A tax client asked me: “Should I convert my IRA or retirement plan into a Roth IRA? That is a great question! However, as with any tax questions, it is impossible to have a definite answer when deciding whether to convert a traditional IRA or retirement plan into a Roth IRA.

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

You will generally benefit from the Roth IRA conversion if ALL of the following applies to you:
• You don’t need to take withdrawals from your Roth IRA for at least 15 to 20 years;
• Your future tax rate when you take out withdrawals is the same or greater than the rate during the conversion and
• You can pay the tax on the conversion with non-retirement funds

If you meet all the criteria, congratulations! This is one powerful tax strategy that if you apply correctly, will definitely, build you tax-free wealth!

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.

Donald Trump was elected the 45th President of the United States last night. You might be wondering: “How would that impact me tax-wise?”

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

If Trump makes good on his promises, here are the expected tax changes:

• Reduce federal tax brackets – from seven to three tax brackets with rates of 12, 25 and 33%. Likewise, the top rate would fall from 39.6 to 33 %.

• Standard deduction increase – from $6,300 to $15,000 for single filers and from $12,600 to $30,000 for married couples filing jointly. And there will be no more personal exemptions.

• Itemized deductions limit – will be capped at $100k for single filers and $200k for married couples filing jointly.

• Take out the 3.8% Medicare tax – this additional tax impacts high income taxpayers who have income over $200k for single filers and $250k for married couples filing jointly or taxpayers who sold appreciated real estate.

• Cancel alternative minimum tax and estate tax – if this estate tax plan holds true, then you can make some arrangements the next 4 years to pass away accordingly.

• Reduction of business tax rate – from 35% to 15%

• 15% business income tax rate – S-corporation, partnership or sole-proprietorship income reported on the personal tax will be taxed at 15%. What does that mean? High wage earner will be paying the 33% tax rate while self-employed will be paying 15% tax rate! That’s a huge difference! You better start working for yourself!

While all these changes look good on paper, this will increase our national debt by $7 trillion dollars because of tax revenue reduction. So the trillion dollar question then is, “what gives”? In order to offset this massive debt increase, the tax plan would require huge reductions in tax benefits from several industries. Which one? Your guess is as good as mine. One thing is for sure though, since the Republican party controls both House and Senate, Trump will be pushing for tax changes, it’s not an if, but when. Stay tuned.

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.

Don’t let the tax tail wag the financial dog. That was a famous saying that means don’t make financial decisions based solely on tax considerations.
Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.

When clients asked me about a particular tax issue that concerns cash and tax, I always tell them that “cash is king”. Tax is important, but cash will always trump tax! Pardon the pun, it was not intentional. Some tax reduction strategies make good financial sense. Others are simply bad ideas, often because tax considerations are allowed to override basic cash sense.

Here’s one example of the tax tail wagging the financial dog. Let’s say that you operate a sole proprietor consulting business. You want an additional tax deduction, so you decide to buy a $70,000 SUV that you don’t really need. If you’re in the 40% tax bracket and you deduct the entire amount, this purchase will reduce your taxes by $28,000 (40% of $70,000). But even after the tax savings, you will still shell out $42,000 ($70,000 minus $28,000) – and stuck with an SUV that you don’t really need.

Here are other examples that focus solely on tax considerations and ignore the bigger financial picture:

● You increase the size of your home mortgage just to get a larger tax deduction for mortgage interest.

● You don’t want to pay off a mortgage because you want to keep the interest deduction.

● Turning down extra income, because you don’t want to be “pushed into a higher tax bracket.”

As you can see, tax-reduction strategies are important in minimizing taxes. However, if you focus solely on the tax savings, you might lose sight of the overall financial picture. Because, you have to realize at the end of the day, “cash is king”.

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.

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

Here’s a tax question, I got from one of my clients:

Can I take out an early Roth IRA distributions to help pay for my son’s college education without a tax penalty?

Great question!

In regards to a Roth IRA, you can have an income and penalty tax-free distribution if you meet both rules:

1. 5-year holding period. You need to meet the 5-year holding period requirement. This once-in-a-lifetime satisfaction rule is only needed for the first Roth IRA contribution that you made. Any subsequent contributions will not start a new holding period. That’s huge! So what is the tax strategy? You need to open up a Roth IRA account ASAP so the 5-year clock starts ticking!

2. 10% penalty exceptions. You are not subject to the 10% withdrawal penalty if you meet the following exceptions:

a. Use it for college education
b. You are age 59 ½ or older
c. Distribution is due to death or disability
d. Distribution for first-time homebuyer

Please note, that this is not a complete list, but just a sample of some of the exceptions.

So to answer your tax question, you met the 10% tax penalty exception. However, you need to inquire about your first Roth IRA contribution date to confirm if you met the 5-year holding period. And if you did, congratulations! Tax-free is my favorite tax word!

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.

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

If you are a current rental investor, there is a good chance that you are not taking advantage of hidden rental deductions. Why is that? Because, the tax law is as clear as a “mud,” that’s why. On this video, you will learn three missed deductions that you can take advantage of the next time you file your taxes. Here goes:

1. Start-up costs – these are expenses that you acquire BEFORE you start your real estate investment activities. Examples are: attorney and CPA consulting fees, business formation, due diligence costs, research of real estate market including travel expenses to see potential investment.

2. Purchase statement’s closing costs – certain closing costs are considered 100% deductible (interest, PMI & insurance) while others may not be deductible at all (reserves). Some costs are amortized (points & appraisal), and still others will be included into your property costs (title charges, recording fees & transfer items).

3. Home office expense – must be used regularly and exclusively for your property rental and management affairs. You can use the simplified option by claiming a standard deduction of $5 multiplied by the square footage of the home office (maximum is 300 square feet).

There you go! These are three missed deductions that you can apply to your next year’s taxes in order to maximize your deductions and increase your tax savings.

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.

Do you know someone that recently passed away and the surviving spouse wants to sell the home but was not sure about the tax issues?

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

The $500,000 capital gain exemption that applies to married couples also applies to unmarried surviving spouses if he/she meets the following rules:

1. Only one spouse must meet the two-year ownership test
2. BOTH spouses must meet the two-year USE test
3. Neither spouse used the exemption the last 2 years
4. Sale should happen within 2 years
5. Exemption will not apply if the spouse remarries before the sale within the two-year period
This is very important! The tax planning then is to sell the property first before you get married again!

There you have it! Make sure you apply these rules in order to claim the $500K capital gain exemption.

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.

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

Here’s a tax question I got from one of my clients: “Can I use my 401-K / IRA to buy a house?” The short answer: “yes!” However, and you already know that I’m going to say this, here are four things that you need to consider:

1. First-time homebuyer – for purposes of IRA distributions, a first-time homebuyer means “you did not own a home the last 2 years”.

2. Roth IRA – if you are considered a first-time homebuyer, you can take out contributions tax free as well as earnings up to $10,000 tax free.

3. Traditional IRA – if you are considered a first-time home buyer, you can take out $10,000 distribution without the 10% tax penalty. However, the $10,000 will still be reported as income. Now, if you take a distribution that is more than $10,000, the excess will be subject to 10% penalty and would be reported as income.

4. Traditional or Roth 401-K – you can take out a loan from your 401-K plan. The amount you can borrow is the lesser of 50% of your account value or $50,000. This is not taxable because it’s considered a loan that you are paying back.

To sum it up, if you are planning to buy your home in the future and you are looking for cash, you might want to look into your retirement plans as an option for additional cash down payment while avoiding paying taxes.

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 ever done a home-based business before? And you were required to fill-out form W-9 to provide your name and social security number so you can be issued a 1099 during tax time.

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

Here’s a LowerMyTaxNow strategy on how to properly structure your tax ID when starting a business.

I would recommend applying for a separate tax ID number with your preferred business name. Make it a generic name so you can use it for your existing or any future businesses. Fill-out form SS-4 and you can go to irs.gov for both the forms and instructions.

I know what you are thinking. Your million dollar question is: “why?” Answer: identity theft. The sole purpose of doing this is to prevent any identity theft in the future. You want to avoid providing your social security number as much as possible.

There you go! That is my LowerMyTaxNow strategy that you can use when you start a home-based business.

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 ever received an IRA distribution with the intention of “rolling it over” or depositing it into another IRA account but you missed the 60-day rollover rule?

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

Under this rule, you’re required to complete the rollover within 60 days of receiving the distribution. If you miss the deadline, tough luck, you have to report the distribution as income and perhaps pay a penalty. Ouch!

In the past, you had to request a special statement from the IRS to avoid that outcome. Now, the IRS says you may qualify for a waiver if you meet one out of eleven allowable reasons. Here we go:

1. Error was committed by your financial institution
2. Distribution check was misplaced and never cashed
3. Distribution was deposited into an account that you thought was an existing retirement plan
4. Your principal residence was severely damaged
5. A family member died
6. You or a family member was seriously ill
7. You went to jail
8. Restrictions were imposed by a foreign country
9. Postal error occurred
10. Distribution was due to IRS levy and then the proceeds was returned by the IRS
11. The party making the distribution delayed providing information that delayed the rollover

There you have it! So next time, if you missed the IRA 60-day rollover rule, please look into the eleven allowable reasons to get relief.

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 aware that there is a tax code that can potentially “0” your taxes?
If you are a real estate investor and working in a real estate business, you are in a unique position to take advantage of this powerful tax strategy that could potentially “0” your taxes. It’s called the “real estate professional” designation.

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

Under this law, if you are a real estate professional, you can fully deduct rental losses against your W-2, business income and other income without limitation. What does that mean? It means, if you understand the tax rules and apply it correctly, you can potentially “0” your taxes.

REQUIREMENTS:
1. 50% test – You must spend more than half (51%) of your working hours in a real property trade or business like purchase, rental, management or sales.
2. 750-hour test – You must spend 751 hours in real property trade or business
3. You must be at least a 5% owner of real property trade or business
4. The 50% test and 750-hour test must be met by only one spouse in the case of married taxpayers
5. You must materially participate in the management operations of your own rental real estate. Married couples can combine their hours to meet the material participation hours.

To recap, a “real estate professional” designation is one of the most powerful tools that you can use in order to legally zero out your taxes! So make sure you understand the rules and keep good records.

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.