Have a Client that Wants to Lessen the Impact of Their Taxes

[scagnt83]

What do you mean too late this year? You have until April 15th to contribute to a IRA or Roth IRA for the tax year. Ie, 4/15/2014 for the 2013 tax year.

good catch... not sure why I was thinking that... dont do too many non-sep ira contributions if you cant tell! lol

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if she is W2, you are confusing write offs (1040 below the line) with income lowering (above the line).

First post says she is self employed.

 

[Josh]

A few thoughts:

First, have your client get a CPA. If you don't have one to refer them to, find yourself a new friend. No reason to play tax adviser when there are actual tax advisers out there.

Second, a competent tax adviser would probably suggest that she make an accurate log of all the miles she's driven for work. The reality is those deductions can add up in a hurry and many self-employed folks aren't particularly good at keeping that organized.

Third, GET A CPA!

 

[Justin Bilyj]

She logs all miles religiously, she has decided to utilize the dreaded home office deduction.

 

[DHK]

if she is W2, you are confusing write offs (1040 below the line) with income lowering (above the line). This one is simple! She either can lower her income dollar for dollar with an IRA or not! end of story

He's absolutely right. I totally used the wrong calculation. I haven't had to deal with contributory IRAs (let alone SEP-IRAs) in a while.

She can contribute the amount of her tax owed directly to a SEP-IRA, subject to a 25% cap of her reported income. It's a dollar-for-dollar "above the line" deduction to her income.

 

[Josh]

She logs all miles religiously, she has decided to utilize the dreaded home office deduction.

Why is it dreaded?
.

 

[Justin Bilyj]

This one is simple! She either can lower her income dollar for dollar with an IRA or not! end of story

She's not W2, she 1040.

Please explain this a little more.
Thank you

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Why is it dreaded?
.

This deduction trips up more audits than any other deduction...

 

[DHK]

She's not W2, she 1040.

Please explain this a little more.
Thank you

It doesn't matter. After all deductions is a "net taxable income" amount. A traditional IRA contribution continues to lower the "net taxable income" on a dollar for dollar basis for the current tax year.

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Traditional IRA contributions are fully deductible from income unless an individual and/or spouse are active participants in an employer-sponsored retirement plan, including a tax-deferred annuity (TDA). In that event, the IRA deduction is gradually phased out as adjusted gross income exceeds specified limits, in which case an IRA contribution may be partially deductible or non-deductible.

 

[jmhalvo]

She's not W2, she 1040. Please explain this a little more. Thank you ---------- This deduction trips up more audits than any other deduction...

you mean 1099, not 1040. Anyway, 1099 folks can often offset income with expenses. Also, most in her low income bracket can lower income with an IRA. All "writeoffs" come off the tax not the income. There are very few above the line income deductions.

 

[xrac]

February is not the time to start trying to trim the tax bill other than scrapping up deductions or making contributions to a qualified plan is about all there remains.

 

[jmhalvo]

February is not the time to start trying to trim the tax bill. Other than scrapping up deductions contributions to a qualified plan is about all there remains.

perfect time to start her SEP though