since you are all such good customers,“ he said, “I’m going to reduce the cost of your daily meal by $20.” So now dinner for the 10 only cost $80. The group still wanted to pay their bill the way we pay our taxes. So the first four men were unaffected. They would still eat for free. But what about the other six — the paying customers?

How could they divvy up the $20 windfall so that everyone would get his ‘fair share’? The six men realized that $20 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would end up being “paid” to eat their meal. So the restaurant owner suggested that it would be fair to reduce each man’s bill by roughly the same amount, and he proceeded to work out the amounts each should pay. And so the fifth man paid nothing, the sixth pitched in $2, the seventh paid $5, the eighth paid $9, the ninth paid $12, leaving the tenth man with a bill of $52 instead of his earlier $59.

Each of the six was better off than before. And the first four continued to eat for free. But once outside the restaurant, the men began to compare their savings. “I only got a dollar out of the $20, “ declared the sixth man. He pointed to the tenth. “But he got $7!” “Yeah, that’s right, “ exclaimed the fifth man. “I only saved a dollar, too. It’s unfair that he got seven times more than me! “ “That ‘s true!” shouted the seventh man. “Why should he get $7 back when I got only $2?” The wealthy get all of the breaks! “

“Wait a minute,” yelled the first four men in unison. “We didn’t get anything at all. The system exploits the poor!” The nine men surrounded the tenth and beat him up. The next night he didn’t show up for dinner, so the nine sat down and ate without him. But when it came time to pay the bill, they discovered something important. They were $52 short!

It’s an interesting story that provides food for thought. The one positive takeaway from this article is that if you are paying too much in taxes, then you must be doing something right.