Dear friends of RC Jones & Associates
The hugely popular cash-for-clunkers program ended Aug. 25, 2009. This new program enabled vehicle owners to realize a tax-free discount of up to $4,500 on a trade-in. But you can still qualify for big tax benefits if you donate your "clunker" to charity.
Instead of trading in your vehicle, simply give it away to a qualified charitable organization. This entitles you to a deduction on your '09 return.
The rules for charitable donations of vehicles were recently tightened by the American Jobs Creation Act of 2004. However, you may be able to qualify under a special exception.
Prior to 2004, you could generally deduct the fair market value (FMV) of a vehicle you donated to charity. But Congress became concerned about some over-aggressive valuations for beat-up jalopies. Under the 2004 law, the charitable deduction for a vehicle valued above $500 is generally limited to the amount the charity receives from a resale of the vehicle. The crackdown also applies to donations of boats and aircraft.
On the other hand, if (1) the charity "materially improves" the vehicle (e.g., it repairs dents or installs new features like a any system) or (2) it “significantly uses” the vehicle for its tax-exempt purpose and properly certifies its use, you can still deduct the full FMV.
In addition, the regular limit on the donation value doesn’t apply if the charity sells the vehicle after 2004 at a price significantly below FMV, or gives it away, to a "needy individual." To qualify under this exception, the charity must be dedicated to relieving the poor and distressed or the underprivileged that are in need of transportation.
We can help you maximize the tax benefits for charitable donations of vehicles. Before you give away a clunker, call our office at (816) 792-9966. One of our expert staff can provide guidance.
Very truly yours,
Robert C. Jones
www.rcjonesinc.com
Wednesday, September 23, 2009
CAN YOU RE-CONVERT AN IRA?
Dear friends of RC Jones & Associates
Suppose you converted your IRA to a Roth IRA just before the bottom fell out of the stock market last year. Because the tax liability for the conversion is based on the value of the account on the last day of the prior year – Dec. 31, 2007 -- you would have paid tax on an inflated value. So you may have opted to re-characterize your Roth into a traditional IRA.
But now you see signs of a market rebound. And you'd like to take advantage of the Roth IRA setup for all the same reasons that attracted you to it in the first place.
In this case, you might "reconvert" your IRA. In other words, you can convert your re-characterized traditional IRA back into a Roth IRA. This is essentially treated as a new conversion for tax purposes.
With a Roth IRA in existence at least five years, qualified distributions are completely exempt from federal income tax. A qualified distribution is one that is paid after reaching age 59 1/2, received on account of death or disability or used for first-time homebuyer expenses (up to a lifetime limit of $10,000). In contrast, traditional IRA distributions are taxed at ordinary income rates as high as 35% -- probably even higher in future years.
However, the IRS doesn't allow you to keep flip-flopping back and forth between the two types of IRAs. You must meet specific time restrictions for a reconversion. Specifically, a traditional IRA can’t be reconverted to a Roth before the later of:
1. The beginning of the tax year following the tax year of the conversion
2. The end of the 30-day period beginning on the day of the re-characterization.
This rule applies regardless of whether the re-characterization falls into the year of the conversion or the following year.
This is an important decision for taxpayer’s rapidly approaching retirement. We can help you analyze your personal needs. Call us at (816) 792-9966 to arrange a consultation.
Very truly yours,
Robert C. Jones
www.rcjonesinc.com
Suppose you converted your IRA to a Roth IRA just before the bottom fell out of the stock market last year. Because the tax liability for the conversion is based on the value of the account on the last day of the prior year – Dec. 31, 2007 -- you would have paid tax on an inflated value. So you may have opted to re-characterize your Roth into a traditional IRA.
But now you see signs of a market rebound. And you'd like to take advantage of the Roth IRA setup for all the same reasons that attracted you to it in the first place.
In this case, you might "reconvert" your IRA. In other words, you can convert your re-characterized traditional IRA back into a Roth IRA. This is essentially treated as a new conversion for tax purposes.
With a Roth IRA in existence at least five years, qualified distributions are completely exempt from federal income tax. A qualified distribution is one that is paid after reaching age 59 1/2, received on account of death or disability or used for first-time homebuyer expenses (up to a lifetime limit of $10,000). In contrast, traditional IRA distributions are taxed at ordinary income rates as high as 35% -- probably even higher in future years.
However, the IRS doesn't allow you to keep flip-flopping back and forth between the two types of IRAs. You must meet specific time restrictions for a reconversion. Specifically, a traditional IRA can’t be reconverted to a Roth before the later of:
1. The beginning of the tax year following the tax year of the conversion
2. The end of the 30-day period beginning on the day of the re-characterization.
This rule applies regardless of whether the re-characterization falls into the year of the conversion or the following year.
This is an important decision for taxpayer’s rapidly approaching retirement. We can help you analyze your personal needs. Call us at (816) 792-9966 to arrange a consultation.
Very truly yours,
Robert C. Jones
www.rcjonesinc.com
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