Archive for category Massachusetts Tax Attorney

Tax Planning 101

Though many people work or go into business to make a lot of money, when it is tax time, the purpose of tax planning is to arrange financial affairs to pay as little in taxes as possible. The three main ways to reduce your taxes is to reduce your income, increase deductions, and make use of tax credits.

To reduce income, Adjusted Gross Income (AGI) is what determines the amount of taxes a person needs to pay. Many tax calculations go off of the AGI. For instance, what you can deduct for medical expenses in the Schedule A depends if your AGI exceeds a certain amount. The tax rate and various tax credits depend on the AGI. AGI is a metric when it comes to your finances.

What goes into AGI is your income from all sources such as independent contractor work, salary, bank interest, less any adjustments to your income. The higher the total income, the higher the AGI. The more money a person makes, the more taxes you will pay. Reduce taxes by reducing your income. One way to reduce income is to contribute money to a 401(k) plan. Your contribution to a retirement plan reduces your wages. Notice the W-2 you get at the end of the year will show reduced income, and this lowers your tax bill. Another way is to obtain commuter checks if your employer offers this benefit. Rather than pay after tax, you pay before tax for bus, train, and other public transportation fares. If you pay a lot for medical expenses, consider contributing to a flexible spending plan. You pay for medical expenses before tax.

AGI can also be reduced with deductions. You can also buy medical insurance. If you are self-employed, you get to deduct your premiums. If you do not work for an employer that offers a 401(k) plan, you can contribute to an IRA retirement plan, and make income adjustments. If have student loans to pay, you can deduct the interest paid. There are deductions for alimony paid, and for teachers, they can deduct classroom related expenses.

Taxable income is what’s left after you have reduced your AGI by your deductions. Besides the deductions a person does not need to itemize, a person can reduce income even more with itemized deductions. These include expenses for health care such as doctor visits not covered by insurance, state and local taxes, personal property taxes such as vehicle registration fees, mortgage interest, contributions to charity, job-related expenses such as professional license dues, tax preparation fees, and investment expenses. Throughout the year, prepare for tax season by keeping track of your itemized expenses with receipts for meals out with business clients, mileage tracking for job interviews, and other records.

Your personal exemptions can reduce your income after you itemize deductions. The exemptions depend on your filing status and how many dependents you have. You can increase your personal exemptions by getting married or having more dependents such as having a baby.

After calculating the tax amount, use tax credits to reduce your tax. There are tax credits for college expenses, adoption, college expenses, and retirement.

Tax-Related Identity Theft

In May 2012, the New York Times had a story describing the dramatic rise in identity thieves targeting the United States Treasury.  In a 2011 Annual Report to Congress, a taxpayer advocate reported tax-related identity theft as a serious problem facing taxpayers.  Criminals have sought to profit off the tax system by submitting fraud refund claims.  The criminals often steal and use the identity of another taxpayer.

With the Internet making everything so public, such as people’s photos, email addresses, phone numbers, and property ownership, it may be easy to use someone’s identity.  Take for instance, Open Book Bar Prep, which has used the photo of Congressman Dennis J. Kucinich to create fake testimonials on Yelp!, and to imply that the Congressman has tax problems in fake testimonials on the services from Strategic Tax Lawyers, LLP.

Each year, the IRS identifies identity theft claims, but some fraudulent claims are never identified, imposing burdens on honest taxpayers.  Identity thieves usually file multiple tax returns claiming refunds using Social Security numbers that are not their own.  When a legitimate taxpayer files the return, the refund may be blocked because the Social Security Number was previously used by an identity thief.

According to the New York Times, the Treasury Department’s Inspector General for Tax Administration testified that the IRS detected 940,000 false returns in 2010, avoiding $6.5 billion in payments to identity thieves.  However, the IRS missed 1.5 million fraudulent returns, resulting in over $5.2 billion in fraudulent refunds.

Congress may increase the criminal penalties for those caught filing fraudulent returns.  To improve on detecting taxpayer identity theft, the IRS distributes PINs to prior victims.

To protect against taxpayer identity theft, follow these tips: 

1. Check your bank account statements and balances frequently.

2.  When paying at a restaurant, follow the wait staff or pay at the counter to ensure the machine used to swipe your card is legitimate equipment.

3.  If a machine at a gas pump or ATM spits out a receipt, keep the receipt to reconcile with a bank statement.  Do not leave receipts at the machine for someone behind you to view your transactions.

4.  Use email services that are less targeted by spammers and phishers.  For example, Laszlomail may be less targeted that Gmail when it comes to virus attacks and bulk messages because it is not well known.

5.  Change passwords in email accounts often when using public computers at libraries and job search centers.

The Rollover IRA and Taxes

Someone who has changed jobs might be wondering what to do with the 401(k) savings left with a former employer. One option is to put the money in a rollover IRA. A rollover IRA can help someone keep savings on track while still saving on taxes.

A rollover IRA lets an individual move assets from a retirement plan to an individual retirement account without having to pay taxes. That money grows tax-deferred.

With an IRA, there are more investment options than keeping the money with a former employer. Usually employers do not like to give 401(k) participants many options because they worry about employees getting confused when there are too many choices. They also may have obligations as trustee to keep options diversified. Sometimes when there are too many choices, there may be more than one option in an investment strategy, making the types of funds available not considered diverse. With an IRA, a person can access stocks, bonds, exchange-traded funds, and mutual funds.

A person can sign up for an IRA account through a local bank, or through an investment company. At a bank, funds are FDIC insured. However, the return may not be high. Usually bank products are limited to CDs and money markets. If the IRA is with an investment company, the funds may not be FDIC insured, but the company may be a member of SIPC so there may be other insurance protection if the financial institution goes out of business.

With an IRA, retirement plans can be consolidated. A person is able to manage investments in one place. With a 401(k) plan, money may not be able to be moved out of the plan. Consolidating retirement plans helps a person diversify and rebalance funds easier.

A rollover IRA helps to avoid early withdrawal penalties and taxes. Funds are not taxable as long as they are in the IRA account.

Consult with an experienced Massachusetts tax attorney to learn more about individual tax planning.

McLane Law Firm Welcomes Richard M. Stone

April 19, 2010, Manchester, NH and Woburn, Massachusetts – The McLane Law Firm welcomes attorney Richard M. Stone to its TradeCenter 128 office location in Woburn, MA.

About the McLane Law Firm

Founded in 1919, the McLane Law Firm is one of New England’s premier full-service law firms with offices in Manchester, Concord and Portsmouth, New Hampshire, as well as Woburn, Massachusetts. Driven by the firm’s depth of sophisticated legal expertise and an unwavering commitment to client service, McLane has built collaborative and lasting relationships with a broad spectrum of domestic and international clients.

Leaders In Opposition To Proposed Ballot Cutting Massachusetts Sales Tax

Leaders are concerned that a proposal in place to cut the state sales tax to 3% would mean devastating cuts in state and municipal services. If approved, it would cost the state about $2.34 billion in revenues.

Another ballot proposal will get rid of the 6.25 percent sales tax on the retail sale of beer, wine and alcohol. If passed, this would cut $100 million in revenues each year from state government.

The concern is that the loss in revenue by the tax cut would be crippling to local government services.

You can read more about the tax cut proposals here.

No Gas Tax Hike According To Gov. Patrick

According to the Massachusetts Gov., Deval Patrick, there will be no gas tax hike. The Governor dismissed the idea of raising the gas tax at a breakfast forum today for the 2010 gubernatorial candidates.

At the breakfast, the governor outlined his agenda hoping for a second term in office. He also went on to explain his policy decisions over the past four years. According to the article:

The governor vowed to continue to examine the state’s transportation system, but dismissed any notion of hiking the gas tax, saying the state cannot afford it at this time. The governor had supported a gas tax in the past because, under state law, any revenues from the tax would have to be redirected to transportation projects.

This is a welcome relief for Massachusetts drivers.

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