Benefits of a Roth IRA

Question: Wondering about the benefits of a Roth IRA. When do we need to purchase to benefit us for 2011 taxes? Where do we need to go to purchase?

Answer: Thank you for the great question. The Roth IRA was set-up by Delaware's own Bill Roth who served for many years as one of our U.S. Senators. Roth IRA accounts are set-up with after-tax money, so their is no tax deduction in the current year for the contribution to a Roth IRA. Unlike traditional IRA accounts, which are a reduction in income in the current year and will result in current year tax deductions, the Roth account is funded with after tax money. The benefit to the Roth account is that distributions/withdrawals from a Roth account, once the account has been held for a certain period are tax-free. When you take a distribution from a traditional IRA you have to pay tax when you take the money out, but with the Roth, both the principal and the income is tax-free when taken from the account.

You will need to speak to your investment advisor to provide you with more specific information the benefits of a Roth versus traditional IRA account. We can certainly assist you with the basic account fundamentals when you come in for your tax preparation appointment.

For more specific answers to your tax questions, contact Ralph V. Estep, Jr., of Saggio Accounting+PLUS at (302) 659-6560 or visit our web site at www.saggioaccounting.com

Why did the State send me a 1099 for my tax refund from last year?

Question: The State sent me a form 1099-G for the exact amount of my refund from last year. It said something about having to report this on my current year tax return. What is this all about?

Answer: This is a question that I bet we are asked at least three times a day during tax season. The State sent you a form 1099-G to report as income the amount of the State tax refund you were paid last year because this is taxable income to you in the current year if you itemized your deductions on last year's return. When your return was prepared you took an itemized deduction for the full amount of the State taxes which were withheld from your payroll, you found this number on your form W-2. Your deduction was for the full amount of tax which was withheld from you pay, but your tax burden was less than this withholding since you received a refund. You actually took a tax deduction for taxes which you did not owe, therefore, the refund becomes income in the year where you receive the refund. This only applies when you itemized your deductions since that is the only way you would have taken the deduction. This is something that you MUST report since the State will be sending a copy of the Form 1099-G to the Internal Revenue Service and they will no doubt send you a summer letter adjusting your federal return if the refund is not claimed as income.

For navigating these income reporting issues as well as other tax complexities, contact Ralph V. Estep, Jr., of Saggio Accounting+PLUS at (302) 659-6560 or visit our website at www.saggioaccounting.com where you will find a great deal of information about tax savings tips.

Late Mortgage Interest Statement

Question: Hey Ralph, I hope you can help me with this question. Last year, after I filed my taxes on one of those free file sites I received another Mortgage Interest statement from the lender who took over my mortgage. Since I had already filed my taxes and received my refund I was not able to claim the interest. I was wondering if I could just add it to this year's return? It's quite a bit of interest so I don't want to loose the deduction.

Answer: Unfortunately we see get this question frequently. The mortgage interest must be taken on the tax return for the year when it was paid so the only option is to amend your tax return from last year and include the mortgage interest as part of a correction to your previously filed return. The filing of amended/corrected tax returns is very common, but you will have to file it the old paper format and it can take some time for the Internal Revenue Service to review and issue your refund. It is in your best interest to file the amended return since you will increase your refund.

Filing amended returns and computing corrections can be complicated so call Ralph V. Estep, Jr., of Saggio Accounting+PLUS at (302) 659-6560 or visit our website at www.saggioaccounting.com.

Identity Theft Video from the IRS

Here is a great Identity Theft video from the Internal Revenue Service.

We work hard to guard your personal information. We employ the most up-to-date systems to protect our clients and their valuable data. For more information about our services and the extra efforts we employ to prevent client data intrusion, contact Ralph V. Estep, Jr., of Saggio Accounting+PLUS at (302) 659-6560 or visit our website at www.saggioaccounting.com

Taxes for a Delaware LLC

Question: I am looking for an accountant to help prepare and file my taxes. I started a Delaware LLC in December 2011 and I am looking to recoup the start up costs and file with the IRS. I would like a breakdown of what services I would need and the breakdown of cost as well.
Thank you

Answer: Thank you for your question. What seems to be a pretty simple question is actually quite complex. We need to first start by understanding what type of LLC was formed. When you create an LLC, the Internal Revenue Service by default considers it a disregarded entity and would expect to see either the LLC reported on your personal income tax return or on a partnership return. You may also have filed an S Election, form #2553 to be taxed as a corporation. All of this is normally spelled out in your Operating Agreement, if you have one, and you should have one. The attorney or incorporator who established your LLC should have drafted this for you.

We file LLC tax returns of all types and we work with our clients in creating the best tax structure to meet your business needs. Contact Ralph V. Estep, Jr., of Saggio Accounting+PLUS at 302-659-6560 or visit our website at www.saggioaccounting.com and let us build a relationship with you.

Lawmaker Introduces Bill to Close Newt Gingrich Medicare Tax Loophole : Accounting Today

Small Business Owners Take Note!

You have to read this article and you need to keep an eye on this. This is a huge item and will significantly affect anyone who is currently taking "reasonable" compensation from an S Corporation. When you read between the lines, what this actually proposes is the full self-employment taxation of all earnings in an S Corporation. The Congress has been looking for a way to raise more revenue and this may very well be the start. I will keep everyone in the loop as this moves forward. I would also encourage everyone to contact Rep. Peter Stark from California to state your objection to this legislation.

Lawmaker Introduces Bill to Close Newt Gingrich Medicare Tax Loophole : Accounting Today

IRS and DOJ Bust Identity Thieves Across U.S.

Great Article, a must read!

IRS and DOJ Bust Identity Thieves Across U.S.