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Happy tax filing month! To help celebrate, this month’s newsletter includes a quiz on strange tax laws from around the world. Also included are some tips for using your refund check as well as advice on handling spiraling health care costs during retirement.
Should you wish to review your situation please feel free to call. Also feel free to forward this newsletter to someone who may benefit.
- Tax Quiz: So You Think Our Taxes Are Crazy?
- Know the Top IRS Tax Scams
- When an Extension May Make Sense
- Win the Battle Against Retirement Health Care Costs
Tax Quiz: So You Think Our Taxes Are Crazy?
With the passing of the Tax Cuts and Jobs Act, many taxpayers are still adjusting to the new rules. Think U.S. tax laws are nuts? See if you can guess the answers to this quiz about some of the craziest taxes from around the world.
Know the Top IRS Tax Scams
Every year the IRS releases its list of the most common tax scams. They include ploys to steal personal information, talk people out of money, or engage in questionable tax activity. Here are 10 of the top scams:
|Identity theft. Using a stolen Social Security number to file a fraudulent return and claim a refund. The IRS said it’s making great progress on reducing this scam, with identity theft reports down 40 percent from a year ago.|
|Fake charities. Some fraud uses the mask of charitable activity to get you to donate funds to fake organizations. Only donate to legitimate charities registered with the IRS.|
|Inflated refund claims. Many taxpayers are wooed by tax refund services offering payouts that seem too good to be true. Cheap tax preparation services that promise unrealistic refunds are illegal and often get taxpayers in trouble.|
|Padded deductions. Tax returns that try to reduce tax by overstating deductions such as charitable deductions or business expenses.|
|Falsifying income to claim credits. Improper use of the Earned Income Tax Credit (EITC), meant for eligible low-income taxpayers. The IRS has been cracking down on EITC fraud in recent years.|
|Abusive tax shelters. Some fraudsters peddle complex tax avoidance schemes known as tax shelters, which they portray as legal tax strategies. Make sure you get an independent opinion on any complex tax schemes.|
|Frivolous tax arguments. Frivolous arguments to avoid paying taxes (for example, arguing a personal vacation is a business expense) can be penalized by up to $5,000 per tax return.|
|Offshore tax avoidance. Using offshore bank accounts and complex international tax structures to avoid paying taxes is still a common scam on the radar of IRS auditors.|
When an Extension May Make Sense
|While you should try to file a tax return by April 17, sometimes delaying your filing date until Oct. 15 with a tax extension makes sense.
When to file an extension
|Missing or incorrect information. If one of the forms you need to file your return has an error on it, it is often better to receive a corrected form before filing.|
|Recharacterizing Roth IRA rollover amounts. If you’ve rolled funds from a traditional IRA into a Roth IRA, you may want to reverse it later if the investments lose value. This so-called recharacterization process can be done up to the extended tax filing date of Oct. 15, and in many cases it makes sense to wait until then. Note that 2017 is the last tax year you can use the recharacterization process, which was eliminated for future years by the Tax Cuts and Jobs Act.|
|Making self-employed retirement donations. The self-employed can use an extension to buy time to fund a SEP IRA. This extended time frame does not apply to traditional IRAs and Roth IRAs.|
|Avoiding late-filing penalties. If you fail to file a tax return, two tax penalties come into play: a late-filing penalty and a late-payment penalty. By filing an extension, you can push out the potential late-filing penalty for another six months even if you cannot yet pay the tax.|
One thing to remember: an extension to file your return is NOT an extension to pay your taxes. If you owe any tax to the IRS, pay it by April 17 to avoid penalties.
Win the Battle Against Retirement Health Care Costs
|When you think about how much money you’ll need in retirement, you may consider your living costs, travel expenses and hobbies you’d like to enjoy. But you may be overlooking one of the largest costs for most retirees: health care.
Couples who retired last year will need an average of $275,000 to cover medical costs over the course of their retirement, according to research by broker Fidelity Investments.
Here are some tips to meet the challenge of rising health care costs without compromising your other retirement goals:
|Save more now. The best way to manage rising health care costs is to save more money before you retire. Consider maximizing your annual contributions to your tax-advantaged employer 401(k) plan and your IRAs.|
|Use health savings accounts. If you’re eligible, save money in health savings accounts (HSAs). HSAs allow you to contribute pre-tax money to an account that can be invested like a 401(k) or IRA. HSA funds are not taxed as long as the funds are used to pay for qualified medical, dental or vision expenses. You can contribute up to $6,850 a year in a family plan or $7,850 if you are age 55 or older.|
|Be network smart. Out-of-pocket health care costs rise considerably if you use doctors or facilities out of your insurer network. Even if your primary doctor and clinic is in your insurer’s network, a specialist or testing center may fall outside of it. Be sure to check your insurer’s network rules before each visit to a new doctor or location.|
|Use alternative providers. Consider avoiding hospital visits and emergency rooms when practical. If you have the option to go to a clinic or urgent care center, out-of-pocket costs there are often a fraction of the out-of-pocket costs at a hospital.|
|Reduce Medicare premiums. A large portion of the cost of retiree health care comes from Medicare premiums, which rise according to several tiers of income brackets. To pay the lowest rate, keep your adjusted gross income below $85,000 if you are single or $170,000 if you are married filing jointly. There are various tax planning strategies you can use to stay below the threshold, including managing required minimum distributions from retirement accounts and Social Security payments.|
Planning that takes into account rising health care costs can save you the added financial burden upon retirement, leaving more funds for the things you look forward to doing during your golden years.