A Rewarding New Years Resolution: Focus on Your Finances

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A Rewarding New Years Resolution: Focus on Your Finances

7 Tips to Help Boost Your Financial Situation


As 2009 comes to an end we look toward 2010 and if you are like me you begin thinking about your New Years Resolutions. Exercise more and lose 10 pounds, spend more quality time with our families, work harder and get that promotion at work, etc, etc.  How about creating a New Years Resolution to perk up your financial situation.  It is natural to put it off and say you will get to it next week, next month, next year but like most everybody, we never get around to it, much like getting that gym membership to start that exercise program and dropping that ten pounds.  I encourage you to make this the time and make it your New Years Resolution to address your financial situation and begin on your way to financial success.

I recently read an article that stated 70% of us consider financial issues the number one stressor in our lives.  This is unfortunate because a lot of the time it is a very easy issue to improve upon.  Improving your overall financial situation stretches far beyond just making more money at work, which is a good thing because, usually that is not within our control.  So what can we do since we do not have the power to just earn more money?  Well there are many things that you can do and I have compiled a checklist of the top 7 issues that when addressed can have a dramatic impact on improving your financial health. 

Much like when you hire a personal trainer who knows the most effective exercises to get the best fitness results, how to motivate you properly, and ultimately get you where you want to go physically.  A great financial planner will help you do the same for your financial health.  They will help you develop strategies to give you the most effective ways to reach your financial goals, help motivate you to achieve your most important aspirations, and ultimately get you where you want to go financially.

As always I am available to help you address any one or all of these issues below.  I have been able to help many of the people I work with save time, money, and taxes and help them avoid the common mistakes that most people make with their finances.   Feel free to contact me at 651-647-4935

•1.        Create a Budget.  This is the number one issue that people, including myself struggle with.  The use of credit cards has really hindered our ability to remain responsible with our spending as it never seems as though we are spending actual money.   It seems as though we are making enough money at work, and that we should be able to get ahead, but where does it go? One major problem that people have when creating a conventional budget is everything is looked at in the past. When gathering the information on your purchases it is too late, the money is spent.  I have begun using a cash flow management tool called First Step Cash Management with my clients.  This program allows people to make real-time decisions.  Let me know if you would be interested in finding more about this wonderful program.  One quick tip to help balance your budget a little better:  1) Use cash more.  It is much more difficult to part with cash than it is to charge your credit card.  I find that people decide against the extra drink at the bar or the new coach purse at Nordstrom if they have to fork over cash.   

•2.        Maximize Your Employee Benefits.  It can be very confusing to try and understand which benefits within your employers plan are most appropriate for you.  Between qualified retirement accounts, Flex savings accounts, Health savings accounts, dependent care benefits, stock options, employee stock purchased plans, health care packages, etc, it is very difficult to decide which fit into your financial plan the best.  The 40 page benefit summary does not make it any easier.  Often time’s people do not even realize what benefits they currently have or what is available to them.  Make sure to review your benefit statement or have a professional analyze exactly what is being offered and take advantage of it.  Some employers offer a retirement account matching benefit which means for every dollar you contribute to our retirement account they will match a certain percentage.  Since this is essentially free money it is important to make sure to contribute up to the matching amount if possible.  I read that only 30% of people actually contribute up to their employer’s entire matching amount.  Check to see what percentage your employer is matching and take the free money.

•3.       Pay Fewer Taxes.  Most of us have no problem paying our fair share of taxes to maintain our quality of life, but most of us distain the thought of our tax dollars going toward unnecessary spending and expensive entitlement programs.  As long as there are politicians and special interest groups that place their individual needs over the common good of this country as a whole, there will be wasteful spending.  Once we accept the fact that taxes will always be imposed, you can then logically create a financial strategy to ensure that you are not paying too much in taxes.  Lack of attention to the various ways investments are taxed can be the difference between being able to accomplish your goals and not being able to accomplish your goals.  Unfortunately some of the most popular accumulation vehicles in this country today are fully taxed including bank accounts, certificate of deposits, mutual funds, etc.  All interest, dividends, and capital gains outside of qualified accounts are fully taxable.  There are vehicles available though that do offer people an opportunity to defer income taxes or even eliminate them completely.  Some of these vehicles include qualified accounts (ROTH and Traditional IRA’s, 401k plans, self-employed plans, annuities, municipal bonds just to name a few) .  It is important to research which of these tools fit within your financial plan, or meet with your financial professional to explore the many options.    

•4.       Start Investment Accounts. (Just Get Started!)  No matter what your objective is whether its funding retirement or college education the biggest thing is to just GET STARTED.  It does not matter that you do not have a tremendous amount to contribute initially; the important thing is to get in the habit of saving something even if it is just a small amount every month.  I once heard an analogy of buying your first car that relates to this concept.  All of us remember needing a car when we were young whether it be to get to school, sports, or an after school job.  Just because we could not afford a Porsche (despite how bad we wanted one) didn’t mean that we did not buy anything.   Something is better than nothing, thus we purchased a used Ford Taurus. We might not be able to contribute a large amount to an investment account on a monthly basis, but something is better than nothing and the important thing is just getting started.  One key tip is to make sure to set up an automatic withdrawal from checking account every month.  It is much easier having it pulled out than you having to physically write out a check.

•5.        Determine Which Debt To Carry And Which To Pay Off.  Everybody has heard of good debt vs. bad debt, but what does that really mean?  Generally good debt would be considered debt with an interest rate that is tax deductible and lower than the rate you could achieve on funds invested elsewhere.  For example, let’s say you have a student loan, which is tax deductible at a fixed rate of 4%. Let’s also assume you can achieve between 8-12% in a well diversified portfolio based on long-term historical rates.  In this case it would obviously be wiser to keep the student loan and invest into the portfolio.   However, if you carry a balance on a credit card with a rate of 18% (and not tax deductible) you would most likely want to attack that first.   There are many types of debt including home mortgage, student loan, automobile, credit card, etc and which forms of debt should be kept or paid off should be analyzed closely. 

•6.        Review Your Insurance Coverages.  A lot has changed in the insurance industry over the past 5 years.  If you have not reviewed the amount in premiums you are paying for your insurance you may be costing yourself money.  I recently reviewed a gentleman’s life and disability insurance policies and found that he could save 30% in premiums for the same amount of coverage by switching carriers.  I am an independent agent and have the ability to shop several carriers and find the policy that gets you the most for your money.  Determining whether to buy additional coverage through your employer, invest into a permanent or term policy, length of term or how much coverage to have, and group discounts are all important issues that should be addressed.   In addition, most people have not reviewed their coverage in a long time and find that they are significantly underinsured and are putting themselves and their family at risk in the case of death or disability.  Keep in Mind: Your insurance through your employer is not portable, meaning it is only good while you are employed by them.  Having private policies in place that are in force no matter who your employer might be is a good idea. I am available anytime to review your insurance coverage and help you find the best policies available to you. 

•7.        Allocate Your Assets Within Your Accounts Properly.  It has been proven that 90% of investment performance is based upon asset allocation and diversification.  I ask most people that I meet with how they made their investment selections within their 401k.  The vast majority respond that they simply guess.  The second most popular response is that they copy co-workers holdings.  It is completely understandable that most people are not aware of the correct asset allocation or even the proper individual selections because they do not specialize in investments.  But are you willing to gamble with the money you have worked so hard to accumulate and that you are relying on for your retirement to just guessing?  Some employers are now offering target date funds which allocate your assets within your retirement plan according to your timeframe.  These are a big improvement over guessing and should be utilized.  Target date funds are not perfect however and you should work closely with a financial professional to see what the best decision is for you.

This is simply a checklist of important items that when addressed will help improve your financial situation and not an exhaustive list.  Meeting with a financial professional is advised to pursue any and all of these items.  I offer a complimentary 60 minute meeting to explore possibilities in which I can help people gain better control over their finances.  Give me a call and I would be happy to schedule a time which is convenient for you to get together so that you can be on your way to an improved financial situation.

Great Opportunity to Save Taxes Thanks to Legislation Changes.

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I recently read an article in the Wall Street Journal that said 80% of people were not aware of the upcoming legislation changes that will create a significant opportunity for some people to save on taxes. 

I wanted to make sure that my clients were aware of this opportunity, so if it is appropriate for them, they will be able to take action.  Whether you have heard bits and pieces of this opportunity or it is new to you now, this will help you understand this change.

Under the Tax Increase Prevention and Reconciliation Act , (TIPRA), all taxpayers will be able to convert all or some of their traditional IRAs or old 401ks into Roth IRAs, regardless of income.  This will allow people to convert accounts that will be taxable upon distribution down the road (conceivably when tax rates are higher) to accounts that will be taxable now, but then will grow tax deferred and will be completely tax free down the road when you take distributions. 

There are several reasons why this is such a great opportunity for some people and I have outlined those below.

If you would like to explore this opportunity please contact me anytime at 651-647-4935 to discuss if it is appropriate for you.  Many will be taking advantage of this legislative change and you should definitely consider it as a viable financial planning option to save money on taxes.

•1.    Potentially Higher Tax Rates In The Future

All of those stimulus package initiatives and government bailouts are going to cost money.  As a result, today’s tax rates might be the lowest you’ll see for the rest of your life. The consensus is that we may see taxes rise significantly – but no one knows how much.

If you are considering converting to a Roth IRA, you should get a move on, especially if you’re victim of a wage cut or layoff and are in the 10% or 15% tax bracket. In a year or two, you may be in a higher tax bracket because of a new job or salary increase, so it’s best to take advantage of the low tax rates now.

•2.     Ability to spread the conversion tax hit over two years.

Another new perk coming next year: deferred taxes.  Those who convert to a Roth IRA in 2010 can spread their tax liability out across 2011 and 2012, thereby reducing some of the immediate tax hit. They’ll pay half the income they convert in 2011 and the other half in 2012 at whatever tax bracket they’re in during those years.

•3.    Shrinking retirement portfolios

Seeing your traditional IRA or 401(k) shrink by 30% in a year isn’t much to smile about, but if you convert these accounts to a Roth IRA now, you will pay less in taxes.  When you convert part of your IRA or 401(k) balances to a Roth IRA, you pay taxes on the amount being converted.  Because account balances have shrunk, your taxable balance is likely to be considerably lower today than it was when the market was stronger. In effect, this is an opportunity to use the market downturn to your advantage.

     4.    Estate-Planning Benefits

For those concerned about reaching their 80s or 90s with enough cash to leave to their children, the Roth IRA offers some generous estate-planning benefits.

When a traditional IRA or 401(k) is passed on to a beneficiary, the beneficiary has to pay taxes on whatever is left in that nest egg based on their own tax bracket – not the tax bracket of the original account holder. With a Roth IRA, the beneficiary acquires the account without having to pay taxes on the cash that’s left. (The original holder had already paid taxes on the contributions.)

The Roth IRA also doesn’t require minimum withdrawals, so you could leave the entire nest egg untouched for a beneficiary. Typically, traditional IRAs require minimum withdrawals by age 70 1/2.

Jeff Bergerson, Financial & Tax Advisor

1452 Concordia Avenue

St. Paul, MN 55104


Top 7 reasons to Roll an Old 401k or 403b into an IRA

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Top 7 reasons to Roll an Old 401k or 403b into an IRA.If you know of anybody who has recently been laid off or has changed jobs, this would be extremely valuable to them.

If you have changed jobs, you might still have retirement accounts from your previous employers.  According to the Department of Labor, Americans move to a new employer once every four years and our collective trail of old 401k and 403b plans totals in the trillions of dollars.

While leaving your retirement account with your previous employer is a better decision then cashing it out to splurge on that little sports car you have always wanted, it is better to roll your old 401k or 403b plan into an individual retirement account (IRA) and here are the reasons why.

1.  Fees.  As with any investment there is some sort of cost of the investment itself.  However with employer-based plans those fees are often hidden so that you do not know how much in fees are actually being taken from your hard earned savings.  It is very difficult to track those fees, which are often higher than the fees if you held your funds in an IRA.

2.  Increased Options.  As you know, employer based plans are very limited in the investment options.  Often times you are limited to a dozen mutual funds or less out of the millions that are available out there. In an IRA you can invest in any mutual fund available, stocks, bonds, annuities, and even non-traditional options like real estate and venture capital. Nobody’s situation is the same and thus investment strategies vary tremendously so you should not be limited to a handful of options to try and accomplish your goals.

3.  Expert Advice.  How do you determine which mutual funds you invest in within your 401k?  Talk to your colleagues, follow a chart based on your age, or do what most people do and guess.  Shouldn’t the money you work hard to accumulate and that you will rely on to live in retirement be handled with more care than drawing straws?  Absolutely.  The choices you make with the asset allocations of your investments determine over 90% of your overall investment success.  An IRA can be managed by a financial advisor who knows your goals and objectives and can help make investment decisions based on all the important factors involved.  Although I will mention that if you are currently at an employer and rolling over funds is not an option, I do have the ability to assist you with your asset allocations within your plan as part of the financial planning services I offer.

4.  Greater Access.  If your former employer decided to change 401k providers, your plan assets will be temporarily unavailable to you due to a “blackout” period that occurs as funds are transferred from one plan provider to another.  That time frame can stretch from a few days to a few months.  You can always tap your IRA for retirement after 59 1/2 or before if it is used for a first time home or college expenses penalty free.

5.  Easy record keeping and organization.  Rather than having several accounts floating around, an IRA will help consolidate all of those accounts so that you have all of your investments in one place and can easily monitor them.

6.  Ability to convert to a ROTH IRA.  With the restrictions being suspended in 2010 allowing people to convert IRA’s into ROTH IRA’s and diversify the tax burden upon distribution, it makes the IRA more valuable than holding funds in a previous employers plan.

7.  Flexible Estate Planning.  IRA’s also offer more freedom as well as the potential for tax savings, in the estate-planning department.  If you want to name multiple beneficiaries or a charitable organization as your beneficiary it is best done with an IRA.  Most employer based plans do not accommodate sophisticated beneficiary designations.

If you would like to rollover funds from a previous employer plan, let me know and I can help set up an IRA for you.  If you know of anybody who has recently been laid off or has changed jobs, forward this email to them as it will be very helpful to them.  I can be reached at 651-647-4935 or at  jeff.bergerson@northstarfinancial.com.

Breaking Down the 2009 Stimulus Package.

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Breaking Down the 2009 Stimulus Package.

The first Time Homebuyer credit, making work pay credit, social security recipient tax credit, and more.

Over the past several months there has been much talk about what the new stimulus package includes and how it will affect all of us.  I have heard so many misinterpretations and confusion surrounding these new laws that I wanted to make sure my clients were well-informed.  Below are summaries of some of the major parts of the new stimulus package that could possibly benefit you. 

First-Time Homebuyer Credit- The new law increases the maximum fist-time homebuyer credit to $8,000 and generally eliminates having to pay the credit back (in 2008 the credit was $7,500 and must be paid back). A first time homebuyer is defined as you (and your spouse, if married) have not owned a home in the three years prior to a purchase. Generally, there is no requirement to pay back the credit for a principal residence purchased in 2009. The obligation to repay the credit on a home purchased in 2009 arises only if the home ceases to be your principal residence within 36 months from the date of purchase. The full amount of the credit received becomes due on the return for the year the home ceased being your principal residence. This credit is available for homes purchased after 2008 and before December 1, 2009.  The credit can be claimed in either of two ways: 

  1. Amend your 2008 tax return now and receive your up to $8,000 credit immediately.  I am available to file amended returns and you can contact me anytime at 651-647-4935.
  1. Claim the credit next year on your 2009 tax return.

Making Work Pay Tax Credit- This credit is 6.2% of earned income, up to a maximum credit of $800 for married couples filing jointly and $400 for others.  The credit effectively offsets the 6.2% Social Security tax on the first $6,452 of earnings for a single worker, or the first $12,904 of earnings for joint filers. However the credit is phased out by 2% of modified adjusted gross income exceeding $75,000 or $150,000 on a joint return.  For employees the credit will generally be implemented through reduced income tax withholdings.  The IRS has released new withholding tables incorporating the credit that will result in higher take home pay.  Self-employed individuals can claim the credit when they file for 2009.  It is possible that some employees may not receive the full credit to which they are entitled because they have little or no withholdings.  Presumably, adjustments will be required on the 2009 tax return to reconcile the amount received during the year with the maximum credit allowed.

$250 payment to social security recipients and government retirees- A $250 check or electronic deposit will be paid within the next 4 months to recipients of social security, railroad retirement, or veterans disability benefits.  If such persons have earnings, the $250 payment reduces the Making Work Pay credit that would otherwise be available. Government retirees whose earnings were not covered by social security and who do not receive the $250 check will be entitled to a $250 credit when they file their 2009 return.

Home Energy Credits- They are back!  After a hiatus in 2008 the new law raises the energy credit for improvements to a residence to 30% and increases the maximum dollar cap to $1,500.  This covers expenditures for insulation materials, exterior windows (including skylights), exterior doors, central air conditioners, natural gas, propane, and oil water heaters or furnaces, hot water boilers, electric heat pump water heaters, certain metal roofs, stoves, and advanced main air circulating fans.  These are effective for purchases/installations after 2008 and before 2011.

New car-buyer deduction-  If you buy a new vehicle this year you may be entitled to a deduction for the sales tax attributable to the first $49,500 of the purchase price.  The deduction phases out if adjusted gross income exceeds $125,000 for single filers and $250,000 for joint filers.  This new deduction is only available for purchases between Feb 17 and Dec 31, 2009.  The list of eligible vehicles includes cars, motorcycles, light trucks, and SUV’s as long as you are the original buyer and the vehicle doesn’t weigh more than 8,500 pounds.

Please contact me anytime with questions on how to improve your financial and tax situation.  651-647-4935

To pay off my home, or not to pay off my home, that is the question.

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The answers to the questions you have always had about your personal finances.

Throughout the year we will address a personal finance, tax, or investment topic that personally affects you and your overall financial well-being. These articles will be laid out in a way that everybody can understand and apply to their own real life finances.  We at Bergerson Tax Services, Inc can help you with all of your personal finance and tax related needs. Please fell free to contact us anytime.  This month’s topic is

To pay off my home, or not to pay off my home, that is the question.


By Jeff Bergerson, Bergerson Tax Services, Inc

This question is asked more than any other personal finance question.  You have probably heard a million different theories from a million different people.  But what is the right answer?  The simple truth is it depends upon your situation.  This article will clearly lay out all of the factors to help you decide which would be best for you.

Your home is one of the biggest investment decisions you will ever make.  Deciding to keep a mortgage or pay it off could affect your whole financial life and might mean earning or costing yourself hundreds of thousands of dollars. 

With extra money should you put it toward your mortgage or invest the money?  Or, if you had enough money to pay off your mortgage should you?

There are several factors that need to be considered:

  1. Your time until retirement.
  2. Your mortgage rate.
  3. The rate of return you can achieve on your money invested rather than being put into your mortgage.
  4. Your psychological capabilities and your self-disciple.

To start lets take a look at a real life example and assume the following:  You have just inherited $250,000 that you can use to either pay off your home or invest into an investment account. You have just purchased a house with a 6% 30-year mortgage with a balance of $250,000 and you are in the 25% tax bracket. 

Interest on your $250,000 mortgage is $15,000 of which you can deduct $3,750 on your taxes because your taxable income goes down $15,000 (your mortgage interest paid deduction).  Your after tax interest cost therefore is $11,250.

Lets say you use the $250,000 to pay off your mortgage.  You no longer have any debt and have saved $11,250 after taxes.  In comparison if you keep the mortgage and invest your $250,000, the rate of return (the 3rd factor needed to consider) will be dependent on the type of investment you choose to put your money into and the amount of risk involved.  Historically a portfolio consisting of 80% stocks and 20% bonds has returned between 8-10%.  Lets assume an 8% return; you would gain $20,000 in the first year. You have to factor in taxes on that gain and the long-term capital gains and dividend rate is currently at a maximum 15%.  If you sold the investments after one year, that would leave you with after tax gains of $17,000.  We will use a taxable investment account for our purposes, but if you are able to invest your money in a tax deferred account such as a 401K, IRA, SEP, etc, your returns will be even greater.  By comparing what you save ($11,250) and what you would have earned had you invested the money ($17,000) you can see the difference for you is $5,750.

What makes this example even more powerful is when you factor in the power of compound interest over time on the money you invest.  Borrowing money at simple interest (as with your mortgage at 6%) and locking in the amount owed at today’s value can never balance with investing your present dollars to receive compounding returns for up to 30 years into the future.  The invested side of your balance sheet pulls ahead and leaves the debt side far behind.  Even if the interest rate paid on your mortgage and the interest rate received from your investment account are equal you are going to come out better financially with the investment.

To demonstrate the power of compounding, follow the example below:

There are two women, age 30, who both inherited $250,000 and they both decide to buy new homes priced at $250,000.  Both woman have full time jobs and have a steady salary.  The first woman, Priscilla Payoff has always been told that paying off your mortgage is the best solution so she did just that and paid cash for her home and does not have a mortgage.  She uses her salary to buy luxuries like an SUV and speedboat.

The next woman, Samantha Savvy has been talking with her financial and tax advisors and decides to invest her money rather than paying off her mortgage immediately.  Samantha put $50,000 down on the house and invested $200,000 in an investment account. Samantha uses her salary to make her interest only payments and lets her investment account appreciate in value.  At the time of purchase:


Now that you can see the power of compounding and the power of investing money as opposed to paying off your mortgage, you will probably conclude that the no-brainer choice is to maintain a mortgage and invest your money.  I would like to touch up on a couple of factors that I mentioned earlier that may argue for paying off your mortgage.  Factor #1, Your time until retirement. If you are approaching retirement (5-10 years) you will most likely not be able to invest your money where you can achieve 8-10% Typically 8-10% gains come from stocks, which should not be the majority of your portfolio if the money will be needed in the short run.  The types of investments more reasonable for individuals near retirement would usually only yield between 4-5% (treasury bonds, money market, etc) making the strategy not as effective.  Also in the short run the power of compounding interest is not nearly as powerful as if you have a thirty-year time frame.

As for Factor #2 your mortgage rate and Factor #3 the rate of return on your investment account, if your rate of return that you achieve on your investment account is significantly lower than the rate you pay on your mortgage, this strategy will not be successful.

The other factor is Factor #4, which are your psychological capabilities and your self- discipline.  If you cannot sleep at night and you are completely stressed out by the idea of having your money invested in the stock market and more specifically in the types of investments needed to yield 8-10% you should not be in it.  If you cannot tolerate the sometimes-large fluctuations that the stock market sometimes produces go ahead and put your money into your house. If you constantly worry about debt on your house or think not having a monthly mortgage bill is your personal heaven, then pay off your mortgage.

Do consider a couple of additional things. Over time the stock market has proven to produce positive gains near 8-10%, but you need to wait out the bad times and just let the market work for you.  Next consider that home equity is relatively illiquid meaning if you suddenly need money for unforeseen circumstances and emergencies it is easier to sell a mutual fund in your investment account than it is to pull cash out of your home.

That leads me to my final point.  It is absolutely essential that if you choose to not pay off your mortgage and go the route of investing that money, you must, must, must actually invest it.  If you do not have the self-discipline to invest every penny and think your desire to buy a new S.U.V or luxury boat will be to great than you need to put your money into your home.

In summary, if you have a long-term time frame (over ten years) until retirement and you have the psychological capabilities and disciple to invest all of the money that would have gone into your home and your rate of return on your investment account is equal to or greater than your mortgage rate, you will be better off investing your money than paying off your mortgage. You will need that long-term time frame to absorb the market fluctuations and achieve the time tested market yield of 8-10%.  So take all of the previous information, factors, and illustrations and apply them to your situation and decide which avenue is best for you.

Jeff Bergerson founded Bergerson Tax Services, Inc (BTS) eight years ago and pilots a rapidly growing practice in St. Paul, Minnesota. Jeff has written many articles offering tax related strategies, financial strategies, and business guidance. Bergerson Tax Services, Inc. provides individuals and small business tax preparation services, small business consulting, and tax planning. He can be reached on the web at http://www.bergersontax.com/ or by email at info@bergersontax.com

The Kiddie Tax

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For 2007 income tax purposes, investment income over $1,700 earned by a child under age 18 is taxed at the child’s parent’s tax rate. The kiddie tax only applies to investment income such as interest, dividends, rents, royalties, and profits on the sale of property. As the child’s parent you generally must use form 8615 to report their income.  On the form 8615, the kiddie tax rules are applied and the tax is reported on the child’s income tax return. The 8615 computation has no effect on the treatment of items on your own return or on your tax computation.

If you use the married filing seperatly filing status, the parent with the larger amount of taxable income is responsible for the kiddie tax computation. If parents are divorced or separated, the parent who has custody of the child for the greater part of the year computes the tax.

Attention: Starting in 2008, the kiddie tax will apply to investment income of over $1,800 for children in the following categories:

1.  children under the age of 18.

2. children who are age 18 who do not have earned income exceeding 50% of their support.

3. children age 19-23 who are full-time students and who do not have earned income exceeding 50% of their support.

The Gift Tax Exclusion

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This is an easy way to reduce your future estate tax bill. You can give up to $12,000 each year free of gift tax to anyone Bergerson Tax Services - Gift Tax Exclusionyou want. If you are married and your spouse concurs, even if the entire amount of the gift comes from your seperate assets. There is also an unlimited break for tuition that donors pay directly to schools. It does not count toward the $12,000. This applies to medical expenses that donors pay for donees.

Sell Your Home – Federal Income Tax Free

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You can sell your primary residence at a tax-free gain of up to $250,000 ($500,000 on a joint return). You just need to have lived in it for 2 of the prior 5 years. These time requirements can be relaxed in certain situations.Bergerson Tax Services - Sell Your Home Income Tax Free

Partial Federal Income Tax Exclusion. If a sale occurs prior to satisfying the two-year test, a partial federal income tax exclusion can be claimed if the sale was because of a change in work, health reasons, or an unforeseen circumstance. For example, a federal taxpayer who sold his home in order to acquire the space needed to care for his disabled mother was entitled to a partial federal income tax exclusion.

The IRS ruled that the sale in this case was because of the health of a qualifying individual. IRS Federal Regulations contain several situations that constitute unforeseen circumstances, including divorce, casualty, or multiple births from the same pregnancy. The IRS continues to expand the definition of unforeseen circumstance in regards to federal income tax exclusion.

More recently, the IRS has held that a move caused by crime in the neighborhood was an unforeseen circumstance, allowing the homeowner to claim a partial federal income tax exclusion. One such case involved a homeowner who was held up at gunpoint while leaving his residence and forced to drive an assailant to ATM machines. The homeowner moved from the residence, renting it out and subsequently selling it, because of the traumatic and violent nature of the crime.

A partial federal income tax exclusion is figured by multiplying the dollar limit (ex:$500,000 for a married couple) by a fraction, the numerator of which is the number of days of ownership and use (ex:365) and the denominator of which is 730 days.

To learn more about federal tax laws with selling your home or federal tax regulation changes, contact the Bergerson Federal Income Tax Preparation Offices at info@bergersontax.com.

The Wash Sale Rule

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This rule disallows a deduction for losses on a stock, if you purchase the same stock within 30 days before or after a sale. Any losses suspended by this rule are added to the tax basis of the replacement stock.

Capital Gains Taxes

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Long term capital gains (held 1 year or more) are now taxed at a maximum rate of 15%. People in the 10% and 15% brackets get a 5% return rate on long term gains up to the point that their gains lift their income beyond the 15% bracket.

For complete tax return filing preparation questions, please contact Bergerson Tax today!

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