Diversifying your investments involves spreading your risks by investing in a variety of asset classes such as stocks, bonds, commodities, and real estate. But with a changing tax landscape, you might consider three more classes: taxable, tax-deferred, and tax-free.
Years ago, taxpayers often worked under the assumption that their tax bracket would be lower after they retire. Therefore, a common strategy was to defer as much taxable income as possible to the golden years. Now, however, with the possibility of higher tax rates in the future, it could be more efficient to pay those taxes today while rates remain lower. Since no one knows for sure what Washington will do, it might be time to hedge your tax risk and allocate your portfolio between accounts with differing tax consequences.
Have you ever wondered about the taxability of funds or services you receive? There are many areas in the tax code that cause confusion regarding what's taxable. These are some of the most common.
Alimony. Alimony is taxable to the person who receives it and deductible to the person who pays it. Special rules apply. Make sure you have proper documentation as part of a divorce decree to ensure you can support your tax position.
Child support. Child support is not taxable to the person who receives it on behalf of their dependent. It is also not deductible for the person who pays it.
Each year the IRS produces its "Dirty Dozen" list of tax scams. As criminals become savvier at stealing personal information and scamming people out of their money, taxpayers must be more vigilant than ever. Here are some of the more common scams you may encounter.
Identity theft. The IRS continues to receive fraudulent returns filed with someone else's social security number each year. While the agency is making progress in finding and prosecuting these criminals, taxpayers must be extremely cautious with their personal information to avoid becoming a victim.
Thousands of new businesses are created every day, and many are franchises. Buying a franchise involves risk, just like any other business acquisition, so do some research before you decide if it's the right move for you. Here are some initial thoughts as you explore this option:
Key benefits. A franchise gives the buyer the right to use a trademarked name in selling a product or service. The purchase of a franchise includes training, location assistance, inventory, business systems and advertising support. In addition, most franchises have a proven business model and a record of success. What would take you millions of dollars to accomplish from scratch, has been tested and proven by successful franchises.
This article appears in the February 16, 2017, online addition of the Journal of Accountancy.
The IRS announced that it will not reject tax returns just because a taxpayer has not indicated on the return whether the taxpayer had health insurance, was exempt, or made a shared-responsibility payment under Sec. 5000A. The IRS disclosed the change on its webpage, ACA Information Center for Tax Professionals, in response to President Donald Trump’s Jan. 20 executive order mandating that federal agencies reduce the burden of the Patient Protection and Affordable Care Act, on taxpayers.
Sec. 5000A, enacted as part of PPACA, requires taxpayers who do not maintain minimum essential health coverage for each month of the year and who do not qualify for an exemption to pay a shared-responsibility payment with the filing of their Form 1040, U.S. Individual Income Tax Return.
A deduction is allowed only if you keep proper records “substantiating” the deduction. In other words, maintain good paperwork. Recordkeeping for education expenses can be especially important, because federal tax benefits are available that can significantly reduce your tax liability. If you’re claiming benefits such as the American Opportunity Credit or the Lifetime Learning Credit, you must keep underlying documents proving your payments. Estimates or approximations do not qualify as proof.
Here are common items that can substantiate the amount you claim on your tax return.
Tuition statements. Retain these statements with proof of your check or credit card payment and match them to the Form 1098-T, Tuition Statement, received from the educational institution. Note: Beginning with your 2016 tax return, you’ll need to make sure that you receive Form 1098-T from the educational institution. Recently passed legislation requires that students have a valid Form 1098-T in order to claim tax benefits.
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