Save On Your Taxes - 529B Plans

We all want to save money on our taxes....right?  Consider funding the cost of future college tuition by contributing to a state sponsored or private section 529 paln.  Contributions to such plans are not subject to the same limitations that apply to Coverdell ESA's.  Earnings on contributions to state sponsored and private section 529 plans will not be subject to federal tax when withdrawn, provide the distributions are used to pay for beneficiary's higher eduction expenses.

For more information about this tax saving tip, check out IRS Pub 970 (Section 529 plans)

Have a YEAHday!

YEAHfounder

Pursuant to applicable U.S. Treasury Regulations, we must advise you that any tax advice included in this communication is not intended or written to be used, and cannot be used, by a recipient for avoiding penalties that may be imposed on the recipient by any governmental taxing authority or agency.

Can I Contribute To A Roth IRA If I Only Have Unemployment Income?

This is a difficult question with no direct answer from the IRS.  Upon reviewing IRS Pub 590, it states "you can contribute to a Roth IRA if you have taxable compensation and your modified AGI is less than:

1. $179,000 MFJ
2. $122,000 Single, Head of Household or Married Filing Jointly and did not live with spouse
3. $10,000 Married Filing Jointly and lived with spouse

The key term above is taxable compensation.  IRS defines compensation as "Compensation includes wages, salaries, tips, professional fees, bonuses and other amounts received for providing personal services.  It also includes commissions, self-employment income, nontaxable combat pay, military differential pay, and taxable alimony and separate maintenance payments."  Further, it states compensation is what you earn from working.  Therefore, your Roth IRA is limited to $5,000 ($6,000 if 50 or older) or taxable compensation.  There is that word again!

So is Unemployment Income taxable compensation?  Yes, unemployment income is taxable income and it is included in your adjusted gross income, but it is not EARNED INCOME from working.

ANSWER - No, you cannot contribute to a Roth IRA if you only have unemployment income because the money is not earned income.

Have a YEAHday!

YEAHfounder

Pursuant to applicable U.S. Treasury Regulations, we must advise you that any tax advice included in this communication is not intended or written to be used, and cannot be used, by a recipient for avoiding penalties that may be imposed on the recipient by any governmental taxing authority or agency.

2012 Roth IRAs - What's New?

Roth IRAs allow one to make nondeductible contibutions to an individual retirement account (IRA) that are most likely never taxed again.  You can contribute $5,000 ($6,000 over 50) each year.  For the specifics on Roth IRAs check out IRS Pub 590.

New for 2012....

1. The phase out for contributions have increased:
   • Married Filing Jointly Adjusted Gross Income (AGI) - $173,000 to $183,000
   • Single, Head of Household, Married Filing Separately and did not live with spouse AGI - $110,000 - $125,000 
   • Married Filing Separately and lived with spouse AGI greater than $10,000 you cannot make contribution

Have a YEAHday!

YEAHfounder

And The Average Tax Return Preparation Cost Is..........

I was doing some reviewing of average pricing with national tax preparation shops and discovered the cost was a lot higher than I thought.  I believe a lot of advertisement states far lower prices than the amounts finally paid.  Check closely before shelling out more money for your tax return.

Per William Perez article on November 16, 2010, http://taxes.about.com/od/findataxpreparer/a/prices.htm

1. H&R Block Average - $189 per return (average, 2010 data)
2. Jackson Hewitt - $208 per return (average, 2010 data)
3. National Society of Accountants - $229 (Includes 1040 with Schedule A and state return)
4. National Society of Accountants - $129 (Includes 1040 and state with no schedule A)

YEAHfounder