It’s sadly almost the end of summer and the last thing people are thinking about is their tax situation when in fact there is a lot you could be doing for your tax planning now to help you through the annual visit with your tax preparer. Has anything changed this year? Did you buy or sell a home? Did you change jobs? Retire? Thinking about retiring? What type of retirement account do you have set up? Roth IRA or Traditional? Is it time to look at converting to help lower
your tax liability?
Is your health changing? Are you doing any home improvements? These are all questions that can be answered now instead of waiting until after the year is
over and it may be too late to change your tax situation. Looking ahead at these things and other possible situations can help you plan ahead or make changes and help prevent a big and not so pleasant surprise when it comes to tax preparation time.There are many options out there that you as taxpayers have to possibly change your tax liability and it is so important to have a relationship with a tax professional (and a financial advisor) to help you figure what your best method should be. The best example of this is what to do with your retirement accounts. Have you been contributing to a traditional IRA? This money can be 100% taxable when you start drawing. There are two dif ferent methods that can help with this. In the years leading up to your retirement you may have the option to roll these
funds into a ROTH IRA and have a minimal tax liability. With a ROTH IRA you are only taxed on the interest income that is earned when you begin withdrawing. Another option is working with your financial advisor and tax professional to set up a Qualified Charitable Distribution. This method transfers all or part of your required minimum distribution directly to a qualified charity, therefore reducing your taxable income and could keep you in a lower tax bracket. Are you considering taking an early distribution from your retirement ac count? There are situations when the penalty can be removed, dependent on the reason for the withdrawal. This is another conversation you should have with your tax professional to find out if you qualify for an exemption.Did you know that some home improvements may qualify as medical expenses? If you are doing remodel work to add a main floor bathroom, installing a chair to assist with stairs, or a ramp due to limited mobility there is a portion of the expenses that could be deducted as medical expenses. Another example of this is the purchase of mobility van. On the subject of medical expenses another conversation that you should have with your tax professional is determining if a medical bill should be
paid in December of the current year or January of the following year. With changes in age, filing status, and tax law changes the amount of qualified medical expenses needed can fluctuate so it is important to analyze this on a yearly basis to maximize your tax benefit.Are you considering selling your home or an inherited home? Many questions can arise when facing this situation. What are your tax consequences going to be? The truthful answer is: it depends. Many factors can affect what your tax liability will be. How long have your owned your home? If it is inherited (home or land) do you know what the basis is? There are times when a sale can have zero effect on your tax liability and other times where it can have a large impact and you should pay some estimates to help alleviate this.
When it comes to filing your state tax return there a couple of tricks that most people are not aware of. One is when it comes to paying estimated taxes.
When paying state estimates it is typically best to pay them all in the current year (rather than not itemize on your federal return you could still qualify for a deduction on your Minnesota tax return.
The final tip I will leave you with is this: get a folder and put a notebook in it. Place
anything you receive
your tax liability?
Is your health changing? Are you doing any home improvements? These are all questions that can be answered now instead of waiting until after the year is
over and it may be too late to change your tax situation. Looking ahead at these things and other possible situations can help you plan ahead or make changes and help prevent a big and not so pleasant surprise when it comes to tax preparation time.There are many options out there that you as taxpayers have to possibly change your tax liability and it is so important to have a relationship with a tax professional (and a financial advisor) to help you figure what your best method should be. The best example of this is what to do with your retirement accounts. Have you been contributing to a traditional IRA? This money can be 100% taxable when you start drawing. There are two dif ferent methods that can help with this. In the years leading up to your retirement you may have the option to roll these
funds into a ROTH IRA and have a minimal tax liability. With a ROTH IRA you are only taxed on the interest income that is earned when you begin withdrawing. Another option is working with your financial advisor and tax professional to set up a Qualified Charitable Distribution. This method transfers all or part of your required minimum distribution directly to a qualified charity, therefore reducing your taxable income and could keep you in a lower tax bracket. Are you considering taking an early distribution from your retirement ac count? There are situations when the penalty can be removed, dependent on the reason for the withdrawal. This is another conversation you should have with your tax professional to find out if you qualify for an exemption.Did you know that some home improvements may qualify as medical expenses? If you are doing remodel work to add a main floor bathroom, installing a chair to assist with stairs, or a ramp due to limited mobility there is a portion of the expenses that could be deducted as medical expenses. Another example of this is the purchase of mobility van. On the subject of medical expenses another conversation that you should have with your tax professional is determining if a medical bill should be
paid in December of the current year or January of the following year. With changes in age, filing status, and tax law changes the amount of qualified medical expenses needed can fluctuate so it is important to analyze this on a yearly basis to maximize your tax benefit.Are you considering selling your home or an inherited home? Many questions can arise when facing this situation. What are your tax consequences going to be? The truthful answer is: it depends. Many factors can affect what your tax liability will be. How long have your owned your home? If it is inherited (home or land) do you know what the basis is? There are times when a sale can have zero effect on your tax liability and other times where it can have a large impact and you should pay some estimates to help alleviate this.
When it comes to filing your state tax return there a couple of tricks that most people are not aware of. One is when it comes to paying estimated taxes.
When paying state estimates it is typically best to pay them all in the current year (rather than not itemize on your federal return you could still qualify for a deduction on your Minnesota tax return.
The final tip I will leave you with is this: get a folder and put a notebook in it. Place
anything you receive
The Fairmont Photo Press will feature a few stories and/or columns each week.
