THINKING ABOUT SAVING MONEY…. START PLANNING FOR YOUR TAXES NOW
Neil Pastor Shnider, RPh, MBA, CPA
The 2004 year is rapidly coming to an end. It’s not too early to start thinking about some tax tips to help reduce your tax bill to Uncle Sam. The best way to save money on taxes is through planning, education and having good advisors. Hear are some thoughts.
- Do you want to be a hero with your favorite charity? If so, contribute appreciated stock to the charity and you will not have to pay the capital gain tax as if you sold the stock, but will be able to take a charitable tax deduct based on the stock’s market value at the time of the contribution. To see the magnitude of this, let’s assume that Mr. X owns 100 shares of stock in company ABC. He paid $10 per share for a total of $1,000. At the time of the contribution, the stock is worth $35 per share, for a total value of $3,500. When Mr. X contributes the stock, he is eligible to take a $3,500 charitable tax deduction, the charity cashes the stock in tax free and gets the $3,500 and Mr. X does not pay taxes on the $2,500 gain. WOW!! Everyone wins.
- Did you know that at 55 years of age or older, if you leave the company where you have a 401(k) retirement plan, you can withdraw the money in a lump sum payment without paying a tax penalty for early withdrawal. You will still be obligated for any ordinary tax due on the withdrawal, when filing your annual tax return. This is a great opportunity if you want to find cash to start your own business, go on a vacation, pay some large medical bills or just start to enjoy your retirement. Planning is important as you might want to spread the withdrawal over two calendar years such as taking out one-half in December and the other half in January of the following year. This eases the tax burden and may put you into a lower tax bracket.
- If you are still working and have a 401(k) retirement plan, the tax code permits you to borrow the lesser of $50,000 or one-half of the amounts without being taxed. In essence, you are making a loan to yourself. There are some rules that you must follow such as, the loan must be paid back within five years and you must pay interest to yourself on the loan. Check with your plan administrator for details. This is a good way of getting a lump sum of cash tax free.
- For those who are eligible, don’t forget your IRA contributions for 2017. You can contribute up to $5,500 in 2017 and if you are 50 or older you get a bonus contribution limit of an additional $1,000. You have until the date you file your return or April 15, which ever is sooner to make the contribution. Folks who are actively participating in 401(k) plans can may also be able to defer in 2017 income based on their income. Don’t forget, if your employer matches any amount of your contribution you are getting free money.
- Remember if you reach 70 ½ in 2017 you must start taking distributions from your IRA or 401(k) plan by April 1 of the year following the year you reach 70 ½. The IRS has a required distribution schedule. Consult your tax adviser for the required amounts.
- If you are thinking of taking social security benefits before your full retirement age, which varies based on your date of birth, you should know the rules. The social security administration will deduct $1 from your benefit payments for every $2 you earn above the annual limit of $11,640. You may end up not receiving any money, if you are earning too much. Check with your local social security office or on the internet ( www.ssa.gov ) for additional information.
- Don’t forget to take the tax credit for the elderly if you are age 65 or older, by the end of 2004. You’ve earned the right to this credit.
- Want to help pay for your children’s or grandchildren’s college education? You can gift them each as much as $14,000 per year for a single person or $28,000 per year for a married couple tax free. You can also fund an education trust and/or education savings accounts that are tax deferred or tax free.
Learn more about your rights as a taxpayer by consulting your tax consultant or contact Mr. Shnider: email: firstname.lastname@example.org, telephone: 614-582-0108
Neil Shnider is a Certified Public Account (CPA) and an adjunct faculty member at Ashland University, MBA program and Franklin University, Department of Accounting. He specializes in the areas of taxation and small business management consulting in Columbus, Ohio and is the founder of The Shnider Group www.theshnidergroup.com.