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10 myths about IRA contributions: Tax Strategy Scan

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Our weekly roundup of tax-related investment strategies and news your clients may be thinking about.

10 myths about IRA contributions
Clients have many misconceptions about IRA contributions that prevent them from maximizing the account's benefits, according to Morningstar. For example, while clients are not allowed to continue contributing to a traditional IRA after they reach 70 1/2, they can do so with a Roth IRA as long as they have enough earned income. While single taxpayers cannot contribute to an IRA if they don't have earned income, married taxpayers can sock away money in a spousal IRA as long as their spouse is earning enough to make the contributions.

What you need to know about taxes on collectibles
Clients who have valuable collectibles will save considerably on taxes if they leave the collection to their family members under the new law that raises the estate-tax exemption, according to Barron's. They may also donate the collection to a charity and get the tax deduction for the donation. Another strategy is to house the collection using a pass-through entity, which is entitled to a 20% income-tax deduction under the new law.

How to save money on health care
Setting up a flexible spending account is a smart move for clients to prepare financially for health care expenses, according to this article on Motley Fool. That's because they can save up to $2,650 in the account this year and the money will not be subject to taxes. For example, taxpayers with 25% effective tax rate can save $500 for contributing $2,000 to the account. However, they will forfeit the unspent balance the following year.

Treat your tax refund like any other investment
Taxpayers will be better off saving their tax refund and investing the windfall instead of spending it, according to TheStreet. "It can be tempting to splurge with that refund, but saving it is so much smarter,” a Bankrate expert says. “Consider it an investment in yourself."

The Minnesota Society of CPAs recently conducted its annual CPA member survey about the most strange and unusual tax deductions proposed by clients. The responses included everything from pets and wedding rings to gifts not given.
February 17

Make $75,000 or less? Check out these 3 family tax breaks
The child tax credit is one of the tax breaks that low- and middle-income households should take advantage to enhance their savings at tax time, according to this article on Motley Fool. For parents who need day care for their very young children, the child and dependent care tax credit can be a very valuable tax break. Those who are still studying or pursuing higher education qualify for the American Opportunity Tax Credit.

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