Our weekly roundup of tax-related investment strategies and news your clients may be thinking about.
Homeowners considering making their residence a rental this summer could qualify for a cash windfall and a few tax breaks, however they must first determine whether the property is their primary dwelling, according to this CNBC article. If clients plan on using their homes as their primary residence and want to lease it for no more than 14 days they are not required to report the income to the IRS, according to an expert. “From a tax perspective, it’s important to understand how the home is classified: is this a personal residence or a rental property?” asked Robert Westley, CPA and a member of the American Institute of CPAs’ personal financial specialist credential committee.
A new survey has found that 25.89% of taxpayers who owed the IRS this year paid their tax bill using their savings, according to this Motley Fool article. The survey, conducted by tax preparation firm Jackson Hewitt and ResearchNow, also found that 13.56% of taxpayers with tax dues used their credit card to settle the liability, with 4.05% of respondents borrowing funds to pay their tax bill. Cash-strapped clients are advised to negotiate an installment agreement with the IRS to pay the bill, as this option will be less costly than a credit card, according to an expert.
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Errors are regrettably common. They are also easily avoidable.
April 1 -
Military families can use one of these provisions to seriously cut their tax burden. Plus, can clients make an IRA contribution on behalf of a deceased person?
October 23 -
Financial planners don’t have to be attorneys to help clients avoid high cost oversights
December 24
The IRS is underestimating improper payment risk, according to a report from the Treasury Inspector General for Tax Administration in this Fox Business article. Three of the tax breaks — the Additional Child Tax Credit, the American Opportunity Tax Credit and the Premium Tax Credit — should have been rated as a high-risk and not just a medium risk, according to the report. “As a result, the IRS continues to significantly understate its estimate of improper payments in its reports to the [Office of Management and Budget] and Congress,” the report said.
Clients who receive a tax refund should use the windfall to shore up their emergency savings before paying off debt, according to this article on Yahoo Finance. That's because they could incur more debt if they have no savings to cover unforeseen expenses. Those who already have emergency savings can use the refund to pay off their outstanding debt, especially if they incurred the debt because they failed to adjust their tax withholding.
The average expense ratio among the top-performers is 40 basis points higher than the average.
Clients who want to minimize the tax bite on their spendable income should prefer qualified dividends, which are subject to lower rates than ordinary income, according to a Kiplinger expert. They should also invest in tax-free municipal bonds and use their savings to buy tax-advantaged annuities. Using traditional IRA assets to buy a qualified longevity annuity contract is one way to reduce taxable income from their retirement accounts. Seniors should also tap their retirement accounts for income and leave a legacy to their loved ones using their personal savings, as the heirs will owe no taxes on the inheritance.
