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Posts Tagged ‘ taxes ’

Did you have a New Year dream that taxes disappeared? I didn’t think so. 2015 is here and will be over before we know it. Since taxes are fact of life we all must plan with them in mind. Here is a table/chart of 2015 Federal Income Tax Rates for Individuals to help plan ahead.

 For additional information regarding: 2015 Federal Income Tax Digest

  • Individual income tax rates
  • Deductions & Tax Credits
  • Social Security/ Medicare rates
  • Health Savings Accounts
  • Retirement Plan Contribution Limits including Traditional and Roth IRAs  

For additional information Requests contact Tim Barton, ChFC at


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What Is the Marital Deduction?

The marital deduction (I.R.C. Sections 2056 and 2523) eliminates both the federal estate and gift tax on transfers of property between spouses, in effect treating them as one economic unit.  The amount of property that can be transferred between them is unlimited, meaning that a spouse can transfer all of his or her property to the other spouse, during lifetime or at death, and completely escape any federal estate or gift tax on this first transfer.  However, property transferred in excess of the unified credit equivalent will ultimately be subject to estate tax in the estate of the surviving spouse.

The 2010 Tax Relief Act, however, provided for “portability” of the maximum estate tax unified credit between spouses if death occurred in 2011 or 2012.  The American Taxpayer Relief Act of 2012 subsequently made the portability provision permanent.  This means that a surviving spouse can elect to take advantage of any unused portion of the estate tax unified credit of a deceased spouse (the equivalent of $5,000,000 as adjusted for inflation; $5,340,000 in 2014).  As a result, with this election and careful estate planning, married couples can effectively shield up to at least $10 million (as adjusted for inflation) from the federal estate and gift tax without use of marital deduction planning techniques.  Property transferred to the surviving spouse in excess of the combined unified credit equivalent will be subject to estate tax in the estate of the surviving spouse.

If the surviving spouse is predeceased by more than one spouse, the additional exclusion amount available for use by the surviving spouse is equal to the lesser of $5 million ($5,340,000 in 2014 as adjusted for inflation) or the unused exclusion of the last deceased spouse.

What Requirements Apply to the Marital Deduction?

To qualify for the marital deduction, the decedent must have been married and either a citizen or resident of theU.S. at the time of death.  In addition, the property interest (1) must be included in the decedent’s gross estate, (2) must pass from the decedent to his or her surviving spouse and (3) cannot represent a terminable interest (property ownership that ends upon a specified event or after a predetermined period of time).

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On March 28 I wrote a post about a U.S. tax court altering the rules on IRA to IRA  rollovers and wondered when the IRS would officially change the rules and start enforcement.  Previously according to publication 590 and several IRS letter rulings a taxpayer could rollover each IRA account IRA to IRA once per year- per account.  The tax court changed this long standing precedent by limiting each taxpayer to one 60 day IRA to IRA rollover per year.  No matter how many IRA accounts a taxpayer owns they are now limited to only one rollover per year.

On January 1, 2015 the IRS will begin enforcing this new interpretation.  In order to avoid scrutiny a taxpayer should do all IRA rollovers as institution to institution direct transfers.  These direct transfers will remove all IRS questions and prevent a taxpayer for enduring audit, extra paperwork, penalties and unintentionally taxation of IRA funds.

For more background please read the previous post-    IRA Rollover Rules Altered by Tax Court

Going forward a taxpayer should consult a well informed professional prior to doing any IRA rollovers.

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The January 2014  Bobrow tax court ruling  is an IRA game changer with huge ramifications for IRA owners.   The tax court has ruled the once a year IRA rollover rule applies to all of someone’s individual retirement accounts and not to each separately.  This ruling is stunning in that it changes the Internal Revenue Service’s long standing position in private letter rulings and  IRS Publication 590 that the once a year rule applies to each IRA separately.

According to IRC Section 408(d)(3)(B) IRA owners can roll over only 1 distribution within a 1 year period, 365 days not calendar year.   The 365 days starts on the day the IRA owners receives the money. Until this January 2014 court ruling it was clear the owner of  IRAs could rollover each IRA separately once per year.  If the owner wanted they could rollover each IRA once per year.

This a significant departure from everyone’s previous understanding thus making it prudent to only do one IRA to IRA rollover per year.

If an IRA owner needs to rollover more than one IRA account it is best to use the trustee to trustee transfer commonly  referred to as a direst transfer or institution to institution transfer.  These are the preferred methods to avoid tax trouble.

Is the IRS going to look back on taxpayer IRA rollovers?  Unknown at this time.  If they did -  taxpayers who  rolled over more than one IRA in a 365 day period could be required to pay the 6% penalty for excess contributions if the money was moved into another retirement account.

To avoid the above tax problems always  do direct transfers.  These  avoid comingling  IRA funds with regular “nonqualified” account funds (checking or saving account).  If a rollover is coming from a 401(k) or other tax qualified plan it is common practice for the institution to send the funds to the owner.  Make sure the check is made payable to “new institution FBO owner’s name” This check can be forwarded to the new institution without the comingling of funds.


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Don’t forget about your unemployed or under-employed spouse when it comes to IRA contributions. Given the current unemployment rate, you may have a nonworking spouse at the moment. That doesn’t mean they are not able to make an IRA contribution.

As long as you are married, filing a joint tax return, and under the age of 70½, you can look to the following scenarios to see if you can make a contribution to a traditional IRA, and check if the contribution is partially or fully deductible.

One or more spouses working – neither spouse is covered by a qualified retirement plan (QRP) at work: Both spouses can make a deductible contribution to a traditional IRA up to $5,500 for 2013 ($6,500 if age 50 or older) and $5,500 for 2014 ($6,500 if age 50 or older) regardless of adjusted gross income (AGI). (Earned income must at the least be equal to the amount of the traditional IRA contribution.)

One or more spouses working – one spouse is covered by a qualified retirement plan (QRP) at work: The non-covered spouse can make a deductible IRA contribution up to $5,500 for 2013 ($6,500 if 50 or older) and $5,500 for 2014 ($6,500 if age 50 or older); however, deductibility is phased out based on joint AGI. The covered spouse’s ability to take a deduction for a contribution to a traditional IRA for 2013 is phased out with joint AGI between $95,000 and $115,000, and for 2014 is phased out with joint AGI between $96,000 and $116,000. The non-covered spouse’s ability to take a deduction for a contribution to a traditional IRA for 2013 is phased out with joint AGI between $178,000 and $188,000, and for 2014 is phased out with joint AGI between $181,000 and $191,000. (Earned income must at the least be equal to the IRA contribution amount.)

One or more spouses working – both are covered by a qualified retirement plan (QRP) at work: If both spouses are working and covered by a QRP they can each still take a full deduction for a contribution to a traditional IRA for 2013 if joint AGI is below $95,000, and for 2014 if joint AGI is below $96,000. Deductibility is phased out in 2013 when their joint AGI is between $95,000 and $115,000 and in 2014 when their joint AGI is between $96,000 and $116,000.

Roth IRA contributions
With Roth IRAs, participation in a QRP is not an issue, nor is age. As long as you are married, filing a joint tax return, each spouse can make a contribution to a Roth IRA up to $5,500 for 2013 ($6,500 if age 50 or older) and $5,500 for 2014 ($6,500 if age 50 or older) as long as earned income is at least equal to the 2014 Roth contribution and joint AGI is below the phase-out eligibility limit of for joint filers, $178,000 for 2013 and $181,000 for 2014. The phase-out range for determining how much of a contribution can be made to a Roth IRA is $178,000 to $188,000 for 2013 and $181,000 to $191,000 for 2014.

The dollar limits for contributions to a Roth IRA for year are reduced by any contributions to traditional IRAs for than year.

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Taxes are inevitable.  You know that part.  Each April 15, you tally up all of your 1099 forms that you have received and pay taxes on your investments, even if you haven’t actually spent a penny of those dividends and interest earnings.  Unfortunately, the money lost to taxes will never be available to you again.  But if you use the principles of tax diversification, you could benefit by paying taxes on what you spend – Not on what you earn. 

Tax diversification is as important as investment diversification when it comes to managing retirement saving risks.  With the proper advice you can create flexibility by selecting the best tax situation for your specific needs and time horizon.

Think about your financial goals for today, the next 10-15 years and down the road as you near retirement and answer these questions:

  • What investments do you currently hold?
  • What is the intent for that money?
  • Can it be allocated more tax efficiently?
  • How many years until you retire?  If you are retired how much and long do need your income?
  • Are you planning a major purchase?
  • What do you pay in taxes on each year- as reflected in IRS Form 1099

Now divide your investments into these three categories:

  1. Money that is taxed now
  2. Money that is taxed later (tax deferred/taxed when withdrawn)
  3. Money that is never taxed (paid in with after tax dollars and tax free during accumulation and at withdrawal)

Reallocate your investments into the appropriate category, if necessary.

For help you may ask questions in the comments

Or click here to contact me privately: Tim Barton Chartered Financial Consultant

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The ObamaCare penalties for failing to purchase qualified health insurance start in tax year 2014. If a person was required to purchase minimum essential coverage and did not, she/he would only be required to pay a tax penalty for not purchasing PPACA coverage (if she/he files a U.S. tax return). In many cases, this tax is far less than the premiums that a person would pay for obtaining PPACA/ObamaCare coverage.

Q: What will my penalty tax be if am required to purchase qualified ObamaCare coverage, but do not purchase it?

Penalty Tax Calculations:

Tax penalties begin in 2014 and rise in years following. In each year, the tax consists of the higher of a dollar amount or a percentage of household income. For a given household, the tax applies to each individual, up to a maximum of three.

Following is the schedule of ACA penalty taxes:

  • 2014: The higher of $95 per person (up to 3 people, or $285) OR 1.0% of taxable income.
  • 2015: The higher of $325 per person (up to 3 people, or $975) OR 2.0% of taxable income.
  • 2016: The higher of $695 per person (up to 3 people, or $2,085) OR 2.5% of taxable income.
  • After 2016: The same as 2016, but adjusted annually for cost-of-living increases.

 Tax Penalty Examples:

  • 2014- Family of 2 with a taxable income of $26,000. Penalty Tax is $260;  because $260 ($26,000x 1%) is more than $190 ($95 x 2 persons).
  • 2014 -Family of 3; with a taxable income of $26,000.  Penalty Tax is $285;  because $285 ($95×3 persons) is more than $260 ($26,000 x 1%).
  • 2014 -Family of 3; with a taxable income of $50,000.  Penalty Tax is $500;  because $500 ($50,000 x 1%) is more than $285 ($95 x 3 persons).
  • 2015 -Family of 3; taxable income of $26,000.  Penalty Tax is $975;  because $975 ($325  x 3) is more than $525 ($26,000 x 2%)
  • 2016 -Family of 3; taxable income of $26,000.  Penalty Tax is $2,085;  because $2,085 ($695 x 3) is more than $650 ($26,000 x 2.5%)
  • After 2016: The same as 2016, but adjusted annually for cost-of-living increases.

For those buying health coverage on the government run exchange make sure to check the provider network limits.  Network limitations may cause additional financial penalties.   For example if a person needs health services while traveling out of their network area there are costly out of network penalties.  If coverage is available at all.

Many insurance companies still offer policies off the Exchange.  The premiums are about same with lower deductibles and more robust networks.  However, buying on the government’s exchange is the only way to get the subsidy.  Many people don’t qualify for the subsidy or it’s greatly reduced due to income.  



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What Is the Retirement Savings Tax Credit?

This is often an overlooked tax credit. Remember you have until April 15, 2014 to make your 2013 IRA contribution.

 The Retirement Savings Tax Credit dates back to the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA 2001)which  introduced a new temporary tax credit for IRA contributions and elective deferrals to qualified plans made by certain lower income taxpayers. The availability of this “saver’s credit” was made permanent by the Pension Protection Act of 2006.

The credit is applied against the total of regular income tax and the alternative minimum tax and is allowed in addition to any other deduction or exclusion that would otherwise apply to the contribution/elective deferral.

Calculating the Credit

The credit is determined by multiplying “qualified retirement savings contributions” up to $2,000 times the “applicable percentage,” which is determined by the taxpayer’s adjusted gross income (AGI):

Adjusted Gross Income (2014) *

Married, filing jointly                Single                     Applicable Percentage

More than      Not over               More than Not over

$ 0                    $36,000                   $ 0        $18,000                              50%

$36,000           $39,000                $18,000   $19,500                               20%

$39,000           $60,000                 $19,500   $30,000                             10%

$60,000                                             $30,000                                              0%

* As adjusted for inflation

“Qualified retirement savings contributions” are equal to the total of IRA contributions and elective deferrals to a 401(k), 403(b), 457 or SIMPLE plan, a SAR-SEP and voluntary employee contributions to deemed IRAs for the tax year, reduced by distributions from such plans that are included in income (or not rolled over in the case of Roth IRAs).

An Example

A single taxpayer, who does not participate in an employer-provided retirement plan and has $18,000 in adjusted gross income, contributes $2,000 to a regular IRA in 2013. In addition to deducting the $2,000 IRA contribution, this taxpayer can also claim a $400 ($2,000 x 20%) retirement tax credit for 2013.


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You better pay attention because there is going to be a quiz and you might have to take it.  This quiz  must be  passed before some tax refunds are sent out.  In order to protect taxpayers expecting refunds some of them  will be sent a letter from the Wisconsin Department of Revenue directing them to take a 4 question multiple choice quiz.  This quiz should confirm the taxpayers identity.


What if the taxpayer fails the quiz?

  • They get one do over.
  • If the second quiz fails then the taxpayer must send identification proof to verify their identity.
  • A taxpayer who refuses to take the quiz  must  send proof of identity.

Why a Quiz?

  • The IRS estimates the current earned income tax credit fraud is about 23-28%.
  • According the latest stats from the IRS identity theft is up 78% for tax years 2011 to 2012.

Wisconsin does not anticipate any more fraud prosecutions instead they hope for a reduction in identity theft and refund fraud.

Wisconsin Department of Revenue

I wonder how many state revenue departments will pick up on this idea.  Or other government departments.  Perhaps a quiz for a driver license, hunting or fishing license, dog license…

Identity theft is a growing problem so on a more serious note I hope this quiz helps.  In meantime while you’re waiting for your tax refund if you think of any good one liners post them in the comments.


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2014 Individual Federal Income Tax Rates

Federal income tax rates are available on this handy chart to help with your tax planning and preparation.

Download the 2014 Tax Digest  PDF For additional information regarding:

  • Individual income tax rates
  • Deductions & Tax Credits
  • Social Security/ Medicare rates
  • Health Savings Accounts
  • Retirement Plan Contribution Limits including Traditional and Roth IRAs  

For additional information Requests contact Tim Barton, ChFC at

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Social Security payments are important to most American’s retirement plans.  After all,  a worker has contributed a significant portion of their income to Social Security via payroll taxes;  starting at 2.25% in 1950 - steadily increasing to 15.3% 1990 and later.  Because retirement could last 30 years or more a retiree must consider how and when to receive their income benefits.

The average 2012 Social Security monthly retirement benefit is about $1,230.  The maximum possible benefit for someone retiring in 2012 at full retirement age (66) will be $2,513.  The amount of benefit is permanently affected by the age a retiree starts SS income, it is crucial to consider the long term impact of starting benefits prior to reaching  full retirement age.

Social Security retirement benefits can be started as early as 62 but the benefit amount will be less than the full retirement benefit amount.  If benefits are started early the amount will be permanently reduced based on the number of months benefits are received before full retirement age.

Example for a retiree was born in 1955, full retirement age is 66 and 2 months.  If they draw Social Security at age 62 the benefit is reduced by 25.83%.

For those who start SS benefit early and earn more than $15,120 per year they will have their benefits reduced.  However, when they reach full retirement age any month in which benefits were reduced will be removed from the early retirement  deduction calculation, which may raise the benefit paid.

Delaying benefits beyond full retirement age results in an 8% yearly increase.  This annual increase will max out at age 70.

As much as 85% of Social Security benefits may be subject to federal and state income tax.

A surviving spouse’s benefit is based on the deceased spouse’s income amount; a death scenario should be considered when thinking about taking Social Security before full retirement age.

Retirees should be very careful considering any “break even” analysis. There are many variables to consider such as income tax, longevity, survivor’s benefit, etc. Retirees may want to adjust the age when they take retirement income in order to gain maximum lifetime benefit.

Many people take the reduced Social Security benefit before full retirement age.  Each situation is different and starting early may be appropriate, in some cases.  Keep these issues in mind-

  • If life is expected to be longer than average the reduced benefit will stay reduced for a long time.  Consider the amount that may be given up over a lifetime.
  • If working while drawing Social Security early consider how those earnings will affect Social Security benefits.
  • A reduced SS benefit may also reduce the income benefit a spouse receives after the death of their partner.
  • If there is a significant difference in spouse ages Social Security benefits are likely to be paid over a greater period of time than when the spouses are closer in age.  In situations like this it is more important to understand how different assumptions will affect a retirement income plan. Variables such as the age benefits start, longevity, and survivor’s benefits can combine to produce substantial differences in total benefits received.

There are 81 different Social Security combinations and strategies a retiree should consider rather than just a  simple “break even” analysis.

If you would like to explore your Social Security benefit options contact Tim Barton, ChFC for an analysis.  List your SS estimated monthly benefit for both spouses and current age in the comment section.





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The sale of real estate including your home or farm could be subject to Medicare taxes. The Affordable Care Act’s increased Medicare taxes are in effect now for tax year 2013. Some workers are wondering why their take home pay has been reduced. Part of the reason is the payroll (SS) tax cut has expired and the Fiscal Cliff fix did not reinstate this tax cut, this affects all wage earners from dollar one.


The other part for higher wage earners may be the ACA mandated Medicare tax increases, these started January 1,2013.



The following graphics explain the 2013 Medicare taxes on earned income, unearned income and how the sale of real estate including your home or farm could trigger this tax.

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How and when is a Roth IRA taxed?  This is one of the frequently asked questions of the 2013 tax season.   Many are wondering if the “Fiscal Cliff Tax Fix” had any effect on Roth IRAs.  Here is a  Roth IRA Taxation Chart to help you understand how a Roth IRA is taxed and how it avoids income taxes.

Due to the continuing low interest/yield environment we find yourselves in cutting edge Retirement Income Planners are recommending their clients purchase  a Roth fixed index annuity with one of the new generation lifetime income riders attached.  The idea is to hold the annuity for 5 years or until age 59 1/2 whichever is longer then start the guaranteed tax free lifetime withdrawal.  During the holding period the annuity owner earns a guaranteed income base roll-up rate, typically 5-7%.

By starting the Roth lifetime income payments early in retirement or even before retirement they would likely receive all their Roth funds plus interest in about 15 years and then they would continue receiving “company money” for the rest of their lives.   Some of these plans have cost of living increases built in so the potential for a large sum of tax free income is certainly available.

In many cases it is not wise to leave your Roth Funds – just “sit” there.

For help you may ask questions in the comments

Or contact me privately here: Tim Barton Chartered Financial Consultant



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Even those who are retired have concerns about the amount of income taxes they are required to pay. So being it is now “tax” season some tax saving information may be helpful.

Once total or gross income from all sources has been determined, certain adjustments to income are available.  These adjustments amount to a reduction in gross income and generally are granted to achieve tax fairness or in recognition of a desirable social objective. Adjustments to income are available regardless of whether a taxpayer itemizes deductions or takes the standard deduction.

The available adjustments to income include:

One-Half of Self-Employment Tax

Self-employed taxpayers generally deduct one-half of their self-employment tax, as determined on Schedule SE.

Self-Employed Health Insurance Deduction

Self-employed taxpayers can deduct 100 percent of the health insurance premiums (including long-term care insurance premiums) they pay for themselves, their spouses and dependents.

Health Savings Account Deduction

Contributions to a Health Savings Account, up to specified maximums, may be deducted.

IRA Contributions

Eligible individuals can contribute and deduct up to $5,500 to an IRA; $10,000 for an eligible married couple, even if one spouse has no earned income. For workers age 50 and older, the IRA contribution limit is $6,500 for 2013.

Education Savings Account Contributions

Subject to income limitations, up to $2,000 per beneficiary (generally a child under age 18) per year may be contributed to an Education Savings Account and deducted; subject to income limitations.

Student Loan Interest Deduction

Up to $2,500 of the interest paid in 2013 on a loan for qualified higher education expenses may be deducted, subject to income limitations.

Qualified Tuition and Related Expenses Deduction

Up to $4,000 of qualified tuition and related expenses paid in 2013 may be deducted, subject to income limitations.

Educator Expenses

Professional educators can deduct up to $250 spent out-of-pocket for classroom expenses.

For help you may ask questions in the comments

Or contact me privately here: Tim Barton Chartered Financial Consultant


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Post “fiscal cliff” tax rates are available on this handy chart to help with your tax planning and preparation.

Update: Roth IRA Enhancement strategy post.

If you would like a copy of this tax chart emailed to you, let me know by confidentially leaving your email here.

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Here is the IRS press release regarding the new Fiscal Cliff withholding tables.


IRS Provides Updated Withholding Guidance for 2013

IR-2013-1, Jan. 3, 2013

WASHINGTON — The Internal Revenue Service today released updated income-tax withholding tables for 2013 reflecting this week’s changes by Congress.

The updated tables, issued today after President Obama signed the changes into law, show the new rates in effect for 2013 and supersede the tables issued on December 31, 2012. The newly revised version of Notice 1036 contains the percentage method income-tax withholding tables and related information that employers need to implement these changes.

In addition, employers should also begin withholding Social Security tax at the rate of 6.2 percent of wages paid following the expiration of the temporary two-percentage-point payroll tax cut in effect for 2011 and 2012. The payroll tax rates were not affected by this week’s legislation.

Employers should start using the revised withholding tables and correct the amount of Social Security tax withheld as soon as possible in 2013, but not later than Feb. 15, 2013. For any Social Security tax under-withheld before that date, employers should make the appropriate adjustment in workers’ pay as soon as possible, but not later than March 31, 2013.

Employers and payroll companies will handle the withholding changes, so workers typically won’t need to take any additional action, such as filling out a new W-4 withholding form.

As always, however, the IRS urges workers to review their withholding every year and, if necessary, fill out a new W-4 and give it to their employer. For example, individuals and couples with multiple jobs, people who are having children, getting married, getting divorced or buying a home, and those who typically wind up with a balance due or large refund at the end of the year may want to consider submitting revised W-4 forms.

What does all this mean?

For now:

Your take home pay is going be reduced at least by amount of the 2%  increase in Social Security taxes.  Or put another way the Social Security tax “holiday” has expired.

Estate taxes are going up but not as much as previously thought.

The AMT (alternate minimum tax) patch has been made permanent.

I’ll be study the details in the coming weeks and post changes that affect retirement and estate planning.

In the meantime-

For help you may ask questions in the comments

Or contact me privately here: Tim Barton Chartered Financial Consultant


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The “Fiscal Cliff” is the description some economists have used to describe the potential situation at the end of 2012 when several U.S. tax and fiscal changes are scheduled to occur.  This “perfect storm” of change includes the expiration of the Bush income tax cuts at the end of 2012, and in January 2013 some new taxes plus scheduled increases in income and estate taxes. Some Federal spending cuts are also scheduled to occur as part of the automatic spending cuts Congress agreed to in the Budget Control Act of 2011. The concerns are that all of these changes could lead to a double-dip recession. In other words a recession followed by a short recovery, then another recession in 2013.
What is involved with the fiscal cliff?

Automatic spending cuts are set to begin in 2013 in the following areas:

  •   Defense
  •  Non-Defense areas such as education, food inspectors, air travel safety, etc

The Bush tax cuts expire including:

  •  Income tax rate increases
  •  Capital gains rates increase
  •  Qualified dividend rates increase
  •  Child tax credit is reduced
  •  American Opportunity Tax Credit expires
  •  Earned Income Tax Credit changes
  •  Marriage penalty relief expires
  •  Estate tax exemption decreases
  •  Gift tax lifetime exemption decreases
  •  Top estate and gift tax rates increase

 Other tax changes include:

  •  Increase in the employee payroll tax withholding
  •  No Alternative Minimum Tax patch
  •  New 3.8% Medicare surtax
  •  New .9% Medicare additional withholding

 Miscellaneous changes include:

  •  Unemployment benefits extension expire
  •  ”Doc Fix” which is a cut in reimbursement rates that physicians receive for treating Medicare patients is implemented.

 This is not intended to be a complete list.

We cannot predict the future or how the President and Congress will act.  However, there are opportunities that are available before any potential changes occur.

Items to consider before 2012 year end:

  •  Did a Roth conversion take place?
  •  Capital Gains/Dividends:  Discuss the 0-15% rates with your tax advisor
  •  Charitable donations: No itemized deduction phase-outs
  •  Gifts:  $5.12 lifetime gift tax exemption and $13,000 annual gift tax exclusion
  •  Nonqualified annuities: If appropriate for your situation, may provide income-tax deferral of earnings and retirement savings

 Items to consider after 2012 year end:
Get updates on current tax information; estate and gift tax information, see your tax advisor as needed.

For help you may ask questions in the comments or contact me privately here: Tim Barton Chartered Financial Consultant

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A SIMPLE IRA plan is an IRA-based retirement plan designed for small businesses. The employer adopts the SIMPLE IRA plan. The employer notifies the employees to open a SIMPLE IRA where they wish. The employee chooses an amount to defer from their paychecks up to $11,500 per year, or $14,000 if the employee is age 50 or older.  Their deferred amount is not counted as income so taxable income is less thus lowering their tax bill.  Distributions from the SIMPLE IRA will be subject to ordinary income tax and may be subject to a federal additional tax if the distribution is made prior to age 59½. 

The employer must choose one of two kinds of contribution:

  • A matching contribution of $1 for each $1 the employee contributes up to 3%. For example, suppose employees Jack and Matt each earned $20,000. 3% of compensation for each is $600. Jack puts in the full $11,500, so the employer matches $600. Matt, however, puts in only $500. The employer only has to contribute $500 to Matt’s SIMPLE IRA.
  • There is some flexibility to reduce the match to 1%.
  • A 2% contribution for every covered employee, whether they contributed or not.
  • To provide a reduced match or a 2% non-elective contribution, the employer must provide a timely notice to employees and may have to meet other requirements.
  • To calculate the employer contribution, the employer must use the compensation the employee earned during the entire year, even if the plan is not established by January 1.

The employer can deduct its contribution to its employees’ accounts. 

The plan must cover eligible employees even if they are older than age 70½.

If the employer adopts a SIMPLE IRA plan, it is the only retirement plan they can have for the year.

Planning tip:

The SIMPLE IRA plan may be of particular interest for two kinds of business owners:

  • An employer with several employees that wants to offer a low-cost retirement plan but wants most of the contributions to come from the employees themselves.
  • A person who is self-employed who has low earnings (less than $40,000) but wants to make a relatively high contribution. The SIMPLE IRA plan will allow a higher contribution than a SEP IRA plan, without the cost of a 401(k) plan or defined benefit plan.

Once funds are in a SIMPLE IRA they are subject to SIMPLE IRA rules.

  • The employee cannot add other traditional IRA contributions or rollovers from any account other than a SIMPLE IRA.
  • The employee can’t roll funds out of the SIMPLE IRA (except to another SIMPLE IRA) for two years.
  • Any distribution from a SIMPLE IRA during the first two years of participation is subject to an additional 25% federal tax, unless an exception applies.

In other respects the SIMPLE IRA follows the traditional IRA rules. For example, the owner must begin required minimum distributions (RMDs) by April 1 of the year after age 70½.

You may ask questions in the comments or contact me privately here:

Tim Barton

Chartered Financial Consultant


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Now that the Supreme Court has ruled the Patient Protection and Affordable Care Act of 2010 aka Obama Care is the law of the land a prudent person must begin to figure out the effect the law is going to have on us and our finances.  I plan to do a series, the best I can without losing readers, summarizing some of the most pertinent aspects of this all in compassing law. 

ACA of 2010 Tax changes that will Impact Individuals and Families.


  • A 10% tax on the amount paid for indoor tanning services provided on or after July 1, 2010 must be paid.


  • Costs for over-the-counter drugs not prescribed by a doctor cannot be reimbursed through an HRA or health FSA, or reimbursed on a tax-free basis through an HSA. 
  • The penalty tax on distributions from an HSA that are not used for qualified medical expenses is increased from 10% to 20% of the distribution.


  • Increase the itemized deduction threshold for unreimbursed medical expenses from 7.5% of adjusted gross income to 10% of adjusted gross income.
  •  The itemized deduction threshold increase is waived for individuals age 65 and older for tax years 2013 through 2016.
  •  Increase the Medicare Part A payroll tax rate on wages by 0.9% (from 1.45% to2.35%) on earnings over $200,000 for individual taxpayers and over $250,000for married taxpayers filing jointly; applies only to the employee portion of the tax.
  • Impose an unearned income 3.8% Medicare contribution on net investment income received by higher-income taxpayers (over $200,000 individual/$250,000 married filing jointly). Net investment income includes interest, dividends, rents, royalties, gain from disposing of property, and income earned from a trade or business that is a passive activity. Self-employed individuals, as well as estates and trusts, will also be liable for this tax. Distributions from qualified retirement plans, however, will be exempt from paying the additional tax.
  • Eliminate the tax deduction for employers who receive Medicare Part D retiree drug subsidy payments.


  •  Impose a 40% nonrefundable excise tax on group insurers of employer-sponsored plans on the portion of annual premiums that exceed an inflation-adjusted $10,200 for individual coverage and $27,500 for family coverage.
  • Higher premium thresholds ($11,850 individual/$30,950 family) will be available to certain high-risk professions, as well as to retired individuals age 55 and older.
  • While insurers will be responsible for calculating and paying the tax, they can pass along the excise tax to their customers in the form of higher premiums.

You may ask questions in the comments or contact me privately Tim Barton, ChFC

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Take your time. This is an emotional time…not the best time to be making important financial decisions. Short of meeting any required tax or legal deadlines, don’t make hasty decisions concerning your inheritance.

Identify a team of reputable, trusted advisors (attorney, accountant, financial/insurance advisors). There are complicated tax laws and requirements related to certain inherited assets. Without accurate, reliable advice, you may find an unnecessarily large chunk of your inheritance going to pay taxes.

Park the money. Deposit any inherited money or investments in an FDIC insured bank account until you’re in a position to make definitive decisions on what you want to do with your inheritance.

Understand the tax consequences of inherited assets. If your inheritance is from a spouse, there may be no estate or inheritance taxes due. Otherwise, your inheritance may be subject to federal estate tax or state inheritance tax. Income taxes are also a consideration.

Treat inherited retirement assets with care. The tax treatment of inherited retirement assets is a complex subject. Make sure the retirement plan administrator does not send you a check for the retirement plan proceeds until you have made a distribution decision. Get sound professional financial and tax advice before taking any money from an inherited retirement plan…otherwise you may find yourself liable for paying income taxes on the entire value of the retirement account.

If you received an interest in a trust, familiarize yourself with the trust document and the terms under which you receive distributions from the trust, as well as with the trustee and trust administration fees.

Take stock. Create a financial inventory of your assets and your debts. Start with a clean slate and reassess your financial needs, objectives and goals.

Develop a financial plan. Consider working with a financial advisor to “test drive” various scenarios and determine how your funds should be invested to accomplish your financial goals.

Evaluate your insurance needs. If you inherited valuable personal property, you will probably need to increase your property and casualty coverage or purchase new coverage. If your inheritance is substantial, consider increasing your liability insurance to protect against lawsuits. Finally, evaluate whether your life insurance needs have changed as a result of your inheritance.

Review your estate plan. Your inheritance, together with your experience in managing it, may lead you to make changes in your estate plan. Your experience in receiving an inheritance may prompt you to want to do a better job of how your estate is structured and administered for the benefit of your heirs.

You may ask questions in the comments or contact me privately Tim Barton, ChFC

© 2012 VSA, LP

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