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With Thanksgiving just a few days away I want to take time to thank you for your business. I hope that you have always received expert advice and services from JAG CPA LLC and have had a positive experience filing your taxes.
If you have had a positive experience, please share it with others in the form of a Google review. Simply search "Jonathan A Giegerich CPA" on Google and when the listing appears on the right click "Write a Review".
As always, if you have had a significant life event and are unsure how it will effect your tax situation please contact me. I will examine the facts and circumstances of your situation and explain the tax implications.
Jonathan A Giegerich, CPA, MST
Owner
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| A QUICK RECORD KEEPING GUIDE |
What to Keep, What to Shred
As year-end approaches, remember to check your 2014 federal income tax return for items that can affect your 2015 planning. Here are three to look for:Is your file cabinet overflowing? Do you hesitate to purge tax information because you're not
sure what to keep and what to discard? Here's a quick guide to help you cut through the clutter.
* Expenses. Substantiation for deductions includes charitable donation acknowledgments,
receipts for employee business expenses, and automobile mileage logs. Retain these at least
seven years after you file the return claiming them.
* Income. The same seven-year rule also generally applies to common tax forms such as 1099s
showing interest, dividends, and capital gains from banks or brokerages, and Schedule K-1s from
partnerships and S corporations. The IRS recommends holding on to your W-2s until you start
collecting social security.
Tip: Shred interim income reports once you've compared the totals to annual forms.
* Retirement accounts. You may have to calculate the taxable portion of distributions, so keep
records detailing your contributions until you've recovered your basis.
* Tax returns. The statute of limitations is usually three years but can be six years if
underreported income is involved. In cases of fraud or when no return is filed, the IRS has an
indefinite time period for assessing additional tax.
As a general rule, keep federal and state returns a minimum of seven years.
For additional information, including how long you should store business papers and payroll
reports, please contact me. I will be happy to help you establish a records retention schedule.
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Need money to pay bills? Raiding your 401(k) is not a good idea!
When you're short of cash, raiding your 401(k) plan may seem like a good idea. Here are two reasons why it isn't.
Penalties and taxes: If you're not at least 59½ years old, you'll be hit with a 10% penalty for early withdrawals except in certain limited cases. Also, the money you withdraw will be included in your taxable income and taxed at your regular tax rate.
(Note: Check to see how close you are to the next tax bracket as the withdrawal may be taxed at the next highest rate due to the inclusion of the withdrawal in your taxable income falling in a higher tax bracket.)
Lost opportunity: If your 401(k) earns an annual return of 5% over the next 30 years, an account with a balance of $50,000 could grow to over $215,000. A withdrawal taken and spent today will cost you that growth.
Bottom line: If possible, find other ways to pay your bills, even if that means contributing less to your 401(k) in the short term. While it's wise to match funds your company provides, you might consider temporarily reducing contributions that exceed the matching amount.
What about loans? A 401(k) loan also has drawbacks. Amounts withdrawn through a loan do not earn income. Only money that is in your account will earn income. Additionally, if you lose your job, you'll have to repay the outstanding loan balance or face tax penalties.
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When can you start collecting Social Security?
Whether you should take social security retirement benefits at the earliest possible date or defer benefits until reaching normal retirement age (or even age 70), depends on several factors. For example, you'll want to consider your overall health and life expectancy, your plans to earn income before reaching normal retirement age, anticipated returns on your other investments, and, surprisingly, your guess about the future of the social security program. As you can tell, the decision isn't one-size-fits-all.
For instance, say your savings won't cover ongoing expenses and you need to rely on social security income to make ends meet. In that case, deferring social security benefits may not be an option for you.
But if your financial circumstances offer more financial flexibility, deferring your benefits can be an advantage. For each year you delay (up to age 70), the payouts increase. In addition, if you plan to earn significant income between age 62 and your normal retirement age (65-67, depending on the year you were born), putting off your social security benefits may make sense. That's because any benefits in excess of specified limits ($15,720 in 2015) will be reduced. You'll lose $1 of benefits for every $2 in earnings above the limits.
Note that you won't lose any social security benefits (regardless of earnings) once you reach full retirement age.
On the other hand, let's say you've accumulated a healthy balance in your 401(k) and expect that account to generate a good annual return. Under this scenario, you might be better off leaving your retirement savings alone and taking your social security benefits early to cover living expenses.
Or perhaps your family has a history of health problems and you don't realistically expect to live into your 80s. Again, taking social security benefits at age 62 might be a good choice.
Please contact me if you have further questions or want to discuss your personal situation.
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Taxes are becoming more and more complex. If you have a special tax situation and would like to know more about your options as a taxpayer, please call me and schedule a free consultation appointment.
Sincerely,
Jonathan A Giegerich, MST, CPA
JAG CPA LLC
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