Check Your Withholdings
With less than two months remaining in the calendar year, it’s a great time to double check your federal withholding to make sure enough taxes are being taken out of your pay.
The average refund for 2009 was $2,887, up 8 percent from 2008. Even though the Making Work Pay Tax Credit lowered tax withholding rates in 2009 and 2010 for millions of American households, some workers and retirees still need to take steps to be sure enough tax is being taken out of their checks.
Certain folks should pay particular attention to their withholding. These include:
- Married couples with two incomes
- Individuals with multiple jobs
- Dependents
- Some Social Security recipients who work
- Workers who do not have valid Social Security numbers
- Retirees who receive pension payments
As was the case in 2009, taxpayers who wind up owing tax because too little was taken out of their paychecks during 2010 may qualify for special relief on a penalty that sometimes applies. Depending on their personal situation, some people could have less withheld from their paychecks than they need or want.
Failure to adjust withholding could result in potentially smaller refunds or, in limited instances, a taxpayer may owe tax rather than receive a refund next year.
An easy way to check how much you’ll owe this year is to use the 1040 Tax Calculator on our website. Or just give us a call and we’ll figure it out with you.
What to Do If You Are Missing a W-2
What to Do If You Are Missing a W-2
Okay I can’t take credit for below in red, but figured it needed to be out for all to see. This is IRS TT-2009-28. Word for word. I am putting it here because not everyone will use the IRS for info.
I could have just wrote this little bit but did the copy paste so readers wouldn’t have to go to IRS site.
“taxguys” first book giveaway,
Win a copy of Kay Bells The Truth About Paying Fewer Taxes.
I’ll be posting my review and contest entry info on February 28th.
Did you get your W-2? These documents are essential to filling out most individual tax returns. You should receive a Form W-2, Wage and Tax Statement, from each of your employers each year. Employers have until February 2, 2009 to provide or send you a 2008 W-2 earnings statement either electronically or in paper form. If you haven’t received your W-2, follow these steps:
1. Contact your employer. If you have not received your Form W-2, contact your employer to inquire if and when the W-2 was mailed. If it was mailed, it may have been returned to the employer because of an incorrect or incomplete address. After contacting the employer, allow a reasonable amount of time for them to resend or to issue the W-2.
2. Contact the IRS. If you still do not receive your W-2 by February 17th, contact the IRS for assistance at 800-829-1040. When you call, have the following information:
ü Employer’s name, address, city, and state, including zip code;
ü Your name, address, city and state, including zip code, and Social Security number; and
ü An estimate of the wages you earned, the federal income tax withheld, and the period you worked for that employer. The estimate should be based on year-to-date information from your final pay stub or leave-and-earnings statement, if possible.
3. File your return. You still must file your tax return on time even if you do not receive your Form W-2. If you have not received your Form W-2 by February 17th, and have completed steps 1 and 2 above, you may use Form 4852, Substitute for Form W-2, Wage and Tax Statement. Attach Form 4852 to the return, estimating income and withholding taxes as accurately as possible. There may be a delay in any refund due while the information is verified.
4. File a Form 1040X. On occasion, you may receive your missing documents at a later date and some may have conflicting information. You may receive a Form W-2 or W-2C (corrected form) after you filed your return using Form 4852, and the information differs from what you reported on your return. If this happens, you must amend your return by filing a Form 1040X, Amended U.S. Individual Income Tax Return.
Form 4852, Form 1040X, and instructions are available on the IRS Web site, IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Links:
ü Form 4852, Substitute for Form W-2, Wage and Tax Statement (PDF 29K)
ü Form 1040X, Amended U.S. Individual Income Tax Return (PDF 123K)
ü Instructions for Form 1040X (PDF 43K)
If you find you need to use 4852 please read the instructions carefully or
have your tax preparer do this for you.
How to Avoid IRS Penalties and Interest
If you really do owe unpaid taxes, there’s generally not much you can do about the taxes or interest – you’ll have to pay up. However, you can likely get some, if not all, of the penalty and interest decreased. IRS penalties often do not apply when you acted in good faith, based on a reasonable cause for your actions. Penalties apply only if you deliberately attempted to cheat, deceive or mis-lead the IRS.
Immediately pay the tax and interest you owe and fill out IRS Form 843. Above the word “Claim” on this form, enter in “Demand for Abatement of Penalties under Code Section 6404(a).” When you return Form 843, include a detailed explanation of why your penalty should be canceled.
Your letter should lay out the facts so the IRS will evaluate that you acted in good faith and based on reasonable cause for your actions. You should spell out in black and white that you never deliberately set out to break the law.
This form is used a lot these days since a growing number of tax preparers are emerging with limited training—and these folks can and do make mistakes when calculating tax returns. Luckily, as long as you acted in good faith and didn’t deliberately try to violate the IRS’ rules, the penalties should get waived.
Sometimes the most crushing aspect of a tax bill can be the added interest charge. If you could earn that kind of return on your investments you’d never have to work again! If any of us charged those kinds of rates, we might end up behind bars!
A Straight Tip
- When the interest is due to an error made by the IRS;
- When the interest is due to delay caused exclusively by the IRS; or
- When the interest is demanded on money which the IRS sent in error.
To cancel interest, write a letter that states, “Interest should be canceled because” and list which condition the cancellation of interest meets. Be specific and demand cancellation. Mail your letter to the Service Center which issued the bill.
A Smart Money Move: Send all correspondence with the IRS, including your tax return, via certified mail, with return receipt requested. This way you have tangible proof that your letter or return was both mailed by you and received by the IRS.
Here are two common penalty triggers – and some advice on how to avoid paying any penalties:
1. Underpayment of Your Estimated Taxes. When you are self-employed, or your employer does not withhold your taxes (and send them to the IRS for you), you must pay estimated taxes each quarter. How much tax should you pay? Either 90% of what you think you owe, or 100% of what you paid last year. If you get to the end of the year (or, more likely, April 15th of the following year) and realize you didn’t pay enough, the IRS slaps you with a penalty!
A Smart Money Move: You can avoid penalties if your income came in unevenly during the year (use Form 2210), or if underpayment was due to some disaster, casualty or other unusual circumstance.
2. Late Filing. Your tax return is due by April 15. And if you file late (without an approved extension), the IRS will hit you with a 5% penalty for every month you are late, up to a maximum of 25%. The penalty for paying your taxes late is 0.5% per month, also capped at 25%. During any month in which you incur both penalties, you only get charged 5% per month.
You can avoid these penalties altogether, with one of these reasons:
- You filed by April 15th, but sent your return to the wrong IRS office.
- You got your return to the post office in time (by midnight on the 15th) and have a certified mail receipt to prove it.
- You filed late because of serous illness or a death in the family.
- You filed late because you were out of the country unavoidably.
- You went to an IRS office for help (before April 15), but no one could meet with you.
- Your professional tax advisor incorrectly advised you.
- Your records were destroyed by flood or fire in your home or in your office.
- For reasons beyond your control, you were unable to obtain the necessary records to determine how much you owed.
- You applied for necessary IRS forms in advance, but did not receive them in time.
10. You relied on wrong information provided by an IRS worker or in an IRS publication.
Are You sure you are Having Enough Withheld?
How are you supposed to know? This is a re-post for your tax planning needs. A few easy steps and some light planning can help you figure this out.
What you need to know:
If you fail to estimate your federal income tax withholding properly, it may cost you in a variety of ways. If you receive an income tax refund, it essentially means that you provided the IRS with an interest-free loan during the year. By comparison, if you owe taxes when you file your return, you may have to scramble for cash at tax time–and possibly owe interest and penalties to the IRS as well.
When determining the correct withholding amount for your salary or wages, your objective should be to have just enough taxes withheld to prevent you from incurring penalties when your tax return is due. (You may owe some money at the time you file your return, but it shouldn’t be much.) You can accomplish this by reading and understanding IRS Publication 505 and IRS Publication 919, properly completing Form W-4 (and accompanying worksheets), and providing an updated Form W-4 to your employer when your circumstances change significantly.
Form W-4 helps you determine the proper withholding amount
Two factors determine the amount of income tax that your employer withholds from your regular pay:
1) the amount you earn
2) the information you provide on Form W-4.
This form asks you for three pieces of information:
1) The number of withholding allowances you want to claim: You can claim up to the maximum number you’re entitled to, claim less than you’re entitled to, or claim zero.
2) Whether you want taxes to be withheld at the single or married rate: The married status, which is associated with a lower withholding rate, should generally be selected only by those taxpayers who are married and file a joint return. Other people (including those who are married and file separately) should generally have taxes withheld at the higher, single rate.
3) The additional amount (if any) you want withheld from your paycheck: This is optional; you can specify any additional amount of money you want withheld.
When both spouses work and have taxes withheld at the married rate, they sometimes end up with insufficient taxes withheld. If this happens to you, remember that you can always choose to withhold at the single rate. In addition, you can determine the proper withholding amount by completing Form W-4’s two-earner/two-job worksheet.
Complete the worksheets to claim the correct number of allowances
To understand Form W-4, you must understand allowances.
Think of allowances as cash in your pocket at the time that you receive your paycheck. The more allowances you claim, the less taxes are taken from your paycheck (and the more cash ends up in your pocket on payday).
The following factors determine your number of allowances:
1. The number of personal and dependency exemptions that you claim on your federal income tax return
2. The number of jobs that you work
3. The deductions, adjustments to income, and credits that you expect to take during the year
4. Your filing status
5. Whether your spouse works
To claim the correct number of allowances, you should complete Form W-4’s worksheets. These include a personal allowances worksheet, a deductions and adjustments worksheet, and a two-earner/two-job worksheet. IRS Publication 505 (Tax Withholding and Estimated Tax) explains these worksheets.
Check your withholding
To avoid surprises at tax time, it’s a good idea to periodically check your withholding. If you accurately complete all Form W-4 worksheets and don’t have significant non-wage income (e.g., interest and dividends), it’s likely that your employer will withhold an amount close to the tax you’ll owe on your return. But in the following cases, accurate completion of the Form W-4 worksheets alone won’t guarantee that you’ll have the correct amount of tax withheld:
1) When you’re married and both spouses work,
2) If either of you start or stop working
3) When you or your spouse are working more than one job
4) When you have significant non-wage income, such as interest, dividends, alimony, unemployment compensation, or self-employment income, or the amount of your non-wage income changes
5) When you’ll owe other taxes on your return, such as self-employment tax or household employment tax
6) When you have a lifestyle change (e.g., marriage, divorce, birth or adoption of a child, new home, retirement) that affects the tax deductions or credits you may claim
7) When there are tax law changes that affect the amount of tax you’ll owe
In these cases, IRS Publication 919 (How Do I Adjust My Tax Withholding?) can help you compare the total tax that you’ll withhold for the year with the tax that you expect to owe on your return. It can also help you determine any additional amount you may need to withhold from each paycheck to avoid owing taxes when you file your return. Alternatively, it may help you identify if you’re having too much tax withheld. If you find that you need to make changes to your withholding, you can do so at any time simply by submitting a new Form W-4 to your employer.
Top tax savers
Still searching for that last-minute eureka on your 1040? Perhaps you’ll find it here. Trim your taxable income with these strategies, and don’t miss frequently overlooked deductions.
Look for losses. If you took a hit in the market in 2007 or even if you switched investments within a fund family at a loss, you can spin the pain into tax gold. First you must use losses to offset capital gains. Then you can deduct another $3,000 worth against ordinary income. What’s left carries over to later tax years. So make sure you don’t have any leftover losses from, say, a bad bet on GM in 2005.
Pad your retirement. You can fund an IRA for 2007 until April 15 (the max is $4,000; $5,000 if you were 50 as of Jan. 1). And don’t assume you earn too much to write it off. Even if you and your spouse have retirement plans at work, you can deduct part of your contribution if your modified adjusted gross income (AGI) is below $103,000. For a full deduction, your modified AGI must be $83,000 or less.
Itemize. Some 63% of taxpayers don’t itemize – at their financial peril. A 2002 Government Accountability Office report found that filers who should have itemized but didn’t paid $438 extra on average.
Are you stuck paying the AMT?
Honest answer? Probably not. Designed to ensure that the super-wealthy don’t get away with paying nothing, this parallel tax system increasingly snags middle- and upper-middle-income families because Congress never indexed the AMT to inflation; as incomes rise over time, so does the number of people stuck paying tax under the AMT.
Late last year Congress passed a “patch” that exempts more income from the AMT, but the levy will still trap some 3.5 million filers this year, according to the Tax Policy Center. If you use tax software, click yes on the window that pops up asking if you want an update. That will make sure you have the correct AMT rules.
While the AMT snare is hard to escape, a very tiny portion of affluent AMT payers might be able to avoid the tax by electing to take smaller deductions where it’s allowed. If you take the smaller standard deduction instead of itemizing or if you deduct state sales taxes instead of higher state income taxes, you may simultaneously raise your ordinary tax bill and lower your AMT enough to tip the balance in favor of regular taxes. This complicated strategy, though, is best done by an accountant.
Chances are there’s nothing you can do for 2007, but consider making an appointment with a pro to see if you can skirt the AMT at least every other year.
How to avoid an audit
Find a four-leaf clover and steer clear of black cats: To some extent, being hit with an audit is just bad luck. Even if you don’t do anything to raise an IRS computer’s eyebrows, you could end up being plucked at random. Nobody outside the IRS knows for sure how the nonrandom returns are identified – and the agency isn’t telling. But most tax experts agree that having outsize deductions is one red flag.
Martin Kaplan, author of “What the IRS Doesn’t Want You to Know” and a C.P.A. with 35 years of experience handling audits, says that writing off more than 25% of your income would likely get your return marked for review. And while the IRS used to look hard at the home-office deduction, the emphasis these days seems to be on people reporting small business losses on Schedule C, says Frederick Daily, author of Stand Up to the IRS.
That said, as long as you have backup, you should claim what you are due, even if doing so might raise the likelihood of your being audited. While tax evasion is bad, tax avoidance is perfectly legal. An audit certainly won’t be pleasant, but it should be bearable and affordable if you have the proper paperwork to make your case.
Don’t want to hear from the IRS at all? Go back and check your numbers. Even TurboTax and Tax Cut can’t stop you from keying in the wrong digits. These simple mistakes won’t lead to an audit, but they could trigger an “assessment notice” – in other words, a bill.
What if you can’t file on time?
Good news: You can have a six-month extension. Bad news: You still have to pay your taxes by April 15. File Form 4868 (download a copy from irs.gov or your tax prep program will provide one), and use last year’s return to estimate what you owe or let your tax software do it for you. It’s better to overestimate and get a refund later; if you’re under by more than 10%, you’ll owe interest of 7% on the amount you underpaid by, plus a penalty of up to 25% of the underpayment.
Can’t pay what you owe?
First make sure you’ve done everything you can to lower your tax bill. If that doesn’t help, you’ll have to pay up.
You can raise the dough any number of ways, including shaking down your first cousin or selling your least-favorite yacht. You can also qualify for an installment plan if you can prove to the IRS that you don’t have sufficient assets or income to pay now. You’ll be charged a $105 setup fee ($52 if you okay a direct transfer from your bank) and a variable interest rate on the balance (7% now).
Otherwise, use the lowest-rate loan you can. Tapping a home-equity line of credit may be the best deal. But you also have the option of paying by credit card through Officialpayments.com or Pay1040.com. Both hit you with a “convenience fee” equal to 2.49% of your tax bill, and then you’ll have to eat the interest charges. Wherever you get the money, pay off the debt as quickly as you can.
Be smarter about taxes next year.
Stop missing out on easy money Label a folder “2009 taxes,” and throughout the year file receipts for anything that might qualify as a deduction.
Bring home more cash If you got a refund this year, you lent money to the government interest-free. Better to owe a bit. Adjust your withholding so less of your paycheck goes to the IRS. (Go to irs.gov and search for “withholding calculator” to figure out the right number of exemptions.) Then arrange to have that bump in take-home pay go directly into a money-market fund. That way the interest earned is yours, not the IRS’.
Look up your tax bracket Knowing what you pay on every extra dollar you earn can make you a more tax-savvy investor. After you file, find the tax-rate tables at irs.gov (search for “tax rate” and pick the first result) and see what bracket your taxable income (line 43 of your 1040) puts you in. Armed with that, you can judge whether you’re better off investing in tax-free municipal bonds or taxable bonds. To do the math, divide the muni yield by 1 minus your bracket, expressed as a decimal (or 0.72 if you’re in the 28% bracket). The recent triple-A-rated five-year muni yield of 3.1%, for example, is the same as earning a taxable 4.3% if you’re in the 28% bracket. Compared with five-year Treasury yields of 2.9%, it’s a clear winner.
Year-End Tax Planning
As the end of the year approaches, it’s time to consider strategies that can help you reduce your tax bill. But most tax tips, suggestions, and strategies are of little practical help without a good understanding of your current tax situation. This is particularly true for year-end planning. You can’t know where to go next if you don’t know where you are now.
So take a break from the usual fall chores and pull out last year’s tax return, along with your current pay stubs and account statements. Doing a few quick projections will help you estimate your present tax situation and identify any glaring issues you’ll need to address while there’s still time.
Withholding
If you project that you’ll owe a substantial amount when you file this year’s income tax return, ask your employer to increase your federal income tax withholding amounts. If you have both wage and consulting income and are making estimated tax payments, there’s an added benefit to doing this: Even though the additional withholding may need to come from your last few paychecks, it’s generally treated as having been withheld evenly throughout the year. This may help you avoid paying an estimated tax penalty due to under withholding.
Of course, if you’ve significantly overpaid your taxes and estimate you’ll be receiving a large refund, you can reduce your withholding accordingly, putting money back in your pocket this year instead of waiting for your refund check to come next year.
Alternative minimum tax (AMT)?
Originally intended to prevent the very rich from using “loopholes” to avoid paying taxes, the alternative minimum tax (AMT) snags more and more middle-income taxpayers every year, since (unlike regular income tax) it doesn’t keep pace with inflation. The AMT is governed by a separate set of rules that exist in parallel to those for the regular income tax system. These rules disallow certain deductions and personal exemptions that you are allowed to include in computing your regular income tax liability, and treat specific items, such as incentive stock options, differently. As a result, AMT liability may be triggered by such items as:
Large numbers of personal exemptions
Large deductible medical expenses
Large deductions for state, local, personal property, and real estate taxes
Home equity loan interest where the financing isn’t used to buy, build, or improve your home
Exercising a large incentive stock option
Large amounts of miscellaneous itemized deductions such as unreimbursed employee business expenses
So when you sit down to project your taxes, calculate your regular income tax on Form 1040, and then consider your potential AMT liability using Form 6251. If it appears you’ll be subject to the AMT, you’ll need to take a very different planning approach during the last few months of the year. Even some of the most basic year-end tax planning strategies can have unintended consequences under AMT rules. For example, accelerating certain deductions into this year may prove counterproductive since AMT rules may require you to add them back into your income. See a tax professional for information on your specific tax situation.
Timing
The last few months of the year may be the time to consider delaying or accelerating income and deductions, taking into consideration the impact on both this year’s taxes and next. If you expect to be in a different tax bracket next year, doing so may help you minimize your tax liability. For instance, if you expect to be in a lower tax bracket next year, you might want to postpone income from this year to next so that you will pay tax on it next year instead. At the same time, you may want to accelerate your deductions in order to pay less tax this year.
To delay income to the following year, you might be able to:
Defer compensation
Defer year-end bonuses
Defer the sale of capital gain property (or take installment payments rather than a lump-sum payment)
Postpone receipt of distributions (other than required minimum distributions) from retirement accounts
To accelerate deductions into this year:
Consider paying medical expenses in December rather than January, if doing so will allow you to qualify for the medical expense deduction
Prepay deductible interest
Make alimony payments early
Make next year’s charitable contributions this year
Gifts that Give
If you itemize your deductions, consider donating money or property to charity before the end of the current tax year in order to increase the amount you can deduct on your taxes. As an aside, now is also a good time to consider making non-charitable gifts. You may give up to $12,000 ($24,000 for a married couple) to as many individuals as you want without incurring any gift tax consequences. If you gift an appreciated asset, you won’t have to pay tax on the gain; any tax is deferred until the recipient of your gift disposes of the property.
LET UNCLE SAM SUBSIDIZE YOUR RETIREMENT SAVINGS
{OOPPPs! Didn’t tell you, The Wondering Tax Pro and I have decided to switch our compatible/complimentary posts spots. Meaning TWTP’s discussion of the Credit for Qualified Retirement Savings Contribution appears here at taxguy and my post on this, appears over at TWTP titled ANOTHER CREDIT – FORM 8880.- This is a small break from my series. Enjoy.}
LET UNCLE SAM SUBSIDIZE YOUR RETIREMENT SAVINGS
by Robert D Flach – The Wandering Tax Pro
TAX GUY Bruce has provided a good overview of the Retirement Savings Contributions Credit, aka “Saver’s Credit” in his post “Another Credit – Form 8880″ which appears today over at THE WANDERING TAX PRO.
The recent Ninth Annual Transamerica Retirement Survey revealed that only 17 percent of full-time American workers with annual household incomes of less than $50,000 are even aware that the credit exists.
Recent surveys report that nearly half of American households are not saving at all for retirement and two thirds are not saving enough. This credit, which was first introduced in the Economic Growth and Tax Relief Reconciliation Act of 2001 and made permanent by the Pension Protection Act of 2006, is an excellent way to get low income individuals and those just starting out in the workplace to save for their retirement.
Under this credit a lower-earning individual can get the federal government to subsidize from 10% up to over 80% of his/her retirement savings, depending on the individuals AGI and tax situation.
For 2008 the Modified AGI amounts for determining the Retirement Savings Contribution s Credit are:
SINGLE, MARRIED SEPARATE, QUALIFYING WIDOW(ER)
$ 0 – $16,000 = 50%
$16,000 – $17,250 = 20%
$17,250 – $26,500 = 10%
HEAD OF HOUSEHOLD
$ 0 – $24,000 = 50%
$ 24,000 – $25,875 = 20%
$ 25,875 – $39,750 = 10%
MARRIED FILING JOINT
$ 0 – $32,000 = 50%
$ 32,000 – $34,500 = 20%
$ 34,500 – $53,000 = 10%
To determine “Modified” AGI for purposes of this credit you start with AGI and add back any exclusion or deduction for foreign earned income, foreign housing cost, and income from American Samoa or Puerto Rico.
Let us look at an example of how this credit works –
Jane Q Taxpayer, a single parent with one dependent child, will earn $24,963 in taxable W-2 wages for 2008. This is her only taxable income for 2008. She does not contribute to a 401(k) or other pension plan at work.
If Jane were to contribute $1,000 to a traditional IRA for 2008 she would be able to claim a deduction for the contribution on her 1040A. This $1,000 would reduce her AGI to $23,963. As a Head of Household with a “Modified” AGI of less than $24,000 she is eligible for a full 50% Retirement Savings Contributions Credit on her $1,000 IRA contribution.
By making a deductible contribution to an IRA Jane saves $100 in federal income tax (10% tax bracket) and gets a credit of $500 – a total savings of $600. So “Sam” has paid 60% of the IRA contribution.
Jane could file her return early in the season so that her refund would arrive before April 15th and she could use part of her tax refund to fund the IRA contribution.
If instead of an IRA contribution Jane participated in her employer’s 401(k) plan and made a total of $1,000 in employee contributions to the plan she would realize an additional $160 savings from an increased Earned Income Credit (the EIC is based on taxable W-2 wages, which would be reduced by her $1,000 contribution to the company plan). Now 76% of her retirement savings has been “subsidized” by “Sam”.
If Jane had two dependent children the EIC savings from a $1,000 contribution to her 401(k) would save $211 – bringing the government subsidy up to 81.1%.
Jane could revise her W-4 withholding so that the 401(k) contributions did not reduce her take-home pay. On her limited income she could not afford to lose $1,000 in income, but she could handle $189.00.
In the above cases Jane would recognize the tax savings as an increase in her refundable Child Tax Credit.
Unfortunately if your standard or itemized deduction(s) or dependents wipe out the tax liability you get no benefit from the Savers’ Credit. It is not a refundable credit (we have enough of those already) and cannot be carried forward.
The most difficult year to start a retirement savings account is the first year you begin work. This is also the best time to begin. If you can discipline yourself to do it as soon as you start to work it will be easier to continue each year thereafter. The Retirement Savings Contributions Credit can help to reduce the actual cost of your first year’s contribution.
Here is another example –
John Q Taxpayer (who is over age 17) graduated from school in 2007. He started a full-time job in 2008 and will receive taxable wages of $17,350 for the year. He will also have $25 in bank interest for 2008. His tax liability would be $863.
If John Q contributes $1,406 to a deductible IRA his AGI would now be $15,969 and he would be eligible for a 50% credit. His tax liability would be “0″. John Q is “out of pocket” only $543. “Sam” has paid for over 61% of his retirement savings. As in the earlier example, John Q can use all or part of his resulting tax refund to fund the contribution if he files his return early enough in the season.
Of course John Q could contribute more than $1,406 to an IRA. He could contribute $2,000 and treat $594 as a nondeductible contribution on Form 8606. Or he could contribute $1,406 to a traditional IRA and up to $3,594 to a ROTH IRA.
Here is another idea. John Q’s parents and/or grandparents could gift to him an IRA of $1406 or more. In addition to giving him a start on a retirement account for the future they are also putting an additional $863 in his pocket, which he could contribute to his IRA for 2009.
TTFN
{The series I started will continue on Friday with a Guest post from Gina please visit her blog (Tax Tips Blog) http://glgcpa.com/blog}
Again, I want to invite any and all guest post on this subject. I want to hear from all bloggers or just readers with their own input. Let’s see what you see I am missing. If you have some words of wisdom on this subject please let us share it with everyone, if it is something that has already been covered, so what, I am looking for others to tell what they know or have learned about finding a paid preparer. Repetition drives the point home.
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