October, 2014 - Doherty & Associates

Can’t Pay Your Tax Balance?

Your just received you tax return and can’t pay the balance due in full. What do you do?

FILE YOUR RETURN ON TIME. This avoids the penalties for late filing.
RESPOND TO ALL NOTICES. “Do Not” ignore the taxing authorities.
Pay as much as you can when you file the return. The outstanding balance is subject to interest and late payment penalties. Paying as much as you can will minimize these charges.
The IRS will give you up to an additional 120 days to pay in full. Interest and penalties still continue to accrue.
If you can finance the full balance, the interest charged by your bank or credit card company is usually less than the combination of interest and late payment penalties.
You can enter into an installment agreement with the IRS and state taxing authorities. There is a one-time user fee to set up the IRS installment agreement. The installment payments can be made by a variety of methods:

o Direct debit from your bank account;

Payroll deduction from your employer;
Payment via check or money order;
Payment by Electronic Federal Tax Payment System;
Payment by credit card via phone or Internet; or
Payment by Online Payment Agreement.

If your liability cannot be satisfied through any of the methods listed above. You may, repeat may, be eligible for an Offer in Compromise due to doubt as to collectability if your assets and income are less than the full amount of tax liability. The IRS is stingy in accepting Offers in Compromise, and as such; they should be viewed as a last resort.

As always, this is only meant as a brief overview. If you feel that we can be of further assistance to you, please contact our office to set up an appointment.

Email us at: info@dohertyandassociates.com

Call us at: 302-239-3500

Visit our website: http://dohertyandassociates.com

– Doherty & Associates Team

Traditional Individual Retirement Accounts (IRA’s)

Who can contribute?

You can open and contribute to a traditional IRA if:

You have taxable compensation, and
Are under age 70½ at the end of the year

Taxable compensation is generally what you earn from working. This includes wages, salaries, tips, income from self-employment, and other amounts received for your personal services. Compensation also includes taxable alimony.

How much can I contribute?

The maximum contribution for 2014 is the lesser of $5,500 ($6,500 if you are 50 or older at the end of the tax year) or the amount of your taxable compensation.

When can I contribute?

Contributions must be made by the due date of your tax return, not including extensions. This is usually April 15^th.

How much can I deduct?

The amount that you can deduct is based on whether or not you and/or you spouse are covered by a retirement plan where you work.

If neither you nor your spouse is covered at work, you can deduct the lesser of $5,500 ($6,500 if you are 50 or older at the end of the tax year) or the amount of your taxable compensation. The maximum deduction for a married couple is $13,000.
If you are single, head of household or married filing separate and did not live with your spouse at any time during the year and covered at work, your allowable deduction begins to phase out when your modified adjusted gross income reaches $59,000. Once your modified adjusted gross income exceeds $69,000, you are not allowed a deduction.
If you are married filing a joint return and both of you are covered at work, your allowable deduction begins to phase out when your modified adjusted gross income reaches $95,000. Once your modified adjusted gross income exceeds $115,000, you are not allowed a deduction.
If you are married filing a joint return, and only one of you is covered at work, your allowable deduction begins to phase out when your modified adjusted gross income reaches $178,000. Once your modified adjusted gross income exceeds $188,000, you are not allowed a deduction.
If you are married filing a separate return and did not live with your spouse at any time during the year and covered at work, your deduction completely phases out when your modified adjusted gross income reaches $10,000.

Can I make nondeductible contributions?

If any or all of your contributions exceed the deductible amount based on the limitations discussed above, these contributions can be designated as nondeductible contributions. This will make a portion of your future distributions nontaxable. In order to designate these contributions as nondeductible, you must file form 8606. In certain circumstances, if your income is too high to deduct a traditional IRA or to contribute to a Roth IRA, the use of nondeductible IRA can be a useful planning tool.

As always, this is only meant as a brief overview. If you feel that we can be of further assistance to you, please contact our office to set up an appointment.

Email us at: info@dohertyandassociates.com

Call us at: 302-239-3500

Visit our website: http://dohertyandassociates.com

– Doherty & Associates Team

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