10 Things Every Taxpayer Needs to Know About the Pension Law
By: Maggie Beetz
The Pension Protection Act, signed into law on August 17, 2006, is designed to address the nation-wide problem of under-funded pension plans. The law penalizes noncompliant companies and encourages employee contributions, but many of the changes directly impact taxpayers of all ages, regardless of retirement status.
“Taxpayers will benefit from many of the act’s provisions, some of which come in the form of tax breaks, but individuals cannot take full advantage of the tax breaks until the new laws are fully understood,” said Michael Smith, Managing Authorized Taxpayer Representative at tax services firm FSI Tax Corp.
The following is a rundown of the most important tax code changes and how they will likely affect taxpayers, as well as retirees.
1. Direct IRA Tax Return Deposits
Taxpayers can now have their tax returns deposited directly into their IRA accounts. The IRS already offers taxpayers the option to automatically deposit returns into checking and saving accounts. By adding IRA accounts, legislators hope taxpayers will contribute more funds toward their retirement accounts.
2. 529 College Savings Plans
Many temporary tax laws enacted by the 2001 tax cuts were made permanent by the Pension Protection Act. This includes the ability to make withdrawals from 529 college savings plans without suffering tax penalties.
“Tax-free college savings withdrawals may seem inappropriate in a pension law, but this provision is welcomed by parents who would otherwise resort to tapping their IRAs to fund their children’s education,” said Smith.
3. Saver’s Credit
Another 2001 tax break that was set to expire this year is the Saver’s Credit, a tax credit matching up to $2,000 for lower-income workers who put money into their retirement accounts. This tax break benefits workers who earn less than $25,000 because pre-tax contributions lower the taxpayer’s reportable income and the Saver’s Credit provides additional tax relief with its matching funds.
4. Increased Contribution Levels
In 2001, the IRS temporarily raised employee-sponsored retirement plan contribution levels from $2,000 to $4,000 this year, $5,000 in 2008 and then adjusted by inflation. The higher limits were set to expire in 2010, but the act made them a permanent increase.
This change, also intended to encourage increased contribution amounts, applies to 401(k)s, IRAs, 403(b)s, 457s and catch-up contributions for workers aged 50 and older.
5. Direct Rollovers from a 401(k) to a Roth IRA
Employees who move from one workplace to another were previously permitted to transfer their 401(k)s to traditional IRAs, both of which require taxes to be paid once money is withdrawn. Only then was the individual allowed to transfer the account into a Roth IRA.
The law now permits former employees to transfer their employer-funded retirement accounts directly into a Roth IRA, a popular option due to the fact that contributions are made after taxes are taken from earnings, which means that there are no taxes due upon withdrawing funds.
“The tax code changes enacted by the Pension law benefit taxpayers and steer them toward contributing to their own retirements,” explained Smith. “While companies should be held accountable for funding employee pensions, each taxpayer should take advantage of changes that make it easier to ensure a secure retirement.”
Tax Deductions for Charitable Giving
Non-pension-related tax code changes include several provisions that significantly increase charitable giving regulations, some of which are unlikely to please donors.
5. Documenting Items
To discourage taxpayers from inflating the value of non-monetary charitable donations for inflated tax deductions, the IRS now requires taxpayers to fill out a form detailing the gifts. Additionally, any significant household item, valued at more than $500, must be appraised before the taxpayer can take a deduction.
Many charitable organizations, including Goodwill Industries International, say the new provisions will guard against worthless donations more suitable for the trash bins, but critics argue that increased regulation will discourage would-be donors and cause a decrease in charitable giving.
6. Documenting Monetary Gifts
Monetary donations will also require documentation. Regardless of the amount, a taxpayer should retain proof of any donation. Appropriate documentation can be a bank record, canceled check, credit card statement or receipt from the charity.
“These records are not required to be included in the tax return but they should be kept on hand should the IRS request proof,” advised Smith.
7. Direct Donations from IRAs for Seniors
Another tax law that many charities support affects only seniors. For the next two years, donors 70 � or older will be able to donate to charities directly from their IRAs, an accommodation that keeps the donated amount tax-free and avoids tax penalties for early withdrawals.
This provision benefits eligible taxpayers who take the standard deduction, which many older filers do because they receive larger standard deductions. This can also benefit individuals facing donation limits. Generally, people cannot donate more that 50 percent of their incomes, but the money does not count as income when it comes directly from the IRA.
Officials at charities such as United Way claim that despite being temporary, this provision will likely bring in tens of millions of dollars.
Other Pension Provisions
8. Automatic 401(k) Sign Up
Employers are allowed to automatically sign up employees for a 401(k). This change encourages participation from people who may not otherwise bother to sign up for the plan in the first place, though they will have the option to opt out.
9. Investment Advice
Because employees often choose safer investments for their 401(k)s, which generally result in modest returns, the act allows them to receive investment planning advice to encourage riskier investments with the potential for higher returns. The act also provides protection against dishonest advisers who steer employees toward decisions that could increase their own profit.
10. Non-Spousal Benefits
Two provisions that expand allowable withdrawals are pleasing gay rights activists. The non-spousal rollover lets retirement account assets be transferred to a designated beneficiary upon the retiree’s death and the hardship distribution allows retirement account assets be used for a medical or financial emergency of a beneficiary other than a spouse or a dependent.
The majority of the Pension Protection Act aims to ensure that companies fully fund traditional pension plans over a seven-year period, starting in 2008. But many provisions promote increased individual employee participation in retirement planning.
Smith said that while the new law expands allowances and makes it easier for individuals to increase retirement savings, it may be a step toward employee-funded retirement plans – a move that has many critics concerned.
Author Bio
Maggie Beetz is a writer for FSI Financial Literacy, Corp. based in Columbia, MD. FSI Financial Literacy aims to spread financial awareness to clients of FSI Tax Corp., Debt Shield, Inc. (http://www.debtshield.com/) and the general public. For more information, visit www.fsitax.com or please call 800-806-9106 or email [email protected].
Article Source: http://www.ArticleGeek.com
10 Ways to Cut Your Property Taxes
By: Paul Wilson
Property taxes are decided collectively by school boards, town boards, legislators, and councils. The tax rate is set by collating the amount of funds an area needs. This is then divided that by the “total taxable” assessed value of the area. The tax an individual pays is computed by multiplying the tax rate by the assessed value of your property and then deducting any applicable exceptions. Property taxes are at an all time high. Studies indicate that they have increased more than 35% in five years.
Property is assessed by determining property costs in any given area. Property is valued by studying: the current sale price of properties in the area, costs to be incurred to replace the property, potential realization of property if it is rented, sold, or gifted, and the historical value of a property.
There are a few ways in which you could save on taxes:
1. Check if the state you reside in is offering any rebates. For example, a money back rebate, energy rebate, capping of taxes, or home owners rebate where under certain conditions you may be eligible to claim a rebate.
2. Ensure that the property is assessed right. This will ensure that you do not have to pay excess taxes. Assert your right to check you assessment report ensure that there are no miscalculations, mistakes, or assumptions. If in any doubt, do put in an appeal. According to statistics almost 50% of the cases win some relief.
3. Check all exemptions allowed according to the law.
4. Buy property jointly with a partner or family member. This way both owners become eligible for tax rebates.
5. Check if your assessment is in according to other properties in your neighborhood. Check with the assessment office or with your neighbors themselves. It helps to know applicable laws. Use the help of a real estate professional to put together a file of properties similar to yours that have a lower assessment. Or, use the bank’s appraisal to support your case. Be sure that the case you gather together is water tight.
In order to be money smart you need to get the help of an efficient and dedicated accountant, plan your tax liabilities well, known thoroughly all aspects of Property Tax.
Paul Wilson
6. Use a property consultant to help you save taxes. Some charge a flat fee while others just a percentage of what you save. A professional will check how assessment is done and also if there are any loop holes you can use.
7. There is strength in numbers. Get together with other owners who are also checking or fighting assessments. Check on the National Taxpayers Union Web site http://www.ntu.org for your rights.
8. Ask you home loan provider whether you are eligible for refund of property taxes paid. Some agreements have a provision for this. Many mortgages have automatic escrow of taxes.
9. Even before you buy a home find out what the property taxes are in the area and what have been the increases in tax rates.
10. Be sure to read through assessment and tax manuals published by your local authorities. These will give a clear idea of what are the parameters used and what you must do to reduce or pay the correct property taxes.
In order to be money smart you need to get the help of an efficient and dedicated accountant, plan your tax liabilities well, known thoroughly all aspects of Property Tax. If you are prudent, you can benefit by using ways and means to cut your tax burden and liabilities.
Author Bio
Paul Wilson is a freelance writer for http://www.1888PressRelease.com/Home-and-Family-Taxes-1-81.html, the premier website to Submit Free Press Release for any announcements including launching of new product or services, new website, announcing new hires, sponsoring a special event or seminar and more. His article profile can be found at the premier Legal Article Submission Directory www.1888Articles.com/legal-articles-3.html
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Beating Debt with a Stick
By: Tom Justice
Debt is a Product in America. The #1 sickness in America concerning finances right now is debt. Debt is a product in our culture and it is vigorously aimed at you and me everyday, everywhere. As a society, we borrow more money than the last two generations times two and your online credit report reflects these habits! Some companies like Sears make more profit from their credit department than from all the physical products they sell.
But It’s the Norm Isn’t It?
We are programmed from childhood to make automatic decisions regarding our personal spending habits thus negatively affecting our online credit report. A few ‘real world’ examples are listed below:
What to do? Well, I hate to give the obvious answer here but how about saving money! Try saving money in a money market account for a couple years and then paying for a slightly used car in cash or with a 50 to 75% down payment. Wow, imagine having that extra money every month that most people dump into their lease or high rate loan. Try saving money for 3-6 months interest and risk free for that thing that you needed and you might find that you can get it cheaper with hundreds OR even that you want to use your hard-earned money for something more practical. Your credit report will thank you as well.
Penny Pinching is Boring!
Most people today think that to be frugal one must live out of a shack and only make purchases when they are on clearance (or if it’s life or death). Well they’re only half right. Have you heard the expression “It’s the little things that count”? This holds very true when dealing with financial decisions. While large purchases definitely have great effect on one’s online credit report as well as their overall situation, it is often the everyday spending habits that accumulate and hold them back from attaining wealth of any sort. What many people fail to realize is that the majority of true millionaires in America (those with networth exceeding 1 million dollars) got rich from thinking outside the box and not following the crowd. Try thinking a little more about how you handle your money and you might find that you know more than you think you do.
Debt is a Product in America. The #1 sickness in America concerning finances right now is debt.
Tom Justice
Summing Up the Debt Sickness Fiasco
A decision as simple as using a debit credit card instead of a credit card shows discipline. Report that paying with cash instead of credit shows that you have properly budgeted your money and it just feels better to own something the day you walk away with it. Your credit report will also reflect these positive actions. Since the average consumer has little control over their own spending habits, the credit report picks up the slack and in turn there are more negative items to show for it. Even statistics show that using cash when making purchases will greatly reduce spending thus causing you to think harder as a consumer before swiping that credit card. Get off to a good start by seeing what is on your online credit report. By removing negative items from your online credit report you can improve your credit rating.
Author Bio
Tom Justice is the webmaster for Clean Credit Online and does all the designing, marketing, SEO and maintenance for the site. He has a passion for personal finance and how the economy and consumers are affected by money.
Article Source: http://www.ArticleGeek.com
