Retired and Thinking of Relocating?
June 1, 2010 | 
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When a person retires, he or she may decide to move to another state for a variety of reasons, such as living in a warmer climate, being closer to children or other relatives, avoiding state income tax, or health reasons.
If the retiree’s move is permanent, it is important that legal domicile be established in the new state. (The exact definition of domicile varies from state to state. In general, domicile is the individual’s true, fixed, and permanent home and the place to which the individual intends to return, even while residing elsewhere. A person may have more than one residence, but can have only one domicile.)
If domicile is not established, the retiree may be subject to income tax as a resident of both the old and new states. Furthermore, if the retiree dies without establishing domicile, both the old and the new states may claim jurisdiction over the retiree’s estate. However, since each state has its own rules relating to residence and domicile, both states may try to impose their income taxes on the retiree even if he has established domicile in the new state, but has not relinquished domicile in the previous state to its satisfaction.
The more time that elapses after the move and the more steps the retiree takes to establish domicile in the new state, the more difficult it will be for the old state to assert that the retiree resides or has domicile there.
The following list includes some steps that tend to establish domicile in a new state:
- Register to vote in the new location.
- File a change of address form with the post office at the old location and change the address on documents, such as tax returns, wills, contracts, insurance policies, passports, and living trust agreements.
- Obtain a driver’s license and register automobiles in the new location.
- Open and use bank accounts in the new location.
- Move items from safe-deposit boxes in the old location to the new location.
- Purchase or lease a residence in the new state. Sell residence in the old state.
- If an income tax return is required, file a resident return in the new state and a nonresident return (or no return, if appropriate) in the old state.
- File for property tax relief under a homestead exemption (if any) in the new state. (The homestead exemption will be discussed later.)
- Move all items that make a house a home such as mementos, heirlooms, sentimental items, trophies, collections, furniture, etc. to the new state.
Submitted by Sam Cohen
Questions?
Should I Itemize or Take the Standard Deduction?
March 15, 2010 | Subscribe to our RSS Feed
Most taxpayers have a choice of either taking a standard deduction or itemizing their deductions. If you have a choice, you can use the method that gives you the lowest tax.
Whether to itemize deductions on your tax return depends on how much you spent on certain expenses last year. Money paid for medical care, mortgage interest, taxes, charitable contributions, casualty losses and miscellaneous deductions can reduce your taxes. If the total amount spent on those categories is more than your standard deduction, you can usually benefit by itemizing.
The standard deduction amounts are based on your filing status and are subject to inflation adjustments each year. For 2009, they are:
- $5,700 for Single
- $11,400 for Married Filing Jointly
- $8,350 for Head of Household
- $5,700 for Married Filing Separately
- $11,400 for Qualifying Widow(er)
Submitted by Sam Cohen
Questions?
Five Important Tax Credits to Consider for 2009 Filing
March 11, 2010 | Subscribe to our RSS Feed
Five tax credits to consider before you file this year:
- The Earned Income Tax Credit is a refundable credit for certain people who work and have earned income from wages, self-employment or farming. Income, age and the number of qualifying children determine the amount of the credit. EITC reduces the amount of tax you owe and may also give you a refund. For more information see IRS Publication 596, Earned Income Credit.
- The Child and Dependent Care Credit is for expenses paid for the care of your qualifying children under age 13, or for a disabled spouse or dependent, to enable you to work or look for work. For more information, see IRS Publication 503, Child and Dependent Care Expenses.
- The Child Tax Credit is for people who have a qualifying child. The maximum amount of the credit is $1,000 for each qualifying child. This credit can be claimed in addition to the credit for child and dependent care expenses. For more information on the Child Tax Credit, see IRS Publication 972, Child Tax Credit.
- The Retirement Savings Contributions Credit, also known as the Saver’s Credit, is designed to help low-to-moderate income workers save for retirement. You may qualify if your income is below a certain limit and you contribute to an IRA or workplace retirement plan, such as a 401(k) plan. The Saver’s Credit is available in addition to any other tax savings that apply. For more information, see IRS Publication 590, Individual Retirement Arrangements (IRAs).
- The Health Coverage Tax Credit pays up to 80% of the health insurance premiums for eligible Trade Adjustment Assistance recipients and Pension Benefit Guaranty Corporation payees. You can complete IRS Form 8885, Health Coverage Tax Credit to claim the credit on your tax return. To determine if you’re qualified, or to find out how to receive the HCTC each month, visit IRS.gov and search for “HCTC.”
Submitted by Sam Cohen
Questions?
Paying Mortgage Insurance? Take a Deduction in 2010.
March 8, 2010 | Subscribe to our RSS Feed
Homebuyers who do not have sufficient funds to make a full down payment on a home may be required to obtain mortgage insurance to guarantee the loan.
Historically, mortgage insurance premiums were not considered the same as interest paid on a mortgage and were not deductible. However, for a limited period of time, mortgage insurance premiums can be treated as qualified residence interest and deducted. There are some restrictions:
- Premiums must be paid or accrued for qualified mortgage insurance obtained in connection with acquisition indebtedness on a qualified residence.
- Premiums must be paid or accrued after 2006 with respect to mortgage insurance contracts issued after 2006.
Right now, this provision is limited. Unless it is extended, it will not be available after 2010.
Submitted by Sam Cohen
Questions?
Taking Early Distributions from your Retirement Fund?
March 2, 2010 | Subscribe to our RSS Feed
If you take an early distribution from your retirement fund, there can be big tax impacts. Here are nine facts about early distributions:
- Payments you receive from your Individual Retirement Arrangement before you reach age 59 ½ are generally considered early or premature distributions.
- Early distributions are usually subject to an additional 10 percent tax.
- Early distributions must also be reported to the IRS.
- Distributions you rollover to another IRA or qualified retirement plan are not subject to the additional 10 percent tax. You must complete the rollover within 60 days after the day you received the distribution.
- The amount you roll over is generally taxed when the new plan makes a distribution to you or your beneficiary.
- If you made nondeductible contributions to an IRA and later take early distributions from your IRA, the portion of the distribution attributable to those nondeductible contributions is not taxed.
- If you received an early distribution from a Roth IRA, the distribution attributable to your prior contributions is not taxed.
- If you received a distribution from any other qualified retirement plan, generally the entire distribution is taxable unless you made after-tax employee contributions to the plan.
- There are several exceptions to the additional 10 percent early distribution tax, such as when the distributions are used for the purchase of a first home, for certain medical or educational expenses, or if you are disabled.
Submitted by Sam Cohen
Questions?