Roth Conversion Strategy

If your taxable income for a given year is going to be very low due to various factors such as a net operating loss carryforward from a failed business, then it would be the right year to convert part of your regular IRA , 401(k) or any qualified retirement plan with pretax funds into a Roth IRA. The amount you convert is taxable income which can be offset by the net operating loss carryforward and still result in no tax for the year. You also then have a Roth that allows you a lot more flexibility in the timing and amount of distributions. There is no required minimum distribution and no required beginning date for distributions like in a regular IRA.  You do have to leave the funds in the Roth for at least 5 years before you start pulling the funds out or you are subject to a 10% penalty if you under age 59 1/2.

Georgia Likes Old People

Georgia has a nice retirement income exclusion for those aged 62 and over. Between ages 62 and 64 the amount is $35,000 per person and applies to most income except earned income like salaries and wages which is limited to a maximum of $4,000. If you are age 65 and up, you get a $65,000 exclusion. If you are filing a joint return with your spouse and both of you are 65, then the exclusion is a total of $130,000. Not bad. Business income from a Sub S corporation where you materially participate is considered earned income.

What is the Basis of Gift Property?

If your grandparents gave you some stock which you then sold, how would you determine if you had a gain or loss on the stock for tax purposes? In most cases the grandparents have had the stock for a long time so the current value is higher than their original cost so the basis for determining gain would be your grandparents' original cost of the stock. You would have to pay tax on the capital gain. However, to prevent taxpayers from moving capital losses to other taxpayers the IRS has a rule that if the fair market value of the gift property at the time of the gift is lower than the donor's basis and you sold at a loss, then your basis in the gifted property is the fair market value. This reduces any capital losses you can take. Your holding period starts on the day after the date of the gift if your basis is determined by the fair market value and you sold at a loss.  For example, you received 1 share of stock from your uncle that he bought for $10 a share which had an $8 value on the date you received it. If you sold the stock for $7, then your capital loss would be only $1 since your basis is the fair market value. If you sold the stock for $11, then you would have a capital gain of $1 a share since your basis is the uncle's basis of $10 a share.

Paying for College Tuition

One of the best ways to do this is set up a section 529 plan. In 2014, you can contribute up to $70,000 to an account established to pay college expenses for your child or grandchild without any gift tax consequences. The gift is considered made over a 5 year period by the IRS which keeps in within the $14,000 annual gift tax exemption. Georgia also has a very good 529 program, and you can deduct up to $2,000 per beneficiary on the Georgia return if you use the GA 529 plan.

Head of Household Filing Status

The head of household filing status is more favorable than the single status due to lower tax rates on the same level of income. To qualify though you have to meet 4 tests: not married or considered unmarried, pay more than half the cost of keeping up the home, the home has to be the principal residence of your qualifying child or your dependent qualifying relative for more than half the year, and you are a US citizen or resident.

Gifts and Inheritances

In general, everything you receive as a gift or inheritance is not taxable. However, if you receive certain income from an inheritance such as distributions from an IRA, tax deferred annuities, accrued interest and dividends, or US savings bond interest then it is taxable to you. The key is if the deceased would have had to include it in their taxable income if they received it before death then you do too when you inherit it.

Nontaxable Employer Payments

In most cases everything your employer gives you especially cash or its equivalent like gift certificates goes on your W-2 as taxable wages. The following are 11 exceptions which are not taxable:
1. Holiday turkey
2. Coffee and drinks in the break room
3. Cost of up to $50,000 in group term life insurance
4. Up to $5,250 of qualified educational assistance
5. Employee discounts on services/goods sold by the company
6. Qualified employee length of service and safety awards limited to $1,600 in value
7. Value of employer provided athletic facility on premises
8. Meals furnished on employer's premises for its convenience
9. Retirement planning services
10. Qualified adoption assistance up to a certain limit
11. Limited personal use of the company copier