Happy New Year! With the transition in the White House, 2017 could be a very eventful tax year. One thing we’ve all learned from the uncertainty of the past few tax years is to not make plans based on what may happen. Instead, make plans using current law while remaining flexible to possible changes.
Included in this month’s edition are some audit risk factors to consider, determining whether a Roth IRA makes sense for you, and some New Year’s resolutions for 2017. Should you know of someone who may benefit from this information please feel free to forward this newsletter to them.
Know Your Audit Risk
Nearly every taxpayer can imagine a worst-case scenario where they run afoul of the IRS and are selected for an audit. Here are a few areas that tend to get unwanted audit attention and ideas to help you stay prepared.
Your audit risk is (probably) low. The first thing to remember is that the risk of having your tax return examined by the IRS is probably very low. The IRS audits less than 1 in 100 returns. If you are among the roughly 95 percent of Americans who make less than $200,000 a year, your chance of being audited is closer to 1 in 200. Audit chances rise dramatically the higher your income is above $200,000, according to the IRS annual Data Book. Areas that get attention |
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When Converting to a Roth Makes Sense
Virtually anyone with a qualified retirement savings account can convert funds into a Roth IRA. A Roth is different from other retirement accounts in that contributions come from after-tax dollars, while earnings are tax-free. The question for taxpayers with funds in tax-deferred Traditional IRAs, SEP-IRAs, 401(k)s, and 403(b)s is whether converting them into a Roth is worth it. | |||||||||||||
Roth Basics
Major benefits of a Roth IRA:
Downsides of a Roth IRA: |
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Things to consider Prior to making the decision to convert funds into a Roth IRA, consider the following:
It is important to understand your options, so remember to ask for assistance prior to making a Roth conversion. |
An Early Roth IRA Conversion TipIt’s best to take action early in the tax year if you want to roll funds into a Roth IRA. That’s because an early move into a Roth typically gives you the option to re-convert your funds through October 15th of the following tax year. The IRS calls this process recharacterization. Example: Sam converts $50,000 from a Traditional IRA to a Roth in January. By October, the Roth is worth only $40,000 because Sam’s investments lost value. If Sam does nothing he will still pay taxes on $50,000 converted from his Traditional IRA in January. Instead Sam can recharacterize some or all of the funds back into a Traditional IRA and pay no taxes on the conversion. Here are some things to consider with an early rollover to a Roth IRA.
Each person’s situation is unique. Carefully review your options prior to taking action. |
Seven Tips for a Better 2017
New Year’s resolutions are notoriously easy to make, but hard to follow. With that in mind, here are a few ideas worth trying this year: | |||||||||||||
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2017 Standard Mileage Rates
The IRS recently announced mileage rates to be used for travel in 2017. The business mileage rate decreases by 0.5 cents while medical and moving mileage rates are lowered by 2 cents. Charitable mileage rates are unchanged. |
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Here are the 2016 rates for your reference as well.
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Remember to properly document your mileage to receive full credit for your miles driven.
As always, should you have any questions or concerns regarding your situation please feel free to call.
This newsletter is provided by
R.D.M. Tax Service & Notary Public
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La Quinta, CA 92253-7119
Office: 415.285.5384
Office: 760.564.1408
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