By Michael Egan, CFP®
Egan, Berger, and Weiner, LLC
In our financial planning practice we do not prepare tax returns, but we do receive many tax-related questions around this time of year.
Listed below are some important items that people tend to overlook when preparing their taxes. We hope that this information is helpful. As always, we recommend consulting a tax professional before you submit your tax return.
1. Retirement plan contribution deadlines. You can still make an IRA or Roth IRA contribution for the 2013 tax year before April 15th, or on your tax-filing date, whichever comes first. The contribution limits for 2013 are $5,500, plus an extra $1,000 catch-up contribution if you are age 50 or older by Dec. 31, 2013.
- Remember that if you are making a traditional IRA contribution and you are not eligible for the deduction, you will need to file Form 8606 with your taxes.
- If you are self-employed, you can still make employer contributions to an Indv(k) by your tax-filing deadline. This may include an extension—provided the plan was opened on or before Dec. 31, 2013.
- You can also make and/or establish SEP-IRA contributions on or before your tax-filing date.
2. Professional service fees. Remember to add up and total the fees you spend on professional services. They may be deductible. Fees for tax preparation, legal, and financial management services are deductible to the extent that they exceed 2 percent of your AGI (Adjusted Gross Income) and have not been phased out by your income limits.
3. Long-Term Care premiums may be tax deductible, provided that you purchased a “tax-qualified” plan. Your Long-Term Care premiums can be added to your medical expenses up to certain limits as follows (for 2013, per-person premium limits):
- Age 51-60: $1,360
- Age 61-70: $3,640
- Over age 70: $4,550
Medical expenses, including Long-Term Care premiums, may be deductible as an itemized deduction if they exceed 7.5 percent of your AGI.
4. Capital Gains. Do not forget to include your cost basis (which is what you have already paid taxes on) when filing your Form 1099.
If the securities were purchased more recently, the cost basis is probably included right on the 1099 itself. If the securities were purchased several years ago, then the cost basis will probably not be included on the 1099. A mistake that we notice occurs very often is that when people do their own taxes, they include the dividends and capital gains listed, but miss or do not include the “gross proceeds” section.
Then they receive a letter from the IRS stating that they owe a significant amount of money, simply because they forgot to include the sales and cost basis value for the securities on the tax return. Completing this step correctly the first time can save you considerable unnecessary stress.
5. 529 Plan contributions. In most states, contributions to that state’s 529 college saving plan will allow for you to receive a state tax deduction up to certain limits, provided you are a resident of that state. For example, a Virginia state resident who contributes to a Virginia 529 Plan, and who is also the owner of the plan, may qualify for the deduction.
6. Same-sex married couples may now file a joint return. If you were legally married in a state that recognizes same-sex marriage, you are now eligible to file a joint return with your partner.
7. Foreign bank accounts. The IRS and the government are really cracking down in this area of the financial sector, so do not forget to claim any foreign bank accounts. Failure to disclose assets held overseas may result in serious consequences and possible prison sentences.
Questions? Send Mike Egan an email at firstname.lastname@example.org.
About Michael Egan
Michael P. Egan, CFP®
Financial Planner / Partner
- Founding partner of Egan, Berger & Weiner, LLC
- 24 years of experience in the financial services industry—as a mutual fund analyst, accountant, and financial planner
- Graduate of George Washington University, with a degree in finance
- Hosted a weekly radio show on financial planning in the Washington market.
- Presenter on retirement planning for Fairfax County Public School’s Adult and Community Education
- Active member of the Financial Planning Association (FPA)
- The son of Irish immigrants, Michael has been married to his wife, Terri, for 20 years, and they have two daughters, Amanda and Shannen. Originally a native of Connecticut, Michael moved to Northern Virginia in 1990. He is an avid New England sports fan and roots passionately for the Red Sox, Patriots, Celtics, and UCONN Huskies.
- Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.