Individual | Business | Financial

These Tax Tips are focused on Finance

Capital Gains and Losses
Coverdell Savings Accounts
IRA Contributions
ROTH IRA Contributions

Capital Gains and Losses
Almost everything you own and use for personal purposes, pleasure or investment is a capital asset. The IRS says when you sell a capital asset, such as stocks, the difference between the amount you sell it for and your basis, which is usually what you paid for it, is a capital gain or a capital loss. While you must report all capital gains, you may deduct only your capital losses on investment property, not personal property.

A “paper loss” — a drop in an investment’s value below its purchase price — does not qualify for the deduction. The loss must be realized through the capital asset’s sale or exchange.

Capital gains and losses are classified as long-term or short-term, depending on how long you hold the property before you sell it. If you hold it more than one year, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term. For more information on the tax rates, refer to IRS Publication 544, Sales and Other Dispositions of Assets.

If your capital losses exceed your capital gains, the excess is subtracted from other income on your tax return, up to an annual limit of $3,000 ($1,500 if you are married filing separately).

Capital gains and losses are reported on Schedule D, Capital Gains and Losses, and then transferred to line 13 of Form 1040. There is a worksheet in last year’s Instructions to Schedule D to figure a capital loss carryover to this year. This is usually a very complicated matter, so please contact us so that you may receive the professional advice you deserve.


Coverdell Savings Accounts
A Coverdell Education Savings Account (ESA) is a savings account created as an incentive to help parents and students save for education expenses.

The total contributions for the beneficiary (who is under age 18 or is a special needs beneficiary) of this account in any year cannot be more than $2,000, no matter how many accounts have been established. The beneficiary will not owe tax on the distributions if, for a year, the distributions from an account are not more than a beneficiary’s qualified education expenses at an eligible education institution. This benefit applies to higher education expenses as well as to elementary and secondary education expenses.

Generally, any individual (including the beneficiary) can contribute to a Coverdell ESA if the individual's modified adjusted gross (MAGI) income is less than an annual, constantly changing maximum. Usually, MAGI for the purpose of determining your maximum contribution limit is the adjusted gross income (AGI) shown on your tax return increased by the following exclusion from your income: foreign earned income of U.S. Citizens or residents living abroad, housing costs of U.S. Citizens or residents living abroad, and income from sources within Puerto Rico or American Samoa. Contributions to a Coverdell ESA may be made until the due date of the contributor’s return, without extensions. Please contact us for more about Coverdell Savings Accounts!


IRA Contributions
If you haven't contributed funds to an Individual Retirement Arrangement (IRA) for last tax year, or if you've put in less than the maximum allowed, you still have time to do so. You can contribute to either a traditional or Roth IRA until the April 15 due date for filing your tax return for last year, not including extensions.

Be sure to tell the IRA trustee that the contribution is for last year. Otherwise, the trustee may report the contribution as being for this year, when they get your funds.

Generally, you can contribute a percentage of your earnings for the current year or a larger, “catch-up” if you are age 50 or older. You can fund a traditional IRA, a Roth IRA (if you qualify), or both, but your total contributions cannot be more than these annual amounts.

You may be able to take a tax deduction for the contributions to a traditional IRA, depending on whether you — or your spouse, if filing jointly — are covered by an employer’s pension plan and how much total income you have. You cannot deduct Roth IRA contributions, but the earnings on a Roth IRA may be tax-free if you meet the conditions for a qualified distribution.

You can file your tax return claiming a traditional IRA deduction before the contribution is actually made. However, the contribution must be made by the due date of your return, not including extensions. If you report a contribution to a traditional IRA on your return, but fail to contribute by the deadline, you must file an amended tax return by using Form 1040X, Amended U.S. Individual Income Tax Return. You must add the amount you deducted to your income on the amended return and pay the additional tax accordingly. Please contact us to ensure that your IRA contributions are maximized and allocated accordingly!


ROTH IRA Contributions
Confused about whether you can contribute to a Roth IRA? The IRS suggests checking these simple rules:

  1. Income
    To contribute to a Roth IRA, you must have compensation (e.g., wages, salary, tips, professional fees, bonuses). Your modified adjusted gross income must be less than:
    $160,000 — Married Filing Jointly.
    $10,000 — Married Filing Separately (and you lived with your spouse at any time during the year).
    $110,000 — Single, Head of Household, or Married Filing Separately (and you did not live with your spouse during the year).
  2. Age
    There is no age limitation for Roth IRA contributions. Unlike traditional IRAs, you can be any age and still qualify to contribute to a Roth IRA.
  3. Contribution Limits
    In general, if your only IRA is a Roth IRA, the maximum current year contribution limit is the lesser of your taxable compensation or $4,000 ($5,000 for those age 50 or over). Starting in 2008, this amount increases to $5,000 ($6,000 if 50 or older in 2008).
    The maximum contribution limit phases out if your modified adjusted gross income is within these limits:
    • $150,000-$160,000 — Married Filing Jointly
    • $0-$10,000 — Married Filing Separately (and you lived with your spouse at any time during the year)
    • $95,000-$110,000 — Single, Head of Household, or Married Filing Separately (and you did not live with your spouse)
  4. Contributions to Spousal Roth IRA
    You can make contributions to a Roth IRA for your spouse provided you meet the income requirements.

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