Taxes 101

Retirement Savings Contributions Credit

If  you contributed to an IRA or an employer-sponsored retirement plan in 2015, you may be eligible for a credit. This nonrefundable credit is based on the adjusted gross income and can be up to $1,000 per taxpayer. It can be taken in addition to the deduction of the traditional IRA contribution.

Individual Retirement Arrangements(IRAs):

Liberty Tax Service reminds you that for taxpayers covered by a pension plan at work, the modified adjusted gross income limit for deducting traditional IRA contributions has increased. A couple filing married filing jointly whose income is between $98,000 and $118,000 can take a partial deduction this year. Single taxpayers (including head of household filers) making between $61,000 and $71,000 can take a partial deduction. If MFS and the taxpayer lived with their spouse, the phase out is between 0 and $10,000. The contribution limit for 2014 is $5,500 ($6,500 if age 50 or older).

For 2015, if you are at least 70 1/2 and have a distribution made by the trustee of an IRA account directly to a charitable organization, the distribution will be nontaxable. The total charitable distribution cannot be more than $100,000 ($200,000 if married filing jointly).

IRA Additional Tax On Early Withdrawals

Liberty Tax Service reminds you that now there is no additional 10% tax on early withdrawals from an IRA in the following two circumstances: one of these is buying a first home for yourself, your children or grandchildren. A maximum of $10,000 can be withdrawn for this home purchase. No additional tax is due if the withdrawal is used to pay higher education expenses for the IRA owner, spouse, child, or grandchild. The withdrawal is still subject to income tax. 

401(k) Retirement Plans

Liberty Tax Service reminds you that employees often have the option of contributing to a 401(k) retirement plan at their place of employment. It’s a method that employees can choose that allows wages to go into the plan on a pre-tax basis, thereby lowering their taxable income for each year they contribute. Although the amounts are included in wages subject to social security, Medicare and federal unemployment, these amounts are not reflected on your Form W-2. There are limits to the amounts that can be contributed annually. For 2015, the maximum annual contribution is the smaller of $18,000 ($24,000 if age 50 and over) or 100% of the actual compensation paid to the participant.