The tax law isn’t always crystal clear, and when it comes to a question of interpretation, the IRS doesn’t always agree with the Tax Court. The tax agency may appeal a ruling, or simply announce that it will continue to take a contrary position. Normally this happens when the IRS believes the Tax Court has been too generous. In a man-bites-dog story, the IRS recently announced it won’t follow a Tax Court interpretation relating to the mortgage interest deduction because it was too strict. (more…)
Archive for October, 2010
Boost in Deduction for Large Mortgages
Saturday, October 23rd, 2010Not So Fast on Roth Conversion Within 401k
Thursday, October 21st, 2010Speaking at a conference, a Treasury official said plan sponsors should wait until official guidance is published before implementing the recent law permitting Roth conversions to occur within a 401k plan. Tax Notes reports that the official acknowledged the need for the Treasury to act quickly on this issue. (more…)
H&R Block Blocked?
Tuesday, October 19th, 2010Today’s Wall Street Journal reports that H&R Block has filed suit against a unit of HSBC that is balking at its commitment to provide refund anticipation loans for Block’s customers. As we reported in August, the IRS has announced it will no longer provide “debt indicators” that are a key piece in the processing of these loans because the loans are unnecessary now that the IRS is able to process refunds in a matter of days. Block’s suit alleges that HSBC is using this development as an excuse to get out of a prior commitment when the real reason is that the bank simply doesn’t want to be in this business.
The RAL industry is highly profitable but often criticized for persuading people, especially those with modest income, to take expensive loans that make tax refund money available only a few days faster.
Inflation Adjustments: Zero
Friday, October 15th, 2010It’s official: for the second year in history — and also for the second year in a row — there will be no inflation adjustment for social security benefits. The consumer price index now stands almost exactly where it did two years ago (actually a tiny fraction of a percent lower) so benefits will remain unchanged. We’ll get an official announcement of tax-related inflation adjustments soon, and those will come in close to zero as well. You can expect items like the IRA contribution limit and the annual gift tax exclusion to be the same in 2011 as in 2010.
This isn’t exactly bad news, but doesn’t feel right, and many of us need to adjust our thinking about personal finances, including investments and borrowing. (more…)
Participating in a Deferred Compensation Plan
Wednesday, October 13th, 2010Someone asked on our message board about whether it makes sense to participate in a deferred compensation plan, and we decided to post a response here so it might be seen by more visitors. There’s more to these plans than meets the eye: the true nature of the tax benefit is far from obvious — and the same is true of the plan’s risk. (more…)
A Deadline You Probably Don’t Have to Meet
Saturday, October 2nd, 2010October 15 is the deadline for undoing a 2009 Roth conversion. You’d want to take this action if you’ve learned your conversion didn’t qualify, perhaps because your income was too high that year. (The income limitation was eliminated as of 2010.) You might consider it if your tax situation changed to make it unwise, or if your financial situation makes it difficult for you to do without the tax dollars you had to pay on the conversion.
The most frequent reason for undoing a Roth conversion, though, is a loss of value in the account after the conversion. Relatively few people are in that situation just now: the stock market is higher now than it was at nearly any point in 2009 — and roughly 70% higher than it was at the low point in March of that year. If you made some unfortunate investment choices that leave you with a diminished balance since the date of your conversion you have less than two weeks to evaluate your choices and take action if needed. Most people who converted last year will be able to stick with a decision that worked out well.
