Where clients can go wrong with IRAs: Tax Strategy Scan
Our weekly roundup of tax-related investment strategies and news your clients may be thinking about.
Where clients can go wrong with IRAs
Taxpayers should ensure that they make 2017 contributions to their IRAs by April 17 even if they have requested an extension for filing their tax returns, according to an interview with Ed Slott, a tax planning expert, on Morningstar. Clients should have earned income to be able to contribute to an IRA and understand the difference between a traditional and Roth IRA rules to choose the account that suits their circumstances, says the expert. "For example, for a traditional IRA, there's an age limit,” Slott says. “After you are 70 1/2 you can no longer contribute, even if you have the earned income, you can no longer contribute to a traditional IRA for the year you turned age 70 1/2 and future years."
How much can your clients contribute to an HSA?
Clients who carry high deductible health insurance plan for only a few months of the year have until April 17 to make 2017 tax deductible contributions to their HSA, according to Kiplinger. Their contributions will be based on the number of months covered by the insurance policy. For example, clients can still sock away up to $1,133 to an HSA for 2017 if they had eligible insurance for four months.
Top 20% of Americans will pay 87% of income tax
The percentage of the country's total tax revenue from the top 20% individual taxpayers could increase to about 87% this year from about 84% in the previous year, according to The Wall Street Journal. Data from the Tax Policy Center shows that the lower 60% of taxpayers will owe no net income tax this year, unlike in the previous year when they paid 2% of the federal income tax revenue. The Joint Committee on Taxation says that about 34% of the federal tax revenue will come from payroll taxes.
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This tiny tax rule will save corporations billions
Although companies face a tax liability for moving their overseas-based assets back to the U.S., the new law has a loophole that will enable these firms to minimize the bill for their repatriated assets, according to this article on Fox Business. Instead of repatriating liquid assets which will be taxed at 15.5%, they invest the cash in overseas assets to qualify for a lower tax rate of 8%. While some firms are worried that lawmakers would close this loophole, the IRS would not run after the companies using this strategy as long as it is "done in the ordinary course of business."
Clients still haven't filed? Here's how to maximize their refunds
Clients are advised to make deductible contributions to a health savings account or an individual retirement account to reduce their tax liability and maximize their refund on their 2017 returns, according to the Chicago Tribune. Taxpayers should also organize their financial records and avoid procrastinating, as rushing their tax return preparation increases the odds of making costly mistakes, missing out on valuable tax deductions and falling victim to identity-theft tax fraud.