Janell A. Israel & Associates
1585 Kapiolani Blvd., Suite 1604, Honolulu, Hawaii 96814 Phone: 808-942-8817
August 2014 Tax Newsletter
What's New in Taxes:
AMT Affects Millions of Taxpayers
In a recent income statistics bulletin, the IRS reported that the alternative minimum tax (AMT) affected a record 4.25 million tax returns and collected $30.48 billion in taxes during tax year 2011.
The AMT was created years ago to ensure that high-income taxpayers could not escape all taxes through the use of deductions and credits.
The recent report indicated that more than half of the $30 billion of AMT collected in 2011 was from individuals earning between $200,000 and $500,000. The number of taxpayers hit by the AMT has more than tripled since 2001.
Taxes and Disability Issues: An Overview
Do you live with a disability, or care for someone who does? If so, you may have disability-specific tax questions about income, deductions, and credits.
Here's an overview.
* Income. In general, all income is taxable on your federal tax return, unless specifically excluded. For instance, income you earn for services is typically taxable, even if you are disabled. Part of your social security disability benefits may also be taxable, depending on your total income (including tax-exempt interest). However, supplemental security income is not taxable.
Other nontaxable disability payments include VA benefits, workers' compensation when work-related and received under a workers' compensation act, and wage-loss benefits from no-fault car insurance policies.
* Deductions and credits. You already know you can deduct medical expenses related to your disability, subject to the 10%-of-adjusted-gross-income limitation (7.5% for those 65 or older).
But what about impairment-related work expenses? These are out-of-pocket costs you incur so you can work, such as attendant care, and you claim them as an employee business deduction. This is an itemized deduction, not subject to the 2% of adjusted gross income limit. When you're self-employed, impairment-related work expenses are deductible on your "Schedule C, Profit or Loss From Business."
If you work and must pay for disabled spouse or dependent care, you may qualify for a federal income tax credit of up to 35% of your expenses.
Depending on your disability and income, other exclusions and tax benefits may be available. Call if you would like more information.
What's New in Finances:
Time is Running Out to Reverse a 2013 Roth Conversion
You can reverse a 2013 Roth conversion if you act by October 15, 2014.
If you converted a regular IRA to a Roth IRA in 2013 and now want to switch back to a regular IRA, you have until October 15, 2014, to do so without penalty. The IRS calls reversing the transaction a "recharacterization." A recharacterized conversion is treated as though it had not occurred. If done properly, there will be no tax due on the Roth rollover.
If you already filed your 2013 tax return and paid tax on the original conversion, you can still reverse the 2013 Roth conversion. After you reverse the Roth rollover, you must file an amended return to eliminate the tax bill on the conversion and receive a tax refund.
The IRA rules are very complex. If you would like more information about reversing your Roth conversion, please call us.
Are Your Mutual Funds as Diversified as You Think?
Even if you aren't an investment expert, you probably know that one of the main benefits of owning a mutual fund is "diversification." And like many financial terms, there's more to "diversification" than first meets the eye.
For example, many mutual fund investors believe that they are well-diversified, even though they aren't. Consider Pat, who owns a U.S. large-cap value fund, a technology fund, and a worldwide fund. At first glance, these appear to be three distinct funds in three unrelated categories. Yet underneath the surface, there could be some big surprises. Many "worldwide" funds are heavily invested in U.S. stocks, while technology funds can have significant foreign holdings.
To further complicate matters, the definition of a "value" fund has recently become quite fuzzy, and it wouldn't be surprising to find several high-flying technology stocks in Pat's large-cap value fund. In other words, it's possible that all three funds own many of the same stocks or similar stocks in the same industries. What looks like a diversified portfolio could actually suffer from a serious case of fund "overlap."
What is the best protection against fund overlap? Whether you are thinking about buying a fund for the first time or you already own several of them, it pays to do a little digging. All mutual funds are required to publish a list of their complete holdings at least twice a year. Get the most recent portfolio list for each fund that you're interested in, and compare them for overlap. Although published information can sometimes be several months old, it's still the best way to determine just how much diversification your fund portfolio really has.
All information is believed to be from reliable sources, however we make no representation as to its completeness or accuracy. The information contained in this newsletter is provided by Mostad& Christensen, Inc. The information is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance. For more information on anything in this newsletter, or for assistance with any of your tax, business, or financial strategy concerns, contact our office.
Securities and advisory services offered through National Planning Corporation (NPC), Member FINRA/SIPC, a Registered Investment Adviser. Mosted& Christensen, Janell Israel & Associates and NPC are separate and unrelated companies.
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