Saturday, March 21, 2009

Advantages of contributing to a Roth IRA

Look to contribute to a Roth IRA each year since the earnings from these tax-advantaged savings vehicles are never taxed (unlike traditional IRA's which are taxed as ordinary income at your marginal tax rate at the time you take distributions from your traditional IRA). Also, Roth IRA balances are not subjected to the required minimum distribution rules when you reach 70 1/2 years old. Therefore, if you do not need the money at that time, you can continue to let your money grow tax-free and ultimately leave a larger sum to your decedents if you so choose.

Now for some of the mechanics of the Roth IRA:

You can contribute up to $5,000 ($6,000 if age 50 or over) for 2008 and 2009. Keep in mind that your modified adjusted gross income (MAGI) has to be below $166,000 to contribute the full amounts previously mentioned. If your MAGI is between $166,000 and $176,000, then you can contribute some amount less than the full limit. If your income exceeds $176,000, they you are not eligible to contribute to a Roth IRA for 2009. In 2008, this phase-out range is $159,000 to $169,000.

For single individuals, this Roth IRA phase-out limit is lower: $105,000 to $120,000 for 2009. In 2008, a single individual’s income restriction is between $101,000 and $116,000.

Remember that you still have until April 15 of this year to make a contribution to any IRA account for 2008.

Finally, a big advantage to a Roth IRA is that you can use this as an emergency fund since you can withdrawal your principal (the amount you've actually contributed to the Roth IRA) at any time without penalty. This will allow you to garner a market rate of return on your emergency funds while possibly building a source of retirement income at the same time.

Please visit for more helpful tax tips and information.

Monday, March 16, 2009

Missing "cost basis" of stocks could be trouble when preparing your return, but there is help to get your through it.

Q. What happens when I don’t have a cost basis for my long or short term capital gain stock sale?

A. What a dilemma this is. Many of us have experienced this when we receive a 1099–B form with only the sold date and proceeds listed. We start to get nervous because we just increased our tax liability (sometimes substantially) and may owe the federal government money. No need to panic, however.

First off, if the cost basis (the original dollar amount paid plus any reinvested dividends or capital gains in the case of mutual funds) is not listed – CALL YOUR MONEY MANAGER OR BROKER. They can usually access your cost basis and the date purchased. This is the best course of action.

If you cannot reach them because you are working on your taxes at 11:59 pm on April 15th, you have other options. If you only purchased stand alone stocks at different dates and prices, NOT in a mutual fund, you can use the First In First Out Rule. Hopefully, you have some information on some the original purchase price of stocks and dates. With that information, you can apply these stock prices and dates as your “cost basis”. Warning: you need to use the first date you purchased stocks to compute your gain or loss as short term or long term.

If the missing cost basis information is in a mutual fund, you can use the average basis of the stocks if they were acquired at different times and use this as your cost basis. There are two methods of the average basis: double category and single category. The double category is used for stocks that are long term and short term where you need to average each category out (i.e. one average cost basis for long term and one average cost basis for short term). The single category is when all the stocks in the account are averaged for an overall cost basis since they are all either long-term or short-term sales.

Your off-the-shelf tax software or even your accountant cannot help you with this information. You need to know the cost basis to correctly complete your return. Once you have this information, just add in the information and you are on your way to completing your taxes in a manner that should pass muster with the IRS.

A website that may be helpful to you in researching historical prices is

Visit for fee tax resources (including our online tax guide), financial calculators and filing options, including free access to a fillable IRS automatic extension form.

Wednesday, March 11, 2009

Do I need to claim my stimulus check received in 2008 as income on my tax return?

What do I do with the $600 of Stimulus money I received from the federal government in 2008?

Good news......Nothing! Unlike tax year 2007 where you had to claim your tax rebate, the 2008 stimulus check is tax free. Some tax software programs will ask you to fill in a question on the amount of your stimulus check, but it won’t increase your adjusted gross income (AGI). That is a good thing. So enjoy that money tax free!