Tax Strategy for Exes that Get Along

January 11, 2015 by · 2 Comments
Filed under: Taxes 
Tax tips for ex spouses

Sometimes dealing with an ex is like butting heads. But if you can work together, it can be money in both of your pockets.



If you have a child with an ex-spouse, or even someone that you weren’t married to, you might already know how complicated the whole tax situation can get.  Who can claim what? And if you now hate each other, then it’s really a problem.


But—if you and your ex get along and you want to work together to make the best situation for your child—then I’ve got a tax strategy for you to help you maximize your refund.


This strategy only works for couples that get along, and basically share physical custody.  If this sounds like you and your ex, then you two are perfect candidates to work together on your taxes.  If your ex is an absentee parent stop, this isn’t for you.  If your ex is a nasty person, stop, this isn’t for you either.


If your ex is a decent, trustworthy human being, then you can continue.


The first step is for you and your ex to do your own taxes the way you normally should.  For example:  let’s say your divorce decree states that you are the custodial parent and your ex gets to claim the exemption for the child.  That’s how you prepare your taxes and set the baseline for what your refund or balance due should be.


An example might help.  Let’s say that Barbie and Ken had a child named Penny and then got divorced.  Although Barbie and Ken basically share custody of Penny, if push comes to shove, in the divorce decree, Barbie is the custodial parent.  Per the decree, Ken is allowed to claim Penny’s exemption every other year.   So the way for them to file is for Barbie to claim the head of household filing status, but not claim Penny’s exemption.  Barbie also gets the Earned Income Tax Credit and the Child Care Credit for Penny’s daycare expenses.  Ken gets the exemption, and the Child Tax Credit.


That’s how you determine the baseline for Barbie and Ken.  Let’s say that in this example, Barbie would get a refund of $1500 and Ken would get a refund of $1000.  Together they get $2500.


There are FOUR Scenarios to this.  When preparing your taxes, you’re going to run all four scenarios:


  1. YOU claim no child, single, 1 exemption for yourself. EX claims:   2 exemptions; one for his/herself, one for child, AND claim EIC and head of household and child care credit


  1. YOU claim child for EIC and head of household filing status and child care credit, 1 exemption for yourself, no exemption for child, sign 8332 to other parent. EX claims:  2 exemptions; one for him/herself, one for child, no EIC, no head of household


  1. YOU claim 2 exemptions; one for yourself, one for child, no EIC, No head of household, EX claims:  child for EIC and head of household filing status, 1 exemption for him/herself, no exemption for child, sign 8332 to other parent.


  1. YOU claim 2 exemptions; one for yourself, one for child, AND claim EIC and head of household and child care credit. EX claims:  no child, single, 1 exemption for self.


Let’s plug the numbers for Barbie and Ken in here.  Scenario 1: Barbie owes $800 and Ken gets a refund of $4500.  The combined refund is $3700.


Scenario 2: this is our baseline. Barbie gets a $1500 refund, Ken gets a $1000 refund.  The combined refund is $2500.


Scenario 3:  Barbie gets $1000 refund, Ken gets $3100.  The combined refund is $4100.


Scenario 4:  Barbie gets $2600 refund and Ken owes $900.  The combined refund is $1400.


So in Barbie in Ken’s case, it makes send to let Ken claim EIC and head of household filing status and have Barbie claim the exemption.  It gives them back and extra $1600!


Now Barbie has a right to her $1500, and if she files using scenario #3, she’s losing $500.  So to make Barbie whole again, Ken would need to pay her back the $500 from his refund.  And they would also have to agree on how to use the extra refund money.

I always recommend that you put the extra money you get into a savings account or 529 plan for your child.  The only reason you can do this is because of your kid, so I think the money should go towards raising your child.  But it’s up to you.


Remember, only parents that get along can do this.  If you hate each other, then you strictly go by the IRS rules for divorced or separated parents.   Once you do this, you can’t go back to the IRS because you changed your mind.


Put proper safeguards in place.  If you’re the parent that will get a lower refund than you normally would have, make sure that your ex sets up the part of his/her refund that makes you whole will come as a direct deposit into your bank account.

Make sure the part of the refund that is supposed to go to your child goes into your child’s account as well.


Remember, this strategy is not for everyone.  But for some families, it can be worth a decent amount of money.

How To File Your FBAR 2013

June 23, 2014 by · 6 Comments
Filed under: FBAR, Foreign Income, International Taxpayers, Taxes 

The IRS changed how FBARs are filed.  It’s now done online instead of mailing a paper form to Detriot.  Here’s a step by step guide to help you through it.


Now before you start, I get a lot of questions from people asking if they even need to file an FBAR.  Here’s a link to the IRS website that compares whether you need to file an FBAR or a form 8938.  I like this comparison list better than most of the documents about whether you need to file or not.  It’s easier to understand in my book.  So if you’re unsure, look here before you file:


The first thing is to find the website page.  Here’s the link:


BSA E-filing system

When you open the page it says BSA E-Filing System, Financial Crimes Enforcement Network.  If you’re a normal human being, and you see the “financial crimes enforcement network” you’re going to think you’re in the wrong place!  You’re at the right page.  And no, you’re not a criminal.  By some weird luck of the draw, the financial crimes division is in charge of FBAR filing.  Personally I think they should change the name but the IRS isn’t taking my suggestion on that.

As an individual, you’re going to want to select the top box, Report Foreign Bank Accounts (FBAR).


This will take you to the next screen where you can choose whether to prepare or submit your FBAR.  We’ll start with preparing.

prepare the FBAR


When you click on the “Prepare FBAR” link, you should get a download of the input document.  But, you might get this instead:


If your download doesn’t convert from the “please wait” page, you’ll probably have to download a newer version of Adobe reader.


[Geeky technical issue:  my computer had real problems opening this file.  I got around it by downloading the NFFBAR to my computer and then opening the file from there.  This might work for you if you’re also having trouble.]


The screen you want to see looks like this:


report of foreign financial accounts


The first thing you’re going to do is name your file so that you can find it again.  I’m choosing Roberg FBAR 2013.  Next, you’re going to click on the Filer Information tab.  You’ll see a screen like this:


fbar form


That’s going to have all of your personal information, your name,  social security number and address.  If you don’t have a social security number or ITIN number, then you can use your foreign identification such as a passport number.   When you’re done with this section, go to the next tab:  Report of Foreign Bank and Financial Accounts.

Report of foreign bank form


That’s the meat of the reporting form.  This is where you put your bank account numbers, the maximum value of your accounts and where they are located.  These are accounts that you actually own either by yourself or jointly with your spouse.


For accounts that you only have a signature authority over, that’s on the next page.  It is as follows:


fbar signature only form



Now this looks pretty similar to the “consolidated account” form as well:


consolidated fbar account report


So just make sure you’re on the right screen when you’re filling out the form.

The last page is for the signature date – or, if your tax preparer is doing this for you, that’s the part that she fills out.  If you’re doing this yourself, you don’t need to fill out the title on a personal account and the signature date will auto populate when you put the signature on the front page.


fbar tax preparer page


Once you’re done, you’re going to go back to the original screen.

fbar signature screen


Before you actually hit the signature button, you’ll want to hit the validate button.  It will check for errors and omissions for you to correct.  Then you’ll want to sign the form and save it.  Be sure to print your form, and then when you’re all set click on the ready to file button.


That will put you into a final screen where you’re going to put your email address so you can receive confirmation about your filing.  After you submit, you’ll receive a confirmation notice.  Later, you should receive an email saying that the BSA has accepted the FBAR.


You want to get your 2013 FBAR filed by June 30th.  For those of you who are filing back FBARS, you’ll need to answer the question about why you’re late.  If you’re filing on time, just leave that box blank.

Helping Mom With Her Taxes: Tax Tips for Preparing Returns for Senior Citizens

May 20, 2014 by · Leave a Comment
Filed under: Taxes 

Photo by marysia_ at


If you have elderly parents you may find yourself in the position of having to assist them with their tax returns.  If you have a parent showing any signs of dementia, it’s especially important for you to step in and offer assistance.  Believe me, I understand that there’s a big difference between “offering” assistance and being “allowed” to assist.  Parents can be stubborn, especially about money.  But if your parent is showing signs of Alzheimer’s disease or dementia, you really do need to step in and make sure that their paperwork is taken care of.  Here are some tips to help you make sure you’ve got your bases covered.


If your parent has been working with an Enrolled Agent or other tax professional, talk to them first.  They should be able to provide you with a list of all the documents that your parent has used on past returns.  An old return, preferably the most recent one but even one a few years old, will give you a good clue as to what documents your parent usually needs.  Here’s a list of the most common items found on senior tax returns:

1. You need to find the Social Security Statement.  The form is called a 1099SSA.  It should be mailed by January 31.  If you can’t find it after February 1st, you can order a replacement at this web address:  It looks like this:



This sample picture is not in color, but the most distinctive thing about this statement is that it has pink on it.  It comes in one of those envelopes that you have to tear off the sides to open up the paper—the envelope will be white.  It’s not a standard size.


The 1099SSA statement is important because for some seniors, their Social Security income is taxable—for others it is not.  It all depends upon how much money they make.


Tax Prep Tip:  Use tax software and always input the Social Security income even if it seems obvious that the SS income won’t be taxable.  Software will do the calculation about the tax for you.  And should something turn up later and the IRS contacts you about income that you missed, by reporting the Social Security income even though it wasn’t taxable—you’ve protected yourself from underreporting fines on that income.


2. Another statement many seniors receive is the 1099R – for pensions and annuities.  Some seniors won’t have any while others could have 10 or more.  Most seniors will have one or two each—a pension or 401(k) from a job and an IRA.


Tax Prep Tip:  Look at box 2 of this statement, often it is blank.  Usually, a blank box means zero, but on a 1099R-a blank box could mean that the company didn’t compute what was taxable.  Many tax software programs will automatically count everything in box 1 as taxable if you leave box 2 blank when inputting the 1099R.  You can test this by looking at line 16a and/or 16b of the 1040 to see if the number carried over there.  On the 1099R form there is a checkbox for “taxable amount not determined”.  If that’s checked, the default is to tax the whole amount.  There are formulas for determining a taxable amount on these types of 1099s.  If you’re dealing with a large pension, it would be worth consulting with an EA to figure the taxability.


3.  Investment Income:  Many seniors have investment income.  You’re going to want to look for something called a 1099B, 1099-DIV or a 1099-Combined from.  These come in all kinds of shapes, sizes and colors.  Many seniors have more than one investment firm; just because you find one statement doesn’t mean you have them all.  Many of these firms deliver their statements online.  If your senior parent used to be computer savvy, be sure to check online for these documents.


Also seniors, more so than younger investors, tend to hold individual stocks outside of the big investment firms.  Look for individual 1099-DIV statements from Met Life, Pfizer, Ameren and the like.  Many of these statements are still mailed, and they often come in smaller envelopes with the tear off sides.  They should say, “Important Tax Document” on the envelope, but the envelopes do sort of look like junk mail so you may be combing through the recycling bin for these.


Tax Prep Tip:  Investment documents aren’t due out until February 15th.  Be sure to allow enough time for all those statements to be delivered before you start your parent’s return.  Some of those brokerage house statements can be over 20 pages long.  While most of the information you need is all on page 2 or 3—there’s a reason they are sending you 20 pages of information.  If you have “gross proceeds from sales of investments” – you need the back 20 pages to determine the basis of that stock sale.  If you have non-taxable dividends from municipal bonds – you need the back 20 pages to determine if that money is taxable to your state.  Brokerage houses don’t send you all that stuff because they hate trees.  If you get a statement like that and you don’t understand it, it’s worth the money to get professional help at least once so you know where everything goes

4.  Bank interest statements.  These are called a 1099-INT.  Seniors are more likely to have CDs than younger taxpayers, and they shop around for the best interest rates.  Don’t be surprised to find multiple bank statements.


Tax Prep Tip:  Some banks put all of the CDs and their interest on one combined bank statement.  Other banks send separate statements for each CD—making it look like you’ve just got duplicates of the same statement.  If it looks like you’ve got duplicates—check the account number carefully to make sure you’re reporting everything (and not double counting the same one!)  List the interest earned on each statement as a single line item.  If the bank is sending you statements in separate envelopes, the IRS is also getting that information separately.  If you combine the amounts, it won’t match the IRS numbers and could cause you to get a letter.


5.  State programs:  many states have tax credits for senior citizens.  Here in Missouri, we have a property tax credit for low income seniors.  There are programs like that in many other states as well.  Even if your parent’s income is too low to require filing a federal return, be sure to check to see if he or she may qualify for some tax benefit in your state.   You’ll want to keep an eye out for real estate tax receipts or rental income statements.


It can be difficult helping a parent at tax time.  Half the battle is knowing what to look for and where to find it.  The harder part is often persuading your parent that she needs help!  But if your parent is confused, especially about financial matters, you need to step in and make sure that her taxes are taken care of now.  It’s much better than having to deal with the IRS on her behalf later.

Filing Your St. Louis County Personal Property Tax Declaration

May 13, 2014 by · Leave a Comment
Filed under: Taxes 



41 South Central Avenue

St. Louis, Missouri 63105-1777



Do you own a small business in Missouri?  Are you filing a Schedule C with your 1040 tax return?  Or do you have a partnership or corporation?  If yes, then you’re supposed to pay personal property taxes on your equipment.


I keep getting asked:  Do I have to pay personal property taxes?  Do I have to fill out that form?  If you own a small business, the answer is yes.


I used to think that if you didn’t have any assets, you didn’t have to do a business personal property declaration.  But—even if you have absolutely no business assets at all, you’re going to have a minimum assessed value of business property for tax purposes of $200.  That’s not what the tax is, that’s an assessed value of your property.


So how does that assessment thing work?  I’ll use my own business as an example.  In 2013, I bought new computer equipment.  The total cost was around $3,000.  Computers count as “5-year” property, because that’s how long it takes to depreciate a computer on your tax return.  (Office furniture is an example of a 7-year property.)  Now I’m writing off the whole cost of the computer on my tax return (as a Section 179 expense)—but it’s still considered a 5 year property for depreciation purposes and for the personal property tax declaration.


In the personal property tax declaration form, I would put $3000 for year 2013 in schedule 9 for 5-year property.  (If your brain just exploded reading that, relax, I’m going to give you the easy cheater way to do the form in a little bit.)


Then that amount (in my case $3,000) is multiplied by .85 and then multiplied by .3333 so my assessed value is $849.92.   That’s not the tax I’m going to pay, that’s just the assessment of the value of what my business owns.  (3000 x .85 x .3333 = 849.915)


Last year, the tax rate was 8.052.  I only had $230 of assessed value so my bill was only $18.52 this past December.  Because of my new equipment, my bill will be higher this year.  But your bill is going to be close to 8% of what the assessed value of your equipment it.  As your equipment ages, the assessment will go down but the assessment will never go below $200.


So what’s the cheater trick for filling out the form?  Grab your tax return and pull out the Federal depreciation schedule.  It’s going to have a list of your company assets, what they cost, and whether they are a 5-year, 7-year, or a 10-year property, and what year you bought them.  If you have company assets like computers, equipment, or vehicles, then you should have a depreciation schedule to go with your tax return.  I know that some companies won’t give that list to their clients to force them to come back every year.  If you’re not getting that list—you have a right to ask for it.  (And move to a preparer that gives you all the information you need for your taxes.)


If you didn’t get your personal property tax declaration statement in the mail, here’s a link so you can have the form:


You need to have it signed and filed by March 31st.


St. Louis County has started a new Online Personal Property Declaration that will be available from February 1 – April 30th It’s a good option for people who missed the March 31 deadline and for people who are just more comfortable with on-line services.  If you start using the online service, you’ll be able to access your previously filed returns, making it a whole lot easier to fill out that form in the future!


If you’ve been forgetting to file your St Louis County personal property taxes, 2014 is a good year to come clean and start filing.

Planning Now for Next Year’s FAFSA Application

March 7, 2014 by · 2 Comments
Filed under: FAFSA 

Photo by Federal Student Aid at


Parents of seniors are filling out FAFSA applications right now, but if you’ve got a sophomore or junior in high school, then it’s time for you to start planning now so that you get the best possible financial aid later.


Here’s the main thing:  if your child is a junior right now, then the income that you make this year will be the income reported on the FAFSA when she’s a senior.  If your child is a sophomore, it will be next year’s income.


Why does that matter?  Bottom line:  the higher your income, the less financial aid you’re going to receive.   If your child is already a senior, it’s too late to make any adjustments, the year is already over.


So if you’ve got a junior, you want to make your income look lower.  If you’ve got a sophomore, you might want to move up your income for this year, to reduce it for next year.


For example:  let’s say you’re a small business owner.  One of my favorite strategies is to prepay business expenses in December to reduce my taxable income for the year.  You can prepay up to a year’s worth of expenses.  This is a smart move when your child is a junior.  If you’ve got a sophomore, you might want to hold off on that to take the income hit sophomore year—when you’re not filing the FAFSA so that you can push more expenses into junior year which is the income year for the FAFSA.


Another example of future planning is when to take your capital gains on the sale of stocks.  Now you’re going to want to make good choices, sometimes you’ve just got to sell because you need to sell and the time is right.  But if you’ve got a choice, taking the gain is better in your child’s sophomore year than in the junior year.  Remember, if you’ve got capital losses that are more than your gains, you can deduct up to $3,000 to offset your regular income.  Anything more than a $3,000 loss will just be carried forward to your next year’s tax return.


One of the things that can really mess up your income during FAFSA time is taking a distribution from your retirement account.  Sometimes things happen and you just don’t have a choice, but if you’ve got an option to take a distribution like that during the sophomore year instead of the junior year it will help to keep your income down for the FAFSA filing.


Now you need to realize that you’re going to be filing FAFSA applications for four years, so you can’t artificially reduce your income for four whole years.  But getting that first year aid package off to a good start can help set the tone for the next four years.

What Is a Dependent?

March 4, 2014 by · 6 Comments
Filed under: Dependents 

Dependents are often your child. Your dog is never a dependent on your taxes.

If you’re doing your taxes this year, one of the questions you’ll be asked is, “Do you have any dependents?”  What exactly is a dependent anyway?


Most often, but not always, a dependent is your kid.  Sometimes, a dependent can be a parent, a sibling, and even in some cases a friend that lives with you.   There are many requirements that you’ve got to meet for a person to qualify as a dependent.  In general though, a dependent is someone that you support.


There are two types of dependents:

  1. Qualifying child:  that’s going to be a child or a disabled relative that will qualify you for the Earned Income Tax Credit (EIC)
  2. Qualifying relative:  a qualifying relative will get you an exemption for your taxes, but won’t qualify you to get EIC

Let’s look at the Qualifying child first.  How does the IRS define what a qualifying child is?  Remember, the IRS has weird rules, and it’s not the same as how your family decides who’s related or not.


A Qualifying Child must have a valid social security number to qualify for EIC.  If your child doesn’t have a social security number, but she gets one later, you can go back for up to three years to amend the returns.  In addition to a social security number, for EIC a Qualifying Child must also meet the following tests:

Relationship:  Son, daughter, adopted child, stepchild, foster child or a descendent of any of them such as a grandchild, or, a brother, sister, half brother, half sister, step brother, step sister or a descendant of any of them such as a niece or nephew.  Please note that an adopted child or foster child must be placed by the courts.  You’ve got to have legal documentation to support your claim; you can’t just take in your neighbor’s child and call her a foster child.

Age:  At the end of the filing year, your child has to be younger than you (or your spouse if you file a joint return) and younger than 19; or younger than 24 and a full-time student; or permanently and totally disabled.

Residency:  The child must live with you (or your spouse if you file a joint return) in the United States for more than half of the year.

Joint Return:  The child cannot file a joint return for the tax year unless the child and the child’s spouse did not have a separate filing requirement and filed the joint return only to claim a refund.


For more details on what is a Qualifying child for EIC purposes, check out this link:


Now one of the most common questions I hear about EIC is, “My boyfriend lives with me and my child, but he’s not her biological father, can he claim my daughter for EIC?”  The answer is “NO” because the child doesn’t meet the relationship test to the boyfriend.


But, the boyfriend might be able to claim the child as a dependent for an exemption—just not claim EIC for her, because she may be a Qualifying Relative to the boyfriend instead of a Qualifying Child.


Rules for claiming a Qualifying Relative:

In order to be a Qualifying Relative the person can’t be a qualifying child.

The second is to pass the member of household or qualifying relative test.  Either the person lives with you for the entire 12 months of the year, or is related to you in your immediate blood line:  your brothers and sisters, and their direct descendants, and their direct ancestors (but not foster parents.)  Also, your in-laws are included here—even if you divorce, as far as the IRS is concerned, your mother-in-law is your mother-in-law forever.  (Heaven help us all!)  If, however, a person was at any time during the year your spouse, he or she can’t be your qualifying relative.  (I know, that looks like a typo—once you marry ‘em, you can’t be related to ‘em.)


With the qualifying relative rule there is a gross income test: a qualifying relative can’t make more than the standard exemption in income, which for 2013 is $3,900.  This means taxable income.  If your mother’s only income was $6000 a year from Social Security, that’s not taxable so she’d meet the gross income test.


The last requirement is support:  you have to provide your qualifying relative with more than 50% of his or her support.  So, back to your mom on Social Security, if she makes $6,000 a year, and spent it all on food and rent, then you’d have to pay at least $6,000 more towards her support.


The rules for Qualifying Relative and Qualifying child can get pretty confusing, especially if you’ve got a unique situation.  The IRS website has a tool to help you decide if you can claim a dependent or not.  As you go through the questions, remember to answer them honestly and you’ll get a reliable answer.  Sometimes people change their answers to get the result they want—that’s how you get into IRS trouble.  Answer honestly and claim what you can, don’t claim what you can’t and you won’t have any problems.

Roth IRA Facts

February 7, 2014 by · 4 Comments
Filed under: IRA 

A roth IRA is one investment vehicle that can help with your income during retirement. Photo by OTA Photos at


I write about ROTH IRAs quite a bit, but someone recently asked me to explain ROTH IRAs so here we go:


A ROTH IRA is best defined by how it’s different from a regular (Traditional) IRA.  Here are the differences:


  1. You cannot deduct contributions to a ROTH IRA, so whatever money you invest into a Roth—you’re going to pay income tax on the year you invest it.
  2. If you satisfy the requirements, your ROTH distributions are tax-free.
  3. You can still make contributions to a Roth IRA even after you reach age 70 and ½.
  4. You can leave your money in your Roth IRA as long as you live.  (This is important for people who want to leave behind money for their heirs.  It also means you don’t have any required minimum distributions (RMDs) like you have with Traditional IRAs.  )
  5. You must designate the IRA as a Roth when you set it up (the default IRA setting is for a Traditional IRA.)


So why am I so gung ho about Roth IRAs?  I like things that are tax free.  The distributions are tax-free, the earnings are tax-free, and if you die, they go to your heirs tax-free.  That’s a lot of tax-free going on there.


Here’s another thing I really like about the Roth IRA—not only are the distributions tax-free, but the distributions don’t count towards your Adjusted Gross Income.  I realize I’m going into Tax Geek Speak here, but hear me out, because this is important.


Let’s say you’ve got a kid in college.  You haven’t saved enough money for tuition and you need $10,000 for the tuition payment.  Now you can take that money out of your Traditional IRA and not pay a penalty (because you won’t pay the penalty for early withdrawals when you use it for tuition), but you’ll still have to pay the regular income tax on it.  So if you’re in the 25% tax bracket, you’ll pay an additional $2500 in taxes to take that $10,000 out of your Traditional IRA.


Now, if you need the whole $10,000 then you’ll need to actually take $13,333 out and withhold $3,333 in order to have the $10,000 and still pay your taxes on it.  Plus, the IRA money that you take out goes on your tax return as income.  So if you’re applying for financial aid, your aid will be reduced because you’re showing $13,333 more in income than if you didn’t take any money out of your IRA.  (And you could use the financial aid—you couldn’t afford the tuition, right?)


Now, if you had a Roth IRA, you’d take out that $10,000 tax-free.  The $10,000 wouldn’t have an impact on your tax return and therefore, wouldn’t have the same negative impact on your FAFSA application.  See why I like the Roth IRA?


Here’s another example of where it’s useful.  Let’s say you’re retired and receiving Social Security income.  If your money is all in a traditional IRA or pension, your extra income can make your social security taxable—up to 85% of your Social Security income can be taxed.  But if you take money out of your Roth IRA, that will have no effect on whether your Social Security gets taxed or not.  The more you have in your Roth IRA, the more opportunity you’ve got to maneuver.


If you’re looking for a place to put some retirement money, my first choice is a Roth IRA.  Start saving today, you’ll be glad you did.


For more information about Roth IRAs, here’s a link to the IRS website:

ROTH IRA Strategy for High Income Earners

February 4, 2014 by · Leave a Comment
Filed under: IRA 

This is where the ROTH IRA conversion comes in. If you don’t have any money in a traditional IRA yet, then you can take that non-deductible IRA and convert it to a ROTH IRA with no tax. -Photo by Simon Cunningham at


Perhaps you’ve heard about how great a ROTH IRA is: You put your money in an account and it grows tax free and when you take the money out at retirement time you get it all tax free. Awesome, right? Zero percent is a good tax rate. But if you’re in a high income bracket (see the chart below), you’re not eligible to contribute to a ROTH. But there may be a way around that for you. It’s called a ROTH IRA conversion. Here’s how it works:


Even though your income may prevent you from making a ROTH IRA contribution, there is no income limit for a Traditional IRA contribution. This is important—there is no income limit to making a Traditional IRA contribution. There are income limits as to whether it is deductible or not—but no limits as to your ability to make an IRA contribution.


For example: let’s say you earn $200,000 a year and you have a 401(k) plan at work. You can’t make a ROTH IRA contribution and you can’t have a deductible Traditional IRA contribution either. What you can do is make “non-deductible” contribution to a traditional IRA.


A non-deductible contribution to an IRA pretty much does the same thing as a ROTH—it grows tax free and at retirement it you can take it out tax free. The problem with the non-deductible IRA is that when you take it out, you take it out proportionately with your taxable IRA money.


For example: let’s say you have $20,000 on non-deductible IRA invested and another $80,000 in a traditional IRA that you rolled over from your 401(k) account for a total of $100,000 in IRA funds. You want to take the $20,000 of non-taxable money out. You can’t do it. If you take $20,000 out, the IRS is going to tax $16,000 of it because the non-taxable money comes out proportionately to the taxable money.


(Geek time: 20K + 80K = 100K

20K divided by 100K = .2 or 20 percent

$20,000 times 20% = $4,000 that is tax free

$20,000 – $4,000 = $16,000 taxable IRA)


So this is where the ROTH IRA conversion comes in. If you don’t have any money in a traditional IRA yet, then you can take that non-deductible IRA and convert it to a ROTH IRA with no tax consequences. There are currently no income limitations on doing a ROTH IRA conversion.


If you convert your money into a ROTH IRA, then when you want to take that money out—you’re taking it out of the ROTH. There is no equation determining how much is taxable or non-taxable—it’s all in the ROTH and it’s all non-taxable.


Now if you’ve already got money in a Traditional IRA, this strategy might not work for you because you’d be taxed on those funds during the conversion. If the total amount is fairly low, you might want to consider rolling it all over and taking the tax bite. You’d want to discuss that with your financial advisor and tax person before attempting that.


But if you don’t have any Traditional IRA funds, the non-deductible Traditional IRA contribution and ROTH IRA conversion might be a good strategy for setting aside some tax free retirement income for you.


Incomes where the ROTH IRA is completely phased out (2013):


Married filing jointly: $188,000
Single or head of household: $127,000
Married filing separately: $ 10,000

Where’s My Refund?

January 31, 2014 by · 2 Comments
Filed under: Refunds


To check the status of your refund go to


When you go to, click on the refunds tab on the top.  This is where you can check the status of your refund online.


Once you file your US Income taxes, the most important thing to you is, “Where’s My Refund?”  If you’re trying to find out about a current year tax return that was e-filed, the easiest way to find out about your refund is through the IRS “Where’s My Refund?” website.  Before you go to the website you’ll need to have your Social Security Number, your filing status (Married filing jointly, Single, Head of Household, etc.), and the exact amount of your refund in order to gain access.


You need to wait at least 24 hours after the IRS receives your e-filed tax return.  That means 24 hours after you get IRS confirmation that they’ve received it—not 24 hours after you filed.  Remember, the IRS isn’t officially receiving anything before January 31st.   If you go to someplace like H&R Block and file your taxes on January 14th—they’re not really filed yet as far as the IRS is concerned.


If you mail your tax return, don’t expect to see any results on “Where’s My Refund” until 4 weeks after you mail your paper return.  Once again, the IRS isn’t “receiving” paper returns until January 31st either, so even if you mail your return on January 1st, don’t expect to see your results online before March 1st.


The IRS has announced that they will not personally respond to calls about tax refunds until 21 days after your return has been received.  To put that in plain English—


The IRS ain’t gonna talk to you about your refund anytime before February 21st—no matter how early you filed your return.

I put that in big, bold, red letters because last year I received several calls from people who filed their taxes early with a store front tax company down the street from my office, then couldn’t find their refunds on the IRS website and that store front office didn’t return their calls.  People were frantically trying to get information and couldn’t get answers.


So, if you go someplace to file your personal 2013 US income taxes and they tell you the IRS is receiving them before January 31, 2014—they’re either lying or stupid.  I know, that’s harsh but it’s true.  They’re not actually filing the returns— they’re sending them to a “holding bin” until the IRS can actually receive the transmissions.  It’s called stockpiling.  It used to be illegal, but since the IRS keeps putting off the filing date they’ve made it okay to do now.   The point is—you return isn’t really filed yet, and it won’t be received by the IRS until January 31st.


Now, if it’s after January 31st, and you’ve waited 24 hours after receiving notice that your return has been accepted by the IRS, you can go to the “Where’s My Refund?” page to check on the status of your return.  Here’s the link:’s-My-Refund-It’s-Quick,-Easy,-and-Secure.


If the site doesn’t have an answer for you, wait another day and try again.  The website is only updated once every 24 hours so checking on it more than once a day is a waste of time.


One final thing—all of the accounting firms have to deal with the IRS late e-file acceptance issue.  Whether it’s a big box company like H&R Block, a small tax company like Roberg Tax Solutions, or a Big Four accounting firm like Deloitte; we all have to live with the same rules.  The IRS will not accept anyone’s return any earlier than January 31.


If you went to one of those tax companies last year that fits the category of “lying” or “stupid” it might be time to change tax companies.  Let’s face it, if your tax person doesn’t know the IRS filing date—what else is he doing wrong?

Does a Non-US Citizen Have to Report Foreign Bank Accounts on a US Tax Return?

January 28, 2014 by · 4 Comments
Filed under: Resident Aliens 

Photo by David McKelvey at


There’s been a lot of discussion lately about foreign bank accounts.  A recent court case settled criminal charges on a man for not reporting his foreign bank accounts to the US government.   This is big—it used to be that the fines and penalties were very stiff, but criminal charges are even worse.


A question that I’ve been getting lately is this:


“I’m a US resident alien, I am not a citizen.  According to the IRS Publication number 17, US Citizens have to report foreign bank account, but it doesn’t say anything about resident aliens. So do I still have to report?”

While I think that the wording in the Publication 17 is an excellent argument for not reporting, I know that the IRS expects resident aliens to report their foreign bank accounts and pay income tax on the earning of those accounts.  Even though IRS publication 17 expressly refers to US citizens, other IRS publications refer to “US persons.”


According to the IRS, as US person is:


“United States person means U.S. citizens; U.S. residents; entities, including but not limited to, corporations, partnerships, or limited liability companies, created or organized in the United States or under the laws of the United States; and trusts or estates formed under the laws of the United States.”

I copied that right off the IRS website so that’s not an interpretation of the meaning, that’s the IRS definition.


My experience has been that the IRS does expect foreign nationals living in the US and filing a regular 1040 income tax return to report foreign income and foreign bank account holdings.


My advice is that you are considered to be a US resident for income tax purposes; you need to report your foreign bank account earnings and holdings.  The fines and penalties are very high, and the new court case involving criminal penalties makes the risk of not reporting that much higher.


If you have not been reporting your foreign bank accounts, but should have, you can apply for the Offshore Voluntary Disclosure Program.  It allows you to go back and report those accounts from past years and pay the tax and reduced penalties.  While the penalties for the Offshore Voluntary Disclosure Program are steep, they’re still much lower than if the IRS “catches” you not reporting.  The fewer years that are involved, the lower the penalties will be.

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