• IRS Tax Information
  • IRA-401-k Rules
  • Taxable and non-taxable Income
  • Life Change and your Taxes
  • Taxes After Retirement
  • Roth IRAs


How Can a Traditional IRA Be Opened?

You can open different kinds of IRAs with a variety of organizations. You can open an IRA at a bank or other financial institution or with a mutual fund or life insurance company. You can also open an IRA through your stockbroker. Any IRA must meet Internal Revenue Code requirements. The requirements for the various arrangements are discussed below.


Kinds of traditional IRAs. Your traditional IRA can be an individual retirement account or annuity. It can be part of either a simplified employee pension (SEP) or an employer or employee association trust account.


What Is a Roth IRA?

A Roth IRA is an individual retirement plan that, except as explained in this chapter, is subject to the rules that apply to a traditional IRA (defined later). It can be either an account or an annuity. Individual retirement accounts and annuities are described in chapter 1 under How Can a Traditional IRA Be Opened.


To be a Roth IRA, the account or annuity must be designated as a Roth IRA when it is opened. A deemed IRA can be a Roth IRA, but neither a SEP IRA nor a SIMPLE IRA can be designated as a Roth IRA.


Unlike a traditional IRA, you cannot deduct contributions to a Roth IRA. But, if you satisfy the requirements, qualified distributions (discussed later) are tax free. Contributions can be made to your Roth IRA after you reach age 70½ and you can leave amounts in your Roth IRA as long as you live.


Traditional IRA. A traditional IRA is any IRA that is not a Roth IRA or SIMPLE IRA. Traditional IRAs are discussed in chapter 1.


When Can a Roth IRA Be Opened?  


You can open a Roth IRA at any time. However, the time for making contributions for any year is limited. See When Can You Make Contributions , later under Can You Contribute to a Roth IRA.


Can You Contribute to a Roth IRA?


Generally, you can contribute to a Roth IRA if you have taxable compensation (defined later) and your modified AGI (defined later) is less than:


  • $179,000 for married filing jointly or qualifying widow (er),
  • $122,000 for single, head of household, or married filing separately and you did not live with your spouse at any time during the year, and
  • $10,000 for married filing separately and you lived with your spouse at any time during the year.


IRS Tax Information


Filing Status:


  • Single
  • Married Filing Jointly
  • Married Filing Separately
  • Head of Household
  • Qualifying Window




  • A dependent must be  a qualifying child or a qualifying relative. You are allowed one exemption for each person you can claim as a dependent. Your dependents can significantly increase your returns.


Earned Income Credit:


  • EITC, the Earned Income Tax Credit, sometimes called EIC is a tax credit to help you keep more of what you earned. It is a refundable federal income tax credit for low to moderate income working individuals and families.


Mileage Deductions: 2016


WASHINGTON — The Internal Revenue Service today issued the 2016 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on Jan. 1, 2016, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

  • 54 cents per mile for business miles driven, down from 57.5 cents for 2015
  • 19 cents per mile driven for medical or moving purposes, down from 23 cents for 2015
  • 14 cents per mile driven in service of charitable organizations

The business mileage rate decreased 3.5 cents per mile and the medical, and moving expense rates decrease 4 cents per mile from the 2015 rates. The charitable rate is based on statute.

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.


IRS 401-K Rules


401(k) plans have become a popular retirement plan benefit employers can offer their employees. (payroll deductions are automatically made to your account), 401(k) money is tax deferred. 401(k) amounts are not included on your 1040 form.


You control how much you can contribute to your 401(k). You can usually put up to 15% of your salary in a 401(k). The IRS 401(k) limits your total contribution annually. It’s $16,500 in 2011 and $17,000 for 2012 for employees. If the employee is aged 50 and over, an additional “catch-up” contribution is allowed. The additional contribution amount is $5,500 in 2011 and 2012 to traditional and safe harbor 401(k) plans.


You also control where your money goes using a list of mutual funds, stock, money market funds, etc. offered by the plan’s administrator. You will usually be able to change the funds you want your money to go to at certain times during the year depending on your plan. You can also roll over those funds into a new account if you change jobs. Or you may decide to keep the 401(k) from your previous employer, you’ll just need to meet some IRS 401(k) rules.


Employers can have different types of 401(k) plans, so be sure to research what your company offers. Some employers offer matching funds (usually a percentage of what you put into the fund) to entice their employees to take part in the plan.


Tax Law Changes


The Alternative Minimum Tax (AMT), extending relief through 2011. Form 6251, Alternative Minimum Tax, lists the exemption amounts for tax year 2011 are:


  • $48,450 (from $47,450) for Single and Head of Household
  • $74,450 (from $72,450) for Married Filing Jointly and Qualified Widow(er)
  • $37,225 (from $36,225) for Married Filing Separately


In mid-February, Congress acted to extend the two percentage point payroll tax cut for the remainder of 2012. This means tax relief for nearly 160 million workers who will experience a reduction of their Social Security tax withholding rate from 6.2 percent to 4.2 percent for the rest of this year. It works like this to increase take home pay for millions of Americans:


  • A taxpayer earning $50,000 a year would have an extra $1,000 in their pocket over the year.
  • For every $10,000 of wages, the yearly increase in the paycheck will be $200.
  • For every $5,000 of wages, the yearly increase in the paycheck will be $100.
  • For every $1,000 of wages, the yearly increase in the paycheck will be $20.




Taxpayers can also deduct nonrefundable personal credits again in 2011 such as the child tax credit to reduce their AMT liability. Without the patch the AMT exemption amount would have decreased to $33,750 for individuals and $45,000 for joint filers.




The American Opportunity Tax Credit expanded the Hope credit to be available for the first four years of postsecondary education. It has increased up to $2,500 (first $2,000 of tuition and 25% of the second $2,000) and is now up to 40% refundable. This credit continues through December 2012.


The Tax Relief Act extended the repeal of itemized deduction and personal exemption phase-outs. The itemized deductions were projected to have begun to phase-out at $169,550 ($84,775 if MFS) and the personal exemptions were projected to start phase-out for AGIs above $169,550 ($254,350 for MFJ). As a result, taxpayers who itemize their deductions can deduct the full amount of their itemized deductions regardless of their adjusted gross income through 2012.


BUSINESS BENEFITS: Businesses were able to write off 100% of their capital investments for tax purposes for items placed in service after September 8, 2010 and through December 31, 2011, up from the 50% bonus depreciation. The 2010 Tax Relief Act also makes the 50% bonus depreciation available for qualified property placed in service after December 31, 2011 and before January 1, 2013. If a taxpayer purchased a qualified property after September 8, 2010, they will be able to claim 100% of the cost on their business return.


The Child Tax Credit (CTC) would have decreased from $1,000 per qualifying child to $500 per qualifying child in 2011. The Tax Relief Act also continued to allow the CTC to be used against AMT. Additionally, the Tax Relief Act continues the refundable portion of CTC (additional CTC) threshold to be 15% of the earned income above $3,000. Without action the threshold would have returned to $10,000.


Current capital gains tax rates of 0% (for those in the 10 and 15% tax brackets) and 15% will remain in place for two more years. Without action, the rates would have been 10% (for those in the 15% tax bracket) and 20% for 2011 and beyond. Additionally qualified dividends would no longer be eligible for capital gains treatment and would be taxed at the taxpayer’s ordinary tax rate (15%, 28%, 31%, 36% and 39.6%).

Taxable Income


  • Wages, salaries, tips, vacation pay, commissions, bonuses, severance pay.
  • Interest
  • Dividends
  • Alimony
  • Royalties
  • Rental income, farm income, business income
  • Unemployment compensation
  • Traditional IRA distributions (amounts deducted in prior years)
  • Jury pay and election worker pay
  • Most court awards or damages
  • Strike and lockout benefits
  • Executor’s commissions
  • Cancellation of debt (unless excludable by law or regulation)
  • Bank “gifts” for opening or adding to accounts if more than “nominal” value
  • Recoveries of items deducted in previous year
  • Gains from sales of property, stocks and bonds, stock options, etc.
  • Pensions and annuities distributions (amounts not contributed by taxpayer with after-tax dollars)
  • Certain types of disability payments
  • Certain scholarships, fellowships and grants
  • Trust/estate income, Partnership/S corporation income
  • Executor’s commissions
  • Social Security benefits (above the base amount)
  • Notary fees
  • Fees or property received for services or barter income
  • Prizes, awards, gambling winnings, and illegal income


Nontaxable Income


  • Child support
  • Life insurance proceeds
  • Gifts and most inheritances
  • Certain veteran’s benefits
  • Dividends on veteran’s life insurance loans
  • Welfare payments
  • Compensatory damages for personal physical injury or physical illness
  • Workers’ compensation
  • Some qualified pension distributions for Public Safety Officers
  • Insurance reimbursement of medical expenses not previously deducted




Life Change and your Taxes


Life changes have tax consequences, from birth through death. During your lifetime, you may get a job, go to school, get married, change jobs, start a business, have children, send children to college, buy or sell a home, get divorced, contribute to a retirement plan, or draw money out of a retirement plan. Here are some tax implications of certain life-changing events.


  • Children
  • Education
  • Jobs
  • Buying or Selling Homes
  • Marriage or NOT
  • Divorce
  • Retirement
  • Inheritance & Gifts
  • Individual Retirement
  • Death




  • For each qualifying child, you can claim a dependent's exemption of $3,700.
  • Your child born on December 31 is assumed, for tax purposes, to have lived with you the entire year.
  • For each qualifying child under the age of 17, you may be eligible for up to a $1,000 child tax credit or additional child tax credit.
  • Children who are working cannot claim their own exemption if they qualify to be claimed as a dependent on the parent’s return.
  • You may be able to take a tax credit for qualifying expenses up to $13,360 paid to adopt an eligible child.




  • You may be able to claim the American Opportunity credit of up to $2,500 for qualified tuition and related expenses for each eligible student in the first 4 years of postsecondary education at a qualified institution.
  • Taxpayers paying off student loans can deduct up to $2,500 of student loan interest as an adjustment to income.
  • You may be able to receive up to 40% of the American Opportunity credit, even if you owe no taxes.
  • You may be able to claim the lifetime learning credit of up to $2,000 for qualified tuition and related expenses paid for a qualified individual(s) at an eligible educational institution.
  • Interest on certain U.S. Savings Bonds cashed to finance higher education may be tax-free.
  • For each child under age 18, you may be eligible to contribute up to $2,000 a year to a Coverdell education savings account (ESA). The contribution is not deductible, but the money grows tax free.




If job expenses are incurred and not reimbursed by your employer, you may be able to claim them as employee business expenses.


  • If you change jobs, and had a pension plan (i.e., 401-K plan) at your old job, you may be eligible to roll over the value of that plan directly into your new employer’s retirement plan or into a traditional IRA.
  • If you move to take a new job, you may be eligible to claim moving expenses.




  • Mortgage interest and real estate taxes paid on your home are deductible (1098).
  • If you have an office in your home, that portion of your home is considered business property.
  • If you sell your home, you may be able to exclude the gain on the sale except for the amount of any depreciation claimed after May 6, 1997.
  • When you sell your home that you owned and lived in for 2 of the last 5 years, the gain on the sale of up to $250,000 ($500,000 for married filing jointly) is not taxable.




  • If you are married as of December 31st of a year, you are considered married for the whole year.
  • The standard deduction for married filing jointly is $11,600 for 2011, with an additional $1,150 for each spouse age 65 or older, or blind.
  •  Married filing separately, the standard deduction is $5,800 with an additional $1,150 for age 65 or older, or blind.
  • Single and not head of household, your standard deduction is $5,800 and your additional amount for age 65 or older, or blind is $1,450.
  •  Head of household, your standard deduction is $8,500 and your additional amount is $1,450 for age 65 or older, or blind.
  • Qualifying widow  with dependent child, the standard deduction is $11,600 with an additional amount of $1,150 for age 65 or older, or blind.
  • The names and social security numbers "SSNs" of each person on your return must match those on file with the Social Security Administration SSA.




  • If you are divorced or legally separated as of December 31, for tax purposes you are considered to be unmarried for the entire year.
  • If divorced or legally separated, your filing status is single unless you qualify to file as head of household.
  • The custodial parent who qualifies as head of household does not lose the filing status by allowing the noncustodial parent to claim the exemption for a dependent child.
  • When newly divorced, be sure to change your Form W-4, Employee’s Withholding Allowance Certificate, to reflect your new filing status.




  • Pensions and annuities are generally taxable when distributed.
  • Normally, you must start withdrawing from a traditional IRA by April 1 of the year following the year you reach age 70 1/2.
  • If one-half of your social security benefits plus your other income exceeds $32,000 for married filing jointly or $25,000 for all other filing statuses (except married filing separately and you lived with your spouse at any time during the year), a portion of your benefits may be taxable. For married filing separately and living with spouse at any time during the year, the base amount is $0.
  • If you are age 65 or over, and are below certain income limits, you may be eligible for the nonrefundable credit for the elderly or the disabled.
  • When receiving a pension, be sure to have taxes withheld, or you may need to make quarterly payments using Form 1040-ES, Estimated Tax for Individuals. That way, you will not owe too much tax at the end of the year and become subject to the penalty for underpayment of estimated tax.




  • Inherited property receives a stepped-up basis to the fair market value (FMV) of the property on the date of the decedent's death.
  • Property received as a gift retains the basis of the donor.
  • Certain inherited property, such as IRAs and pensions, are taxable or have a portion that is taxable when distributed to the beneficiary.
  • In 2011, an individual can give up to $13,000 (money or property) during the year to any other individual tax-free. The person receiving the money or property does not have to report the gift as income.
  • For any amount over $13,000 given to a single individual, the donor must file a gift tax return and any gift tax is the donor’s responsibility.




  • There is no longer an income limitation for converting a traditional IRA to a Roth IRA.
  • For 2011, you may be eligible to contribute up to $5,000 ($6,000 if age 50 or older) a year to a traditional IRA. All or part of the contribution may be deductible. This money grows tax free until withdrawn, and then the deductible contributions and earnings are taxed. If the money is withdrawn early, it becomes taxable as income, and may also be subject to 10% additional tax.
  • You may be eligible to contribute up to $5,000 ($6,000 if age 50 or older) a year to a Roth IRA. None of the contribution is deductible. This money grows tax free and qualified distributions can be withdrawn tax free. If the money is withdrawn early, the interest earned becomes taxable as income and may be subject to 10% additional tax.
  • If money is withdrawn from an IRA prior to age 59 ½, an additional 10% tax is assessed unless certain exceptions are met (e.g., buying a home for a first-time home buyer, or withdrawing to pay for qualified education or medical expenses).




  • The same filing requirements that apply to individuals determine if a final income tax return must be filed for the decedent.
  • The personal representative must file the final income tax return of the decedent for the year of death and any returns not filed for preceding years.
  • Generally, the surviving spouse can file a joint return with the decedent.
  • An estate tax return may also need to be filed.