TAX PRO PLUS LA

Underpayment Penalties Going to Get You?

Our “pay-as-you-go” tax system requires that you make payments of your tax liability evenly throughout the year. If you don’t, it’s possible that you owe an underpayment penalty. Some taxpayers meet the “pay-as-you-go” requirements by making quarterly estimated payments. Typically this is how self-employed individuals and those with other non-tax-withheld sources of income satisfy their prepayment obligation. When your income is primarily from wages, however, you meet the requirements through wage withholding and likely rely on your employer’s payroll department to take out the right amount of tax, assuming that you have given them accurate Form W-4 data and that this information has not changed through marital changes, a second job, or your spouse working. Unfortunately, what payroll withholds may not be enough!

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Basis Is An Important Tax Term!

An important tax term that everyone should know is “basis.” The odds are very high that you will encounter the term sometime during your lifetime, and it can have a profound impact on your tax liability.

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Take Advantage of the IRA-to-Charity Transfer

For 2013, if you are age 70½ and over, you are allowed to make direct distributions (up to $100,000) from your Traditional or Roth IRA account to a charity. The distribution is tax free, but there is no charitable deduction, and the distribution can count toward your required minimum distribution (RMD).

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Avoid Home Cancellation of Debt Income

When a taxpayer settles a debt for less than its full amount, the forgiven amount of the debt is taxable, unless the taxpayer qualifies for one of two currently available exclusions. With the downturn in the economy and the accompanying drop in home prices that occurred in recent years, many taxpayers are unable to keep up the mortgage payments on their home, and unable to sell their homes because they owe more than the market price. As a result, a large number of homeowners have let their homes go back to the lender.

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Fine Tuning Capital Gains and Losses

Year-end has historically been a good time to plan tax savings by carefully structuring capital gains and losses. Conventional wisdom has always been to minimize gains by selling “losers” to offset the gains from “winners” and where possible, generate the maximum allowable $3,000 capital loss for the year.

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