taxes Archives - Northern California Bankruptcy Lawyer

Annual IRA Contribution: Use It Or Lose It

Tax day approaches. Only a few days remain to make an important decision.

You expect to live for decades after you’re eligible for Social Security, don’t you?

Then, you have only until April 15th to use the 2018 allowance for contributions to a tax-advantaged IRA.

Miss making that 2018 contribution and it’s gone for all time.

So, you miss out on that contribution growing, tax free, until you withdraw it. You miss the miracle of tax-free compound-interest.

Do you really want to miss this opportunity?

Contributions have annual limits

For reasons that I’m sure made (some) sense at the time, Congress capped how much you can contribute to your IRA each year.

For 2018, the contribution cap is $5500, unless you are 55 or over, when it rises $6500.

These numbers are caps; you can contribute less if that’s all you can manage.

Window for contributing closes

Whether or not you choose an IRA where you can deduct your contribution from your taxable income for the year or not, contributions for 2018 have to be made by the standard date for filing tax returns.

Even if you get an extension to file the return, the window to make a 2018 contribution closes on April 15th this year.

Once the standard date for filing tax returns passes, you can’t go back and add money to your IRA under the 2018 cap.

IRA doesn’t have to be complicated

It’s easy to get paralyzed by the choices you have for retirement savings:

banks or brokerage firms;
deposit accounts or stocks;
traditional IRA or Roth IRA.

If you’re overwhelmed, just open an IRA account and make a contribution. There are no bad decisions when it comes to savings.

When the dust settles, you can evaluate what to invest the money in or whether to convert the account to a different flavor.

But snooze here, and you lose forever the chance to make a contribution to your old age.

Why I obsess about IRA’s

Why I’ve given up talking about “retirement”.

Too many people who need me for help with their debts have NOTHING saved for their old age. Those who have saved something generally have under $10,000.

Hard times lie ahead for these folks: lives are longer and Social Security rises only with the cost of living. The average Social Security check is about $1300/month.

You don’t live well, anywhere, on $1300 a month.

Or you become dependent on your family, if you HAVE family. Dependency is never appealing.

Take the first step toward taking responsibility for a better old age.

The strongest reason to file bankruptcy

Retirement savings are safe in bankruptcy

Skip Filing Your Tax Return And The Tax Lives Forever

By Cathy Moran

It’s tax season and tax myths are everywhere. Know what the most dangerous one is?

If you can’t pay the tax on the return, you’ll escape collection action if you keep a low profile by not filing the return.

I hear it repeatedly, each year, year after year. And it’s wrong, over and over.

Four counts of wrong

First, I’ve seen no evidence that the IRS leaps immediately to chase taxpayers whose filed return shows an unpaid liability. In fact there’s a right to an installment agreement if your unpaid tax is $5,000 or less.

Second, failing to file the return on time triggers a tax penalty separate from the penalty for not paying on time. There are two penalties in play here: a penalty for not filing and a different penalty for not paying.

Third, duck the requirement to file, and somehow you’ve given yourself permission to keep putting it off. And of course, now that you are late, you have penalties added to the liability and the interest clock is ticking.

But most importantly to a bankruptcy lawyer is that you cannot ever discharge the tax debt in bankruptcy if the return is not filed.

Discharging tax in bankruptcy

Bankruptcy law sorts tax debts into three piles:

taxes secured by a lien
taxes that survive a bankruptcy
taxes dischargeable without payment

If you’ve got tax troubles, you obviously want your obligations to fall in that third pile, the dischargeable taxes. Care to guess what the factor that determines dischargeability? The length of time the return has been on file.

The rule, simplified a bit, is: taxes are dischargeable in bankruptcy if they relate to a tax year whose return was due more than three years before bankruptcy; for which the return, if not filed on time, has been on file for two years; and the taxes for that year were assessed more than 240 days before filing.

So, you can’t begin to consider wiping out tax debt if you don’t file the return and that return needs a certain degree of aging before discharge is possible.

Bankruptcy is not the first choice of ways to resolve tax troubles, but bankruptcy can eliminate tax debt if it comes to that.

But not if you follow the myth that you don’t file the return until you can pay the tax.

Image courtesy of wikimedia.org

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Soapbox is a companion site to Bankruptcy in Brief, where I try to be largely explanatory and even handed (Note I said "try").

Here, I allow myself to tell stories and express strong opinions on how I think law should work for the consumer and small businesses when it comes to debt.

Moran Law Group
Bankruptcy specialists for individuals and small businesses in the San Francisco Bay Area