Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.

Today, I will share with you some common IRA tax questions that I usually get from my clients.

Are you ready?

Here’s the first question:

Which retirement account will give you more money when you retire: a traditional IRA or a Roth IRA? Why?

Roth IRA benefits

Roth IRA will usually give you more money when you retire.

Why?

Basically, you can get a tax deduction when you contribute to a traditional IRA as long as you meet certain income rules. However, you have to pay taxes when you start taking it out during retirement. Conversely, a Roth IRA contribution is not tax deductible. However, the contributions and earnings will be tax-free when you take it out later. That’s huge!

Also, the Roth IRA has these additional benefits:

1. No required minimum distributions (RMD) on your Roth IRA when you reach 70 ½ years old.
2. Tax-free transfer to your beneficiaries or heirs when you pass away as long as the account is open for at least 5 years.
3. Won’t increase your Social Security tax bill if your total income is $32,000 or less for married people or $25,000 for a single person.
4. You are building tax-free wealth.

Here’s the 2nd question:

Does it make sense to have both a traditional IRA and a RothIRA? Why or why not?

Future tax rate

The answer boils down to your future tax rate. If you think your tax rate will be higher in retirement, you want to have a Roth account so that you will have tax-free withdrawals. But if you think tax rate will be lower in retirement, a traditional IRA might make more sense since you will pay lower taxes. To hedge your bets, you can contribute to both traditional IRA and Roth IRA. That way, you can have the best of both worlds and have the flexibility of either taking out taxable or tax-free withdrawals during retirement that would help you manage your tax rates.

Here’s the 3rd question:

If you have a 401(k) or 403(b), does it make sense to have a traditional IRA, too, or does it only make sense to have a Roth IRA?

It depends. You need to go through the income limits and see if you qualify to make a deductible traditional IRA or a Roth IRA contribution.

Traditional IRA Income Limits

If you participate in your employer’s 401(k) or 403(b), the deductibility of the traditional IRA contribution is subject to income limits. For 2018, if you file as single or head of the household, the adjusted gross income (AGI) limit is $63,000 – $73,000. If you file as married, your AGI income limit is $101,000 – $121,000.

If only one spouse participates in the employer’s 401(K), then the AGI income limit is $189,000 – $199,000.

So if your income is below the limit, you can take a full IRA deduction. But if it falls between the range, you can take a partial deduction. But if your income exceeded the limit, you cannot take the traditional IRA deduction.

Roth IRA Income Limits

The Roth IRA income limit does not take into account if you have a 401(K) or 403(b), it’s just based on the adjusted gross income limit. For 2018, if you file as single or head of the household, the adjusted gross income (AGI) limit is $120,000 – $135,000. If you file as married, your AGI income limit is $101,000 – $121,000.

So if your income is below the limit, you can contribute up to $5,500 or $6,500 (if 50 years or older) to a Roth IRA. But if it falls between the range, you can only make a partial contribution. But if your income exceeded the limit, you cannot make any Roth IRA contributions.

Roth IRA Backdoor method strategy

If you did not meet the Roth IRA income limits, you can still fund a Roth IRA by using the Roth IRA backdoor method. You basically contribute to a non-deductible traditional IRA and immediately convert it to a Roth IRA. However, if you have other IRAs, you might have additional taxes when you convert. So watch out!

Here’s the 4th and last question:

Should you contribute to an IRA if you’re afraid you might need the money for something else, like an emergency or a down payment on a house? Why or why not?

Yes. You can still contribute to an IRA. The $10,000 IRA withdrawals are not subject to the 10% penalty if you are using it as a down payment for a home. Lifetime limit is $10,000. However, you might still be subject to tax on the withdrawal amounts depending on the type of IRA that you used. If you took it out from a deductible traditional IRA, then you need to pay income taxes on the withdrawal amount. However, if you took it out from your Roth IRA, the withdrawals are treated as made from this order:

1. Regular Roth IRA contributions
2. Rollover contributions
3. From earnings

That means you can take out withdrawals from regular and rollover ROTH IRA contributions and it will be considered the return of capital and not taxable to the extent of the contribution amounts.

There you go. Those are the more popular IRA tax questions that I usually get from my clients.  Hopefully, you learned something new.

If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.

Have you filed your taxes yet? If you answered no because you have not received your W-2 yet, don’t wait until the last minute before taking care of this.

Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.

Here are few things you can do if your W-2 hasn’t arrived yet:

1. Contact your employer if you don’t receive your W-2 one week after the January 31^st
2. If you have not received your W-2 by end of February, you can call the IRS at 1-800-829-1040 to confirm if your W-2 has been downloaded already in the IRS database. Before calling the IRS though, make sure you have the following info ready:
3. Name, address and telephone no.
4. SSN
5. Dates of employment
6. Employer’s name, address, and telephone no.

Once you provided all the info, the IRS will contact your employer directly to request a replacement copy on your behalf.

3. Prepare IRS form 4852 – if you don’t receive the missing info and cannot get a correct form from your employer, you can reconstruct the wages and tax withholding on Form 4852 based from your check stubs and attach it to your return. Form 4852 serves a substitute for your missing W-2.  After September 30^th, you need to check your social security statement online by going to SSA.gov/myaccount. If the earnings on Form 4852 are not shown, contact the Social Security Administration (SSA) office.
4. If you received a copy of your W-2 after you filed your taxes, then you have to compare the W-2 info you reported vs the one showing in the official W-2. If there were changes, you can amend your return to reflect the correct numbers by filing Form 1040X.

So to recap, if you have a missing W-2, make sure you take the necessary steps in order to avoid IRS issues

If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.

Raise your hand if you heard about the new tax law? Now, raise your hand if you understood some of them. For the rest of you, raise your hand, if you have no clue what I’m talking about.

President Trump signed the new tax reform bill into law last year. This is the most significant tax change in more than 30 years. So the million dollar question is: How will this affect you? So today, I’m going to share with you 10 tax changes that you need to know now so you can plan and prepare for 2018. Are you ready?

#1. Lower tax rates

Across the board, all the tax brackets went down by 3% give or take. What does that mean to you? If everything is equal, meaning, your tax situation is the same, then you will get slight tax refund on your return next year.

#2. Standard deduction doubled & elimination of exemptions.

For single filers, the standard deduction increased to $12,000; for married couples filing jointly, it is increased to $24,000. What does that mean to you? It could be a good thing or a bad thing? It’s a good thing if you were filing standard deduction from previous years because you will benefit by the increased deductions.

However, it’s a bad thing if your Form Schedule A itemized deductions is lower than the new standard deduction. Basically you are losing out on some of your deductions which we are going to talk about later.

#3. Medical expenses are still deductible.

They almost took this out. Let’s talk about this. You can only deduct medical expense in excess of 7.5% of your income. So for example, you make a $100,000, 7.5% of $100K is $7,500. That means, if your medical expenses were $8,000, then you can only claim $500 of medical expenses.

My client, who had a kidney operation learned about the limitation, so he asked me: Noel, how can I deduct my kidney operation? I told him: have another surgery? So that’s what you have to do. You need to see if you can bunch major medical expenses into one year to get the medical deductions.

#4. State and property tax $10K limit.

Here’s the good news: you can still deduct your state tax withholding, sales tax and property tax on your return. Here’s the bad news: you will be limited to $10,000 of deductions.

What is your strategy? Well, the state is coming up with a bill. They will create a fund that you can donate money for the benefit of various California agencies. You will get a potential tax credit for CA and an IRS tax deduction.

Example: If you give $100K to this fund, you will get back $100K CA tax credit and also 37K of IRS tax savings (assuming you are in the 37% IRS tax bracket). In essence, you got back $137K by contributing $100K to this fund. It’s in the works. Beware though! IRS might not approve and will contest this.

#5. Mortgage loan $750K limit.

Mortgage interest will be limited to mortgage debt of up to $750,000 ($375,000 for married filing separate). Home equity line of credit cannot be deducted anymore (you need to review your equity line interest rate and compare with your investments to determine if you need to pay it off. Also, try to pay down your mortgage debt if it’s more than $750k and you can also downsize to meet the $750K mortgage debt limit).

#6 Elimination of miscellaneous & moving expense

No deduction is allowed for miscellaneous itemized deductions (these include unreimbursed employee expenses, management fees, tax preparation fees, investment expenses, etc.)(You need to discuss this with your employer and see if you can ask for an expense reimbursement or a salary increase to cover the expenses.

#7 Elimination of alimony deduction

Raise your hand if you know someone that got divorced last year? Now raise your hand, if you know someone will get divorce this year? You know the big difference? Your ex will get more than half.

Alimony payments will no longer be deductible for the spouse who writes the checks. Likewise, it’s not taxable to the one receiving the payments. That means you have to take this into account – non-deductible alimony payments – in case you get divorce and trying to finalize a settlement in the future). Keep in mind though that this tax change will be effective for tax year 2019.

#8 Bunch charitable donations in one year

Since the standard deduction went up, you might not be able to go over the standard deduction. You might feel that you are losing out on the charitable deductions. What do you do? You would give the same amount over a two-year period, but you would bunch them into one year. This will help you itemize your deductions so you don’t lose your tax benefits.

#9 Lower corporate tax rate.

Raise your hand if you have a C-corporation. The corporate tax (C-corporations) will go down from 35% to 21%. They now have a flat tax rate of 21%. What is the only issue? If your net income is usually less $50K, under the old law, you will only pay 15%, under the new law, you will pay 21%. That means you are paying more taxes. What is the solution? You need to look at the other business structure and see if you will come out ahead.

 #10 Lower pass-through entities business tax rate

Pass-through entities like S-corporations, LLC, and partnerships – who report their business income on the owner’s personal tax returns, and a sole proprietor, will have a 20% deduction. The 20% deduction would not be allowed if you are in a service business unless your taxable income is less than $315K for married and $157.5K if you are single.

If you are going to use your car for business, charity, and medical appointments during 2018, please be aware that the standard mileage rates for computing the deductible costs have changed.

Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.

Effective January 1, 2018, here are the rates to use to calculate reimbursements and deductions for the year:

•  The rate is 54.5¢ per mile for business miles driven (up from 53.5   cents in 2017)
•  For charitable services, it remains at 14¢
•  The rate for medical mileage is 18¢ per mile (up from 17 cents in 2017)

Keep in mind that the mileage expenses for moving expenses and job-related mileage deductions for employees were eliminated effective January 1, 2018. For tax planning purposes, talk to your employer and see if you can get a reimbursement for both of these expenses. If not possible, ask for a raise to at least cover all or at least part of your expenses.

That is all for now.

If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.

Are you following the most recent tax proposal development? If not, no worries – I will give you the most up-to-date development.

Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.

Both the House bill and the Senate measure calls for the elimination of most itemized deductions (that is Form 1040 Schedule A Itemized deductions). And in case they finalized the tax proposal this month, it won’t take effect until the 2018 tax year. However, we still need to plan since it could affect some of your 2017 year-end tax moves.

Here are six itemized deduction-related moves that you need to do now:

1. Pay your state taxes. If you live in a state that tax salary & wage income, you need to pay your state taxes as much as you can this year while they’re still deductible. A great way to do this is to make your final state estimated tax payments before the year-end.

2. Pay your real estate taxes early. The House bill is allowing up to $10,000 of real estate tax If your property tax bill is higher than that, then pay it in December instead of early next year, to avoid losing some deductions.

3. Prepay your January mortgage. The increased standard deduction amounts could make your mortgage interest deductions irrelevant. So by prepaying your January mortgage in December, it will increase your deductible mortgage interest for 2017.

4. Bunch medical expenses. If you had a challenging year as far as your or family members’ health, this is the year to make sure you don’t waste any expenses. So, in addition to year-end doctor and dental visits, make sure you don’t overlook other possible medical deductions. And if you are scheduled for a major surgery next year, I would recommend doing it before year-end.

5. Bunch miscellaneous expenses. If you are an employee, make sure you deduct all unreimbursed expenses that you incur while performing your job. Also, don’t forget to deduct such things as job search costs, investment related costs, safety deposit box, accountant fees or tax preparation software costs.

6. Donate to your favorite charities. If your other itemized deductions are gone and the standard deduction amount is increased, you might not have enough in donations to file a Schedule A form. So consider increasing or doubling up your donations this year when you can still claim the deductions.

So those are the six itemized deduction-related moves that you need to do now in order to maximize your deductions this year before the tax law changes.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.

Have you ever visited the IRS website? I have to tell you, I was pretty impressed with the online tax features. And as the tax filing season approaches, the IRS encourage you to visit IRS.gov first for tax tools and online resources to address any of your issues before calling.

Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.

Here are the top seven online reasons to visit the IRS website

• Check your refund status. You can go to irs.gov/refunds so you can check your refund status 24/7.
• Get  your transcript. You can access various transcript types online. You may also ask the IRS to mail a tax return transcript to you by requesting it online or by calling 800-908-9946. Please allow 5 to 10 days for delivery. Go to https://www.irs.gov/individuals/get-transcript
• Make a direct payment.  You can make tax payments directly from your checking or savings account. You can also view your account balance if taxes are owed. Go to https://www.irs.gov/payments
• Online Payment Agreements. You can pay your taxes by easily setting up a monthly payment plan. Go to https://www.irs.gov/payments/online-payment-agreement-application
• Answers to Tax Law Questions. The Interactive Tax Assistant takes you through a series of questions and provides the answers. Go to https://www.irs.gov/help/ita
• Forms, Instructions and Publications. You can download and view popular tax forms, publications and instructions anytime. Increasingly popular eBooks are available as well. Go to https://www.irs.gov/forms-instructions
• Where’s My Amended Return. Taxpayers can track the status of an amended return. Go to https://www.irs.gov/filing/wheres-my-amended-return

So I encourage you to try it and check out my top seven reasons why you need to visit the IRS website this upcoming tax season.

Have you ever been a victim of identity theft? Would you like to see and review a copy of your fraudulent return filed by these criminals in your behalf?

Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.

Today, I will share with you some information on how to get a copy of your fraudulent tax return filed by these criminals in your behalf.  You can request a reductive copy of your return from the IRS.  Reductive means a simplified version of the return without all the information. You can get copies of those fraudulent returns for the current tax year and previous 6 tax years.  The person making the request needs to be listed either as the primary or secondary social security no. on the return. Unfortunately, dependents may not request the copy.

Now, certain information on the return is reductive to protect additional victims that might appear on the return.  But any remaining data will let the victim see how much information the criminal had and how it’s used.  That’s very important.

To request a copy of fraudulent return you can use Form 4506-F and mail it to the IRS along with the required documentation.  Either you or your trusted tax advisor can complete the form.

That’s all I have. See you then.

Last week, the U.S. House of Representatives’ Committee on Ways and Means introduced the 2017 Tax Cuts and Jobs Act. There will be a lot of discussions over the provisions in the bill in the upcoming weeks, and I expect changes along the way.

Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.

Here are some of the highlights of the 2017 tax plan:

• Consolidate the seven current individual tax brackets into four at 12%, 25%, 35%, and 39.6%, using the following tax brackets:

• Increase the standard deduction:
• Joint filers: from $12,700 to $24,000
• Single filers (and surviving spouse): $6,300 to $12,000
• Eliminate personal exemption of $4,050 for each person;
• Eliminate itemized deductions except for mortgage interest deductions, charitable contribution deductions, and property tax deductions of up to $10,000. All medical expenses and other state and local tax deductions are eliminated;
• For new home purchases, mortgage interest deductions would be limited to interest on $500,000. What? That will affect home buyers in large cities where houses cost more than $500,000;
• Since state tax deductions will be eliminated, taxpayers in high-tax states will be greatly affected;
• Increase the child tax credit to $1,600, and add a nonrefundable credit of $300 for non-child dependents and a new nonrefundable $300 personal credit;
• Eliminate the alternative minimum tax (AMT) for individuals and corporations;
• Lower the corporate tax rate to 20%, and create a 35% maximum rate on pass-through business income (like LLC, partnership and S-corporation); and
• Increase the estate tax exemption to $10 million, and repeal the estate tax after six years.

How does this affect you?

• The Tax Policy Center said that Trump’s tax plan wouldincrease the national debt by $7 trillion over the next 10 years;
• Reduce U.S. gross domestic productafter 2024. The interest payment on the debt would consume a large portion of the federal budget. That money wouldn’t be available to build infrastructure or other job-creation uses;
• Trump’s tax reform plan would help the wealthy more than the middle class. The top 1 percent would get an 8.5 percent break. This favoritism to the wealthyis why Trump’s tax plan increases the debt so much. The most affluent Americans contribute the lion’s share to total tax revenues;
• No tax benefit to more than a third of taxpayers already have incomes that fall below their standard deduction and personal exemptions.

That’s all for now – I will give you the latest update as it develops.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.

Have you ever filed your taxes knowing that you either omitted or did not bother to review if your numbers makes sense? I got to tell you, you only need to get audited once, to experience the stress and hassle of replying to your beloved IRS.

Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.

Today, I will share with you 3 scary tax filing mistakes that you will really regret:

1. For Recently Separated or Divorced Couples

If you are recently separated or divorced and you are not on speaking terms with your spouse or ex-spouse, it’s very easy to make mistakes on both of your returns. Here are some tax filing errors that might come back to haunt both of you:

1. Choosing the wrong filing status – either spouse might file a joint return, separate return or single-filer return. If both spouses are not on the same page, have no communication & filed different returns, rest assured that they will have time to talk about it during the audit.
2. Reporting a different alimony paid and received – to avoid any IRS letter for both parties, make sure that the alimony reported for both spouses are identical. If not, you need to start preparing all the tax support to provide proof of the amount that you reported.

2. Getting Super-Aggressive On Your Business Deductions

If you own your own business and you are motivated to minimize your taxes, you are more inclined to deduct a lot of various expenses.  Be very careful though since a “Schedule C Profit or Loss From Business” tax form is a red-flag for an IRS audit. IRS would require proof why the expenses are “ordinary and necessary” for the business. If you cannot provide proof, they can go back and audit the last 3 years of your return. The words very stressful is an understatement once you get an IRS letter indicating that you have been selected for an audit.

3. Not reporting extra income

Make sure you report all the income that you received that don’t generate a W-2 or 1099. You might think cash received, payments from a side gig and under-the-table arrangements don’t have to be reported on your return. However, in case you get audited, the IRS will ask for copies of your bank statements and cash transactions. They can come back and audit the last 3 years of your return. It gets worse – if you omitted more than 25% of your gross income, they can go back and audit the last 6 years of your return. Good luck on that!

So those are three examples of scary tax filing mistakes.

Next time, please make sure to take this into account in order to avoid any IRS visits.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.

Noel:                Third strategy that you need to apply – expenses. Missed expenses! There’s a lot. I’m only gonna cover two that you might be missing. The first one is called, the start-up cost. If you’re into real estate investing, any cost incurred before buying or renting a property, they’re all deductible. Examples – legal and consultant fees, CPA fees and business formation. You got to travel out-of-state to look for properties – that is tax deductible. Car expenses – the whole work is deductible. You picked it up and it’s deductible.

Noel (cont’d):  Number two, that a lot of people might be missing is the closing cost. When you’ve to sell the property or buy it. It’s on the closing disclosure. There’s a lot of numbers there. Each one of those goes – uh – you have to treat each one differently. Some of them are gonna be amortized meaning spread on the life of the loan like points. The other ones’ are going to be fully deductible. We have property taxes, partial insurance, they’re tax-deductible up front and then there’s the – what they call title charges added to the purchase price. And, lastly, if you have an impound account, those reserves- they are not tax-deductible. They’re not deductible for now because the lender is reserving it to pay for property tax and for the insurance. Keep that in mind.

Noel (cont’d):  The fourth one, the R, the first R – Rates. The rates, if you plan accordingly, and I keep telling my clients – it’s all about structuring. The rates, if you sell the property, you can potentially zero it out. The capital gains – how? Two strategies, number one, you have to hold the property for more than a year. Number two, you have to make sure your income is lower than like around $75,000 if you are married, and if you are single it’s $38,000. You might be looking at me like, ‘How are we supposed to do that?’ You have to – If you have a business, you got to postpone your income. You have to maximize your deductions and if you do that, you can zero it out. How do I know? I’ve been doing a lot of those the last five years.

Male:               But with residential lending, you’re not gonna be able to get a loan on those properties, without showing any income.

Noel:                Well, that’s a different – ah. His question is that, How can we zero it out, we need that?

When a client have that issue, the question that I always ask is that, ‘What is the priority? Is it tax or is it the lending?’ Because a lot of my clients, when they want to buy more properties, guess what?

Noel:                You gotta show more income. So, you gotta pick kinda like which one is more important. Is it going to be wealth building cause the potential over here or paying the taxes? If the tax is gonna be a bucket – a nickel – go for the wealth building. Good question. Okay?

Noel:                So, if you do that, the bracket is a 10 or 15 percent tax bracket. If you do that you can potentially zero out your taxes. I have a client, got one property in Corona del Mar. We did some structuring – a lot though cause the property there is pricey. We did- we combined this – this, uh, – we combined this strategy. Some life-kind, some zero out – he got business deductions, he’s got a real estate. We combined. He – he sheltered almost like half a million dollars capital gains tax. But, it’s all about planning.

Noel (cont’d):  The last strategy – the last R is R E Pro, real estate professional. You guys heard about this? Raise your hand. No? Ok. Real estate professional, the reason why it’s so powerful is because it potentially zero out your taxes. If you have a lot of real estate holdings, it will allow you – it will allow you to deduct your rental losses against your earned income, W2, business income and could potentially zero out your taxes.

Noel (cont’d):  What are the requirements? There are two major requirements. It’s all about time. The first one is called, the 50 percent test. So, the amount of time you spend in real estate business needs to be more than your working hours. So, if I’m a CPA – that’s my full-time- job – and I’m working 2,000 hours. Well, I gotta spend 2,001 hours in real estate – might not be possible, so I gotta do some structuring. The other time requirement is the 750 hours. You have to have 750 hours in a real estate business. And, you might be thinking, ‘What’s that 750 about?’ Well, it’s for non-working spouse. They want to make sure you meet some rules. So, if you apply those again, you can zero out your taxes.

Noel (cont’d): Got a client…makes 200,000 – 250,000 dollars. Got business and all that – once everything is done, his income is around fifty while his rental losses is fifty grand. He pays zero taxes.

Noel (cont’d):  One reminder, though. The real estate professional designation was abused way back during the real estate boom that the IRS came up with the – they call it, the audit procedure, in 2008. So, If you’re planning to do that, re – I want to remind you there’s an audit risk that you’re gonna get audited. So, what’s the audit-proofing? You have to make sure you know the rules of the game.

Noel (cont’d):  So, in closing, those five strategies would help you potentially zero out your taxes. The like-kind exchange, depreciation, missed expenses, key tax rates and real estate professional. Apply that to zero out your taxes but the most important thing though is it’s not about the tax savings but what can you do with it. So, the financial freedom is more important. So, just imagine these are your choices of questions – ‘Do I buy a new car? Do I buy a new home? Do I buy a second home? Do I fund my retirement? Do I travel?’

Noel (cont’d):  So you see…when you pay zero, you become the hero.

Noel:                Thank you so much.