Business & Real Estate

Things to consider for tax-year preparation


Death and taxes are the two inevitable yet constant factors in our lives. On that comforting note, let us talk about the less depressing of the two – taxes. There, don’t you feel better about taxes already? Even if you don’t, tax season is upon us, and it pays, financially and stress-level-wise, to be prepared.

Following are some topics for this tax season that you should be considering and discussing with your qualified tax professional.

Roth IRAs

Roth IRAs are a relatively recent option – and a good one. They do not have the Required Minimum Distribution (RMD)requirements at age 70 1/2, and the gains are tax free. They do have a penalty of 10 percent if you tap into them before age 59 1/2. If you are under age 50, you can contribute up to $6,000 for the year. Over age 50, you have a $1,000 catch-up, taking that number to $7,000 for the year.

You will need to have earned income for the year to qualify, and after a certain income level (approximately $195,000 for married filing jointly), you cannot qualify for a Roth.

Important note: If you are married filing jointly and if your spouse is not working, he or she should still qualify for the Roth contribution. Many people wrongly assume that a Roth contribution cannot be made for the nonworking spouse. You have until April 15 to contribute for the 2018 tax year.

Qualified Business Income

Thanks to the new tax law, business owners (depending on the situation) can deduct up to 20 percent of their income, starting in the 2018 tax year. If you have Form 1099 income, either as a sole proprietorship or corporation, make sure that you are aware of this new deduction. Income levels over $315,000 may not qualify.

The Qualified Business Income deduction is in addition to the other Schedule C business deductions, SEP-IRA and standard deductions. As a consultant, contractor or small-business owner, you definitely want to know about this new deduction.

Charitable contributions

If you are over age 70 1 /2, the Qualified Charitable Distribution (QCD) may give not one but two tax benefits when the contribution is from your IRA or other qualified account. One, it may reduce your taxable income based on the contribution, and two, it could also be counted as part of your calculation.

At age 70 1/2, the IRS mandates that you start taking approximately 3.6 percent of your qualified (tax-deferred) funds. The QCD amount is limited to $100,000 annually to any qualified charity and is excluded from your adjusted gross income, while you still benefit from a full standard deduction.

Donor-advised funds

A donor-advised fund allows you to make a lump-sum donation to take advantage of the up-front charitable tax deduction in a current year. Individuals can take an immediate tax deduction against the full amount they contribute to a donor-advised fund, but there are no rules or regulations about how quickly the money actually has to be distributed. A donor-advised fund gives the flexibility to spread the gift out over time.

This article is for educational purposes only and should not be considered financial or tax advice.

Arvind Ven is a Los Altos resident and independent financial adviser specializing in helping people reach their financial and retirement goals. He also serves on the Los Altos Community Foundation Investment Committee. For more information, call (408) 663-1039 or email This email address is being protected from spambots. You need JavaScript enabled to view it..

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