Be aware of these four IRA rules

If you have an individual retirement account, you’re aware of how complicated the rules can get. Here are four to remember as you prepare your 2015 federal income tax return.

1. Are you searching for one more tax deduction? It’s not too late to contribute to your IRA and claim a deduction for 2015. Under current tax rules, you can establish and contribute to your IRA up until April 18, 2016 (April 19 if you live in Maine or Massachusetts). If the IRA is the traditional, tax-deductible kind, you can deduct that contribution on your 2015 federal income tax return. If you’re under age 50, the maximum contribution is $5,500. If you were 50 or older by December 31, 2015, you can contribute up to $6,500.

2. You can make a contribution to a traditional IRA and convert it to a Roth later. Although a conversion now will generate taxable income that’s reportable on next year’s federal tax return, qualifying withdrawals from the Roth will be tax-free when you retire. If your circumstances change, you can choose to “recharacterize” your new Roth as a traditional IRA by moving the funds back within a specified period. You also have the opportunity to “reconvert” the funds to a Roth again after a recharacterization.

3. If you turned 70½ in 2015, you’re now required to take an annual minimum distribution from your IRA (and, unless you’re still working, from other retirement plans also). If you chose to delay taking your first distribution last year, April 1, 2016, is an important deadline. That’s the last day you have to take your initial distribution or you’ll be subject to a 50% penalty on the amount you should have taken.

4. The age of 70½ also lets you benefit from the now-permanent tax break for making charitable contributions from your IRAs. While it’s too late to make a contribution for 2015, you can exclude direct transfers of up to $100,000 from your gross income this year. The donation counts as part of your required minimum distribution.

For more tax breaks related to IRAs and other retirement plans, contact our office.

Use taxes to reduce your tax

Are you planning to itemize on your 2015 federal income tax return? If so, you can claim a deduction for taxes paid. According to IRS statistics, taxes are the most frequently claimed itemized deduction, as well as the largest. But what kind of taxes can you deduct on your personal return?

State and local income taxes or general sales tax. You can choose whichever gives you the most benefit.

Real estate taxes. Deductions include taxes you pay on your home or other real property you own (including property owned in a foreign country). Remember to check closing statements when you buy or sell property. You can claim the portion of current real estate taxes you’re responsible for. However, if you agree to pay delinquent taxes the seller owed at the time of closing, that expense is considered part of your basis in the property.

Personal property taxes. These taxes are imposed annually on the value of property other than real estate. Certain motor vehicle registration fees fit this description.

Foreign income taxes. Caution: Instead of deducting these taxes, you have the option of taking a credit, which will reduce your tax bill dollar-for-dollar and may offer more benefit.

Federal estate tax. If you inherit certain assets and are required to report the income from those assets on your personal return, you may be able to deduct a portion of the federal estate tax paid.

Some taxes, such as self-employment taxes, are deductible elsewhere on your return. Other taxes are not deductible at all. Examples include marriage licenses, gift taxes, and Medicare taxes (including the 3.8% net investment income tax). Feel free to contact us if you have questions about the deductibility of a tax you paid during the year, or if you received a refund of a tax you deducted in a prior year. We’re here to help.