January 20, 2017
We are busily preparing for the upcoming tax season. If you haven't already, you will soon receive your 2016 tax organizer in the mail. It's also a good time to call and schedule your tax appointment if you want to meet in person this year.
Of particular note this January are new IRS deadlines for issuing 1099s and W2s. This year, they not only need to be mailed to your employees and subcontractors by January 31, they also need to be mailed to the IRS by the same date. Please contact us ASAP if you want help meeting this deadline... penalties for late filing have increased!
See the end of the newsletter for some "crazy but true" facts about 1099 filing requirements.
For this month's tax tip, read on... you will see why I advise that you WAIT until we are preparing your tax returns before making any 2016 IRA contributions.
Kathleen S. Vaccaro, EA
Goldberg & Vaccaro Tax Services LLC
I opened my refrigerator this morning, and it looked like the land of misfit condiments.
Why eight bottles of salad dressing (including three Caesar)?
Why three types of soy sauce (one organic)?
Why four different brands of mustard (all opened)?
The kids are home, that's why!
Usually it is just me and my husband Chris (and our dog Waffles) for dinner. Creatures of habit, we use one brand of mustard, one type of soy sauce. No muss, no fuss!
But when the kids come home, our refrigerator turns into condiment chaos!
Our older son Ben loves to cook, and experiments with a variety of seasonings. Our younger son Tom loves to nosh, especially on guacamole and Caesar salad. Our daughters and son-in-law have their own preferences. They come, they go, they leave behind their half-empty condiment jars.
Back in the day, investing in an IRA was a straightforward decision, like having just one jar of Grey Poupon mustard in the fridge. You saved for retirement - you got a tax write-off. End of story. Easy!
Now the array of IRA choices can be as confusing as looking through my fridge after the kids have gone.
Traditional IRA? This can get you an immediate tax write-off. If you (or your spouse) are working, you can likely contribute up to $5,500. If you are at least 50 years old, the maximum goes to $6,500. But if you're age 70-1/2 or older, hold on, no traditional IRA for you!
Too much income? Sorry, no deduction! Another IRA option may be better.
Too little income? Oh, you may still get the deduction, but it might not be worth much if you're not paying much tax anyway.
Roth IRA? This can be a good (actually great) choice for many people. Those who benefit most are young, and in a relatively low tax bracket. There's no immediate benefit, but the long-term payoff can make it the best choice. However, it's possible you earn too much to qualify.
Did you just get married? Maybe you qualified last year, but this year, with your spouse's income, you may not qualify for a Roth anymore. There are limits if your income is over $117,000 (single) or $184,000 (married filing jointly).
SEP IRA? If you are self-employed, this can be the best choice of all. If you meet all the criteria, this can be a $53,000 write-off. Tax savings up to $15,000 to $20,000! But again, it depends! Do you have employees? If so, there are rules that may require you to cover them too.
For business owners, there are other retirement options which may be more appropriate, such as setting up a SIMPLE or 401K plan. (The rules for these plans are more complex, and you have to set something up before the tax year ends.)
The good news is that you can make a traditional or Roth IRA contribution right up until the Tuesday, April 18, 2017, filing deadline. If there is a tax deduction to be had, you can still take it on your 2016 tax return.
Even better, you can make a 2016 SEP IRA contribution as late as Monday, October 16, 2017, as long as you have a valid extension on file with the IRS. For some people, it makes sense to file an extension to allow time to gather the funds for their SEP IRA contribution, for the largest tax write-off possible.
Due to this confusing array of options, I recommend that you WAIT until your tax return is prepared to make any decisions about traditional, Roth or SEP IRA contributions.
P.S. For most people, maxing out your 401K contribution at work is still the first and best thing you can do to (a) save for retirement and (b) reduce your tax bill. But for the many people without this option, and even for some with, one of the IRAs can be a great choice.
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Margaret Lennerton has been part of "Team Goldberg" for more than 17 years, and Steve (always one for sports analogies) calls her the company's "utility player" for having the skills to fill many roles. All through the year, Margaret provides ongoing bookkeeping and support services for our business clients. As tax season heats up, however, she straps in with the rest of the tax team and devotes her energy to working on individual tax returns.
Along with her husband Dick, Margaret recently moved to a new home in Litchfield, NH - and not just because she enjoys a longer commute! The scenery is beautiful and they love their new community. Margaret spends her free time spoiling her seven grandchildren, including the youngest, Lily, who arrived at the tail end of last tax season!
The longstanding rule is that business owners need to send Form 1099 to any individual or business (except corporations) to which they paid $600 or more for services during the calendar year.
Here's the crazy twist: If you paid them by cash or check, the usual 1099 rules apply. If you paid them by credit card or PayPal (or some other third-party method) then you are off the hook! Then it's up to the credit card companies and PayPal - you don't need to do anything!
Even crazier: Instead of $600, the reporting trigger for the credit card companies and PayPal is $20,000 paid to a single individual or business... and only if that individual or business received at least 200 payments during the year.
Goldberg & Vaccaro Tax Services LLC specializes in tax preparation and accounting services for individuals and small business owners.
Please give us a call if we can help you:
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By now, you should have received your 2017 tax organizer package. New this year are "client portals" if you would like a secure method to send and receive your documents electronically. You can access your portal and find other useful information on our new website.
It is very likely that a game-changing tax reform bill will be signed into law before year's end. In this season of gift-giving, our friends in Congress will be Santa for some and the Grinch for others. Which is it for you? We are going through the 1,000-plus page legislation this week to see what last-minute moves can be made before the end of this year.
First of all, a reminder that our "cut off" deadline is next Friday, March 17. That means if you want your tax returns to be filed by the IRS filing deadline of April 18, we need to have your materials in hand no later than St. Patty's Day.