Episode 3 – Last-Minute Tax Tips for 2008/Early Tax Planning for 2009 with guest Steven Kohman, CPA, CSEP, CRSP

Episode: 3
Originally Aired: April 8, 2009
Topic: Last-Minute Tax Tips for 2008/Early Tax Planning for 2009 with guest Steven Kohman, CPA, CSEP, CRSP

The Lange Money Hour - Where Smart Money Talks

The Lange Money Hour: Where Smart Money Talks
James Lange, CPA/Attorney
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Please note: *This podcast episode aired in the past and some of the information contained within may be out of date and no longer accurate. All podcast episodes are intended to be used and must be used for informational purposes only. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. All investing involves risk, including the potential for loss of principal. There is no guarantee that any investment strategy or plan will be successful. Investment advisory services offered by Lange Financial Group, LLC.


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  1. Introduction of Guest – Steven Kohman, CPA, CSEP, CRSP
  2. It’s Not Too Late for Retirement Claim Contributions
  3. Re-Characterizing Your Roth IRA
  4. First-Time Home Buyer Refundable Tax Credit
  5. Listener Q&A: Re-Characterizing Roth IRA Contribution
  6. Required Minimum Distribution (RMD) Suspension of 2009
  7. Zero Percent Tax Rate on Capital Gains and Qualified Dividends
  8. Hope Credit and Lifetime Learning Credit
  9. Medical Expenses Often Missed
  10. Listener Q&A: Roth IRA Conversions and Form 8606
  11. Start Tax Planning Early for 2009
  12. Gift Tax Raised to $13,000 Per Beneficiary
  13. “Kiddy Tax” Age Limit Raised from
  14. Avoid the Shoebox – Have These Documents Ready for Your Tax Advisor
  15. Special Offer for Pennsylvania Residents
  16. Extension of Time to File, Not an Extension of Time to Pay
  17. Guidelines for Calculating Extension Payment
  18. Tax Planning Ideas for 2009
  19. Statute of Limitations for Amending a Return
  20. Married Filing Jointly vs. Married Filing Separately
  21. Last-Minute Thoughts on 2008 Taxes

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1. Introduction of Guest – Steven Kohman, CPA, CSEP, CRSP,

Beth Bershok: Thank you for joining us, I am Beth Bershok, and we are talking smart money. We are actually tonight talking smart tax money, and there is a lot to talk about because we are one week away from the tax deadline. First of all, of course, we have James Lange, CPA/Attorney Attorney, bestselling author of the book, Retire Secure! and we dragged him out of the office tonight. We have Steve Kohman; Steve you have been with Jim for what, 15 years?

Steve Kohman: Yeah, about 15 years; thanks for dragging me out of his office!

Beth Bershok: Well, Steve has been busy. Steve is a CPA, a specialist in estate planning, a Certified Valuation Analyst, and hey, it’s a lot of work right now during taxes, and we are seven days away. Before we get to everything else tonight I have a quick question for the both of you: Are your taxes done?

Steve Kohman: Yeah, I did mine earlier.

Beth Bershok: Did you? Look at you go!

Steve Kohman: February 1st.

Beth Bershok: Ok Jim, just a little poll.

Jim Lange: I have been extending my own tax return for the last 30 years and will extend my return again this year.

Beth Bershok: I bring this up because my husband is also a CPA, and he told me I should consider October 15th the deadline for the rest of my life. We are taking questions tonight, so I want to give the studio line. It’s 412-333-9385 so if you have a question we have another hour here for you to call us at 412-333-9385 if you have a question for Jim or Steve. We also have a very special deal that we’re going to be telling you about a little later in the show and also a couple of workshops coming up, so we’ll get to that. But I do want to start with–you know a lot of people are in a frenzy–it’s the last week here, taxes are due next Wednesday, and some people may be thinking that there’s nothing I can do now with the numbers. But, apparently that’s not true, you can still affect 2008.

2. It’s Not Too Late for Retirement Claim Contributions

Jim Lange: Well, one of the most important things that you can do for your both short-term and even more so long-term future, is, it is not too late to make a retirement claim contribution. As many listeners know in general, but not always, I tend to favor Roth IRAs for people who are still working in Roth 403(b)s. Now it is too late for 2008 to put money into a Roth 401(k) or even a traditional 401(k) or 403(b). But it is not too late to put money into a Roth IRA whether you have done your return or not. If you are married and you’re filing a joint return and your adjusted gross income is less than $169,000, you do qualify for a Roth IRA and if you’re single, $116,000 and you can do that for yourself. You can also put money in for your spouse. We’re talking $5,000 if you are 49 or younger, or $6,000 if you are 50 or older for yourself and the same amount for your spouse. If your kids are working or have any earned income it is not too late for them, and I think a lot of people know about Roth IRAs. But can I tell you something that people don’t know about and they’re not doing and they’re not thinking about?

Beth Bershok: Jump in there, tell me what it is.

Jim Lange: This is going to be for people who make too much money to put into a Roth IRA, and they think “Oh I can’t do anything else.” But they can actually put money into a non-deductible IRA.

Beth Bershok: Ok, explain how that works.

Jim Lange: The non-deductible IRA: they don’t get an income tax deduction today, so in effect it’s after-tax money, but the money grows tax-deferred. That is, they won’t have to pay taxes on an annual basis. A lot of people have non-deductible IRAs even back when they were $2,000, but now they are $5,000 or $6,000, and what’s really cool about non-deductible IRAs, particularly with 2010 coming up , it’s not going to be very long where we’re going to be able to convert those non-deductible IRAs to Roth IRAs. We’re going to have the opportunity to take what is otherwise grown tax deferred and getting a tax-free growth, and that’s something that not many people know about that they should probably be taking advantage of, and it’s not too late.

Beth Bershok: I have to jump in here one second and mention your Roth Seminars which are coming up. You have a couple of workshops where you touch on a lot of these strategies, and the past couple of ones have, we’ve gone to capacity so I want to mention the dates. There’s one next Saturday. It’s at the Comfort Inn on Rodi Road and that’s 9:30 to 11:30 in the morning, and also 1 to 3 in the afternoon. We just booked one for May 16th which is a Saturday, same times. We’re in Cranberry this time, and it’s at the Four Points Sheridan and I’m going to give you, coming later in the hour, the toll free number to call to register. They’ve really been booking up so you should book as soon as you can. But you cover a lot of those strategies in these workshops. Now getting back to the non-deductible IRAs for a second, are the limits the same that you mentioned for the Roth and the IRAs?

Jim Lange: Yeah, it’s still $5,000 and $6,000. The income change, it’s for people who are making more than $169,000, but it’s something that people don’t know, and it is a way that people who are wealthy can get into the tax-free world of Roth IRA conversions. Again, it’s not too late.

3. Re-characterizing Your Roth IRA

Beth Bershok: Now something a lot of people are going to have to deal with on their return this year is re-characterizing their Roth IRA from 2008 because we all know what happened to the market, and you can undo your IRA. I actually have a question on this, can I toss this out to you guys?

Jim Lange: Yeah go for it.

Beth Bershok: This comes from – Oh I do want to thank, we have listeners who are listening at KQV.com. They are listening all over the country, and I know this because they email us. We’ve had emails from Ohio, New Jersey, Texas, Florida and Maryland, and we just got one this morning from San Francisco. This is his question: Raj from San Francisco said that he re-characterized about $70K. His question is, he’s turning it back over to traditional, and he wants to know if that means the conversion never took place in the first place, and will his AGI come down by that amount?

Jim Lange: Well, how about I give you the conceptual answer?

Beth Bershok: Ok .

Jim Lange: Steve will do the tough part which is to tell you how to report it. Conceptually, I would consider that an undo. So let’s say that you have done a Roth IRA conversion sometime in calendar year 2008, and let’s just say that he did it for $70,000 and now it’s worth $40,000 or $50,000, and he’s not so happy about it. If he doesn’t do anything pro-actively, he is going to have to pay income tax on $70,000 and the Roth IRA is only worth $40,000 or $50,000. So undoing or technically re-characterizing is the appropriate strategic thing to do, and he has until October 15th of 2009 to re-characterize his 2008 Roth IRA conversion. If he has not yet filed his tax return and he re-characterizes – Steve is going to explain the mechanics of that.

Beth Bershok: I think that’s the deal, Steve.

Steve Kohman: Ok.

Jim Lange: If he has already filed his tax return, he can file an amended return, but it is very important to know that you can re-characterize. So even people who should be making Roth IRA conversions now in 2009, if it doesn’t work out, if you make a Roth IRA conversion and the market goes down, you will still have the opportunity either in 2009 or up until October 2010 to re-characterize. Now maybe Steve can help us with some of the mechanics on how to handle that on the 1040.

Steve Kohman: Yeah, it’s really not as hard as it sounds and the thing that throws people off is when they do a re-characterization, the amount of money that goes back into your traditional IRA is less than what you converted. And also people get confused when they get a 1099 for the re-characterization. They don’t really know what to do with it, and they see it has a distribution code ‘Q’ and get confused. But that’s really simple to handle on your tax return. Ordinarily, if you did a conversion you’d put the gross amount on 15 (a) for gross distributions from IRA and the taxable amount, the same amount, maybe $70,000. But if you have to amend the return or re-characterize it, then the taxable amount on 15 (b) is just 0. So it’s very simple, just put a 0 on 15 (b) which is 0 taxable income, and you’re pretty much done. I would make sure you keep paperwork and understand the dollar amounts that flow in and out of the Roth IRA in case there are any questions on it later.

Beth Bershok: So, what basically happens if you have already filed your return? Let’s say, for instance, Raj already filed his return then decided to re-characterize–he can still file an amended return?

Steve Kohman: Yes, he can file an amended return and claim a refund of the full $70,000 he converted.

Beth Bershok: Okay, and if you have questions for Jim or Steve, we are taking them tonight at 412-333-9385. We’ll be here until 8 o’ clock, it’s The Lange Money Hour: Where Smart Money Talks.

Beth Bershok: Talking more smart money on The Lange Money Hour: Where Smart Money Talks. I’m Beth Bershok. Jim Lange is with us today, and of course also joining us, Steve Kohman, who has been part of Jim’s office for the past 15 years. Steve is a CPA, a specialist in estate planning and a Certified Valuation Analyst. And we’re going to be taking your questions, too, so call 412-333-9385 if you have a question. Steve, there are a lot of things that are new for this year that I think are causing some confusion for people, and can we touch for a second on the Housing and Economic Recovery Act of 2008.

Steve Kohman: Yes.

4. First-Time Home Buyer Refundable Tax Credit

Beth Bershok: And one thing that is causing some confusion is the first time home buyer refundable tax credit. Can you explain first of all exactly how this is working?

Steve Kohman: Well, actually it was a very good deal when it first came out in 2008. It allowed first time home buyers to get $7,500 back on their tax return, even if they didn’t owe that much in taxes so it’s a refundable item. People who bought a home in 2008 that qualified got that much money back and are eligible for that, and if you don’t know about that, it’s a really good deal for 2008.

Beth Bershok: So, if you bought a home in 2008 you should be considering this on your return?

Steve Kohman: Yeah, so think about that if you bought a home in 2008. But the bad news is that it would have been better to buy the home in 2009 because in 2009 they changed the law again and made the credit not refundable. The original one from 2008 you had to pay back over 15 years, $500 per year on your next 15 year tax returns, but in 2009 if you keep the home for 3 years you don’t have to pay it back at all. And that qualifies for homes purchased between January 1st 2009 and December 1st 2009.

Beth Bershok: So, you actually get quite a break if you buy your house in 2009.

Steve Kohman: Yeah, between now and November 30th, I don’t know why it has to stop December 1st.

Beth Bershok: Yeah, why does it have to stop? It’s just one of those things. We do have a call coming in from North Park, and this is a question on Roth IRAs. Hi, good evening, and what is your question?

5. Listener Q&A: Re-Characterizing Roth IRA Contributions

Caller #1: The question is, I contributed some money to a Roth IRA, and I think I have to take it back because of certain reasons. I have to take it out or it will be an excess distribution because I’m not eligible for the Roth IRA. So what happens now, do I have to take out all the money that I put in? I put in $6,000. Or because the market value has gone down on my portfolio, then do I take out $6,000, then what? How does it work?

Steve Kohman: Well, you have to call your broker and tell him you would like to re-characterize the Roth conversion, perhaps it’s because you never qualified for it in the first place.

Caller #1: Ok

Steve Kohman: Or it could be because it went down in value, it doesn’t really matter why. Anyone can re-characterize their contribution. So, yes it would be going back to either the traditional IRA or you can..

Caller #1: No, I don’t think I can contribute to any one of them because my income is social security and pension income. It’s not earned income.

Steve Kohman: Right, you didn’t have earned income. So yes, it was a failed contribution so you’d have to contact them and explain that to them. Then you’d have to take that money back out of the Roth IRA, that’s correct.

Caller #1: Yeah, the question is, if for example, I put in $6,000 and there’s nothing else in that portfolio except for that $6,000 stocks, whatever I bought. Now they’re worth $3,000 so I can’t withdraw more than $3,000.

Steve Kohman: Right yes, it would be $3,000 that goes back in there. There may be some tax benefits to the amount of loss you suffered during that period of time.

Caller #1: I see.

Steve Kohman: You’ll have to look into that, yeah, but that’s correct.

Beth Bershok: Ok, was that helpful?

Caller #1: Yeah it was, thank you so much.

Jim Lange: And I’m going to do what people hate and tell you what you should have done.

Jim Lange: Rather than making a Roth IRA contribution, what could have been done was a Roth IRA conversion. I am a big believer that retirees should come up with, probably with the help of an adviser, but should come up with a long-term Roth IRA conversion strategy. Perhaps, and without knowing more about your situation, but I might take the liberty of guessing, it might be appropriate for you to make a series of Roth IRA conversions, even if a relatively small amount over a number of years, that might have been a more appropriate strategy for retirees.

Beth Bershok: Hey, thank you so much for your call , does that answer your question?

Caller #1:it Yes it does, thank you.

6. Required Minimum Distribution (RMD) Suspension of 2009

Beth Bershok: Thank you so much. He was checking in from the North Park, and if you have a question it’s 412-333-9385, Jim Lange and Steve Kohman. I want to jump to the Worker Retiree and Employer Recovery Act of 2008 because I think this affects a lot of people. This has to do with the RMD suspension of 2009 where seniors do not have to take their RMD. But its caused a lot of confusion on exactly how it works, and some confusion also on what to do with your taxes there. So, let’s start first with how it works for 2009 in terms of you don’t have to take your distribution, can you take a partial distribution?

Jim Lange: Yeah, you could take a partial distribution and technically you really don’t even have to do anything. You can just sit there and say guess what? I don’t have to take a minimum required distribution this year and my taxes are going to lower. I’m likely to be in a lower tax bracket, and thank you very much Congress. You could take that passive role, and you would be fine with it, assuming you do not need the money from your minimum required distribution for your ordinary expenses. But that’s step 1. What I’d like to do is go a step deeper and say, let’s think about this for a minute. You’re retired, you don’t have any income from work or even if you do that’s not your major source. You have minimum required distributions that normally, not for 2009, but normally would push you into a higher tax bracket. Now since you don’t have to take a minimum required distribution because of this one year rule, you’re into a lower tax bracket. Rather than just saying thank you very much, I’ll be in a lower tax bracket this year, I would proactively say hey, this is a great opportunity to make a Roth IRA conversion at what is likely the lowest income tax rate that you will ever be in for the rest of your life, even forgetting tax raises in the future, which I believe are almost inevitable. Your personal rate will be lower because you don’t have your minimum required distribution. I used to tell people the best years to convert was after you retire but before minimum required distribution. Now people over 70 are going to get this one year reprieve of having no minimum required distribution and likely be in the lowest rate they will ever be in.

Beth Bershok: It’s sort of an accidental bonus, really.

Jim Lange: It is an accidental bonus; I do not think it was intended for people who have a reasonable amount of money to be able to exploit and proactively take advantage of. In fact, other than the sources that I have come up with, and you know we’ve done press releases that were recognized all over the country in many major newspapers, nobody else was saying be proactive about this, do a Roth IRA conversion this year and depending upon the numbers you can be $10,000, $100,000 down the road for your family – even a $1,000,000 better off.

Beth Bershok: Steve wants to jump in with something.

Steve Kohman: That’s a great plan for people who have a good income and maybe a lot of money, but there is a trap there though for some people who don’t and who have social security income. That is the strange part of the tax law that makes more and more of your social security income taxable, the more income you have. Without their MRD’s for 2009 they could end up owing very little or no tax at all on their income. If they had the MRD they can calculate their tax with and without what would have been their MRD, and they might be paying 25%, 35% tax on what would have been their MRD or Roth conversion perhaps, unless it’s a large conversion amount. It makes it seem like a high tax on the next incremental bit of income that they have, like from a Roth conversion. There is a trap there; I would run the numbers to make sure it makes sense for you.

Beth Bershok: Actually, that’s one of Steve’s niches – doing the projections on situations like that.

Steve Kohman: Yeah, and it’s just a strange part of the tax code that makes people with less income in extremely high tax brackets. There are many other things that do that, there are tax credits that phase out, itemized deductions, retirement savers, credits – all kinds of things that just go away the more money you make so you’re taxed higher than anyone else when you don’t have much money.

Beth Bershok: All kind of unusual things in the tax code, aren’t there Steve?

Beth Bershok: We are talking smart money, The Lange Money Hour: Where Smart Money Talks. When we come back here in just a second we do have a very special deal that I am going to tell you about, and if you want to call in it is 412-333-9385 The Lange Money Hour: Where Smart Money Talks.

Beth Bershok: The Lange Money Hour: Where Smart Money Talks. I’m Beth Bershok, with Jim Lange and Steve Kohman tonight. We’re talking taxes because we are one week away from the tax deadline, and before we continue we have a very special deal. It has to do with extensions because at this point you’re thinking oh, it’ s one week from the tax deadline, there is no way I’m going be able to wrap this up. So at our office which is in Squirrel Hill, and I’m going to give a toll-free number because this is good if you are a resident of Pennsylvania. The professional staff is offering to do free extensions. This is what you’ll have to do, give us a call, the number is 1-800-387-1129, give us your name, your phone number and relevant information. What they are offering to do is take care of the extension in terms of – you guys will do the paperwork, right? Now, you’re not going to do the estimate at this time so they have to have some kind of idea of what they owe. And then they’ll make sure it’s delivered, and then one of the accountants will meet with you later, to make sure that everything is filed by October 15th. So, that’s the offer of a free extension if you’re listening tonight, this is good for Pennsylvania residents, and you can call the office at 1-800-387-1129. You can call the office tomorrow morning in fact, and we’ll take care of that. We’ll just need your name, phone number and then we’ll get that going for you. Now you guys want to talk about capital gains, am I reading this right? There’s a new 0% tax rate on long-term capital gains and qualified dividends.

Steve Kohman: Yes there is, and this is another part of the tax code that is very strange.

Beth Bershok: Steve loves the tax code.

7. Zero Percent Tax Rate on Capital Gains and Qualified Dividends

Steve Kohman: There’s a 0% tax rate on qualified dividends and capital gains up to what would have been your 15% tax rate. For example, if you’re married filing a joint return, you can have $65,100 of taxable income which is the top of the 15% bracket and not pay any income tax. Let’s say your itemized deductions and personal exemptions are $20,000, say you have $85,000 of taxable income. Let’s say you have $2,500,000 worth of good blue-chip stocks that paid dividends and you make $85,000 of dividends. Well guess what, you don’t pay any tax – another strange quirk of the tax code – people with $2,500,000 don’t pay any tax!

Beth Bershok: It is a strange quirk, that’s very interesting. How do you keep up on all these changes in the tax code, seriously how do you keep up?

Steve Kohman: Well you see them when you do a lot of tax return work and different situations people have. One of the things that’s important on your tax return is taking the capital-loss carry over. People have a lot of capital losses this year with the stock market and had some last year, and it’s important if you have a situation where you have lost money in the stock market, to do a little tax loss selling to create your capital loss. Because if you don’t sell stocks you won’t have the capital loss, and some mutual funds still kicked out capital gains distributions, and you certainly don’t want to pay tax on capital gains this year, or next year when you’ve been losing money.

Beth Bershok: Do you think a lot of people miss these? Do you think a lot of people are doing their returns and they’re missing the 0% tax rate because they’re trying to do it themselves, and they’re unaware of these parts of the tax code?

Jim Lange: Well, that’s possible. That’s Schedule D where you calculate the capital gains and qualified dividends tax worksheets, one of the most complicated parts of the tax return and virtually everybody has that as part of their tax return. I recommend doing it with a tax preparer or a computer, doing it by hand is very difficult these days.

Beth Bershok: 412-333-9385 if you have a question for Jim or Steve. Something else that is possible – reduce your college tuition cost. How is that possible?

8. Hope Credit and Lifetime Learning Credit

Steve Kohman: Well, it’s always been for the last few years, a very good tax credit available for people, the Hope Credit and Lifetime Learning Credit. It’s potentially giving you up to $18,000 dollars per student for the Hope Credit. There is good news on the horizon for 2009, a lot of people may have been phased out with this credit because their income was too high and in 2009 the phase out range has jumped quite a bit, for a married couple from $116,000 of AGI up to $160,000. So it’s going to be much more relevant to a lot of people – a lot more people in 2009 and the amount is jumping from $1,800 up to $2,500 for the Hope Credit. Also another bonus is the Hope Credit is valid on spending money for books instead of just tuition for 2009 so it’s improved quite a bit, and people should be aware of that.

Beth Bershok: Something that I think a lot of people miss, you know if you sit down trying to do your taxes yourself you miss, you overlook some deductions and something that Steve pointed out earlier was review frequently overlooked medical expenses. Steve, take us through some of those.

9. Medical Expenses Often Missed

Steve Kohman: Well there’s basic things, one of the things people miss is the medical care insurance premiums that are withheld from your social security income. That’s part of a medical expense, there’s also your basic things like prescription costs, co-payments and also long-term care insurance. One of the things that’s frequently missed for self-employed people is that the deductible long-term care insurance premiums and the Medicare insurance premiums also qualify as self-employed health insurance deductions where you can get it on the front page of your tax return, even if you don’t have enough medical expense to use it as an itemized deduction. So that’s some things to be aware of. Some other things that you might not know is if you have an elderly parent who’s in an assisted care facility and needs help with daily living and chores, you can get them certified as chronically ill and deduct the entire cost of living in the facility, like a nursing home; that would be deductible also as a medical expense. It would be a long-term care expense in that case, if they’re certified as chronically ill.

Beth Bershok: You know a lot of changes for this year. Jim, there’s a difference in the Estate and Gift Tax law this year as well, no, ok? What did you want to cover? More medical expenses?

Jim Lange: I actually wanted to point out something, you asked Steve a very interesting question. You said, “How do you keep up on this?” And Steve said, “Well you know, I prepare a lot of tax returns which is even more valuable than reading all the advanced sheets that tax preparers get.” I think a lot of times what people miss isn’t necessarily missing deductions on the return when they do the return themselves, but they miss planning opportunities. I’ll give you an example, tax-loss harvesting when you offset capital gains and losses. That should be done before year end, and if you prepare your own taxes, and you don’t think about this stuff, and you don’t get a letter from a CPA firm saying hey, it’s time to do tax-loss harvesting and here’s how you get it, you might not think about it. Let’s even say that somehow somebody tells you about it. Steve just mentioned the deduction if you can get an elderly person certified as chronically ill. Well, let’s say you have a $60,000 or $70,000 or even a $100,000 medical expense that now becomes deductible, and you only had say $10,000 or $20,000 of income. To me that is an opportunity to make a very significant Roth IRA conversion that could have an enormous impact for the family later on. So, it’s both tax preparation, but it’s also the planning that goes into it that I think people have to be aware of.

10. Listener Q&A: Roth IRA Conversions and Form 8606

Beth Bershok: And speaking of Roth IRA conversions, we have a question. We have Bob on the line from Penn Hills who has a question about Roth IRA conversions. Hi Bob, what is your question?

Bob: Hi, if you make a Roth conversion do you also have to file an 8606 form along with that when you are returning your tax return?

Beth Bershok: 8606, that sounds like something Steve would know off the top of his head.

Steve Kohman: Well, they did change the 8606 a little bit from last year. I think you have to complete it when you take money out of a Roth IRA, but you should keep track of your basis of Roth IRAs and the conversion would be part of that. I’m not sure that it’s really required on the 8606 this year.

Beth Bershok: Bob, you have a Roth IRA?

Bob: I made a conversion and my computer program spat out an 8606, but it didn’t completely fill it out, and I was curious to whether that was a requirement or just supplementary information?

Steve Kohman: Yeah, I just looked at that 8606, and it says complete this part if you took money out of a Roth IRA, so I guess you don’t have to at this point.

Bob: Ok, thank you very much.

Beth Bershok: Thank you, Bob.

Jim Lange: Steve, you’re going to have to help me out on this. Isn’t the 8606, when I think of 8606, maybe I have the form wrong, I’m thinking of the basis that you have to keep track of for your non-deductible IRAs, because if you make a non-deductible IRA contribution then you should be keeping track of what is deductible and what is not, and I thought that that was the purpose of Form 8606.

Steve Kohman: They expanded the purpose of 8606 to cover Roth IRAs to keep track of the basis of them, because you can only take out so much from your Roth IRA before you’re 59 ½ before you pay tax on the earnings. Now that rarely happens, but it does have to be kept track of.

Jim: And what I would say, what’s really valuable about the 8606 is keeping track of the after-tax dollars, because one of the things that we will be talking about at the two seminars–that Beth Bershok is going to give you the times and dates on–is how to make a Roth IRA conversion from money that you’ve already paid tax on in the form of a non-deductible IRA.

Beth Bershok: That’s one of Jim’s favorite strategies.

Jim Lange: That actually is! It’s so cool particularly for people who have after-tax dollars in their retirement plan. We show how if you have even just say $50,000 of non-deductible IRAs or after-tax dollars and a retirement plan, that you can be $500,000 better off in the future, and you know how much it cost you in taxes now to be $500,000 better off in the future?

Beth Bershok: How much?

Jim Lange: Nothing, Nothing.

Jim Lange: Doesn’t work for everybody, but it is one of my favorite strategies, and we’ve done it multiple times in practice.

Beth Bershok: We have graphs in fact in the workshops, and if I’m not mistaken, Steve, you’re the one who did the graphs for that workshop. Am I right?

Steve Kohman: Yeah sure.

Beth Bershok: Well here’s the deal, I’m going to take this second to tell you when the workshops are because we really do go through all of this, and it’s coming up next weekend. It’s at the Comfort Inn on Rodi Road, and we’re doing one from 9:30 to 11:30 in the morning and then 1 to 3 in the afternoon.

Jim Lange: When you say next weekend you mean April..?

Beth Bershok: 18th

Jim Lange: 18th , Right, not this coming Saturday.

Beth Bershok: Right, exactly. Not this coming Saturday, it’s going to be April 18th, and you do need to tell us when you call to make your reservation which session you want to go to, 9:30 to 11:30 or 1 to 3. And by the way, the phone number for that to register is 1-800-748-1571. The next one we already have on the calendar, because we’re reaching capacity every time we do one of these seminars. The next one is set for Cranberry at the Four Points Sheridan on Saturday May 16th same times, its 9:30 to 11:30 and then 1 to 3 in the afternoon. 1-800-748-1571, you need to tell us what session you want to go to. I don’t think I’ve ever mentioned this, but one of the cool things about going to these, not only do you get these great strategies, but you get a copy of Jim’s book, Retire Secure! Pay Taxes Later. All of the graphs are in there, all of these strategies, and it was a number one best seller on Amazon.com, so you get to go and get all these great strategies, and you also get a free copy of the book. Also, if you want to find out more about the seminars, we always have them posted. They’re on our website all the time, the ones that are coming up, so you can always check in at www.retiresecure.com for the latest on that. And we’ll be back in just a minute with more tax strategies as we get close to the tax deadline. It’s The Lange Money Hour: Where Smart Money Talks.

Beth Bershok: The Lange Money Hour: Where Smart Money Talks. I’m Beth Bershok with Jim Lange and Steve Kohman today. We’re one week away from the tax deadline, going through some great strategies because it’s still not too late for 2008. If you have a question, its 412-333-9385. We’ve had people checking in from North Park and Penn Hills, and we only have about 20 minutes left so if you have a question 412-333-9385. One quick second, Jim you mentioned just a few minutes ago about how important it is not just when you’re doing your returns, but we really need to plan in advance some strategies, and it really helps to see a financial professional. When should you start doing that for next year? Looking ahead to 2009, is it too early now?

11. Start Tax Planning Early for 2009

Jim Lange: If you go to a firm that particularly prepares tax returns now, and you say I want to do some planning for 2009, they’re going to have your head! On the other hand, one of the best times is actually after April 15th. After typically a return has been filed or extended, and you are in a mind frame that you are thinking about taxes. Personally, I think one of the best times to talk to a financial advisor is actually after you have done something proactive. To learn a little bit before you go to the advisor, such as going to a workshop or actually reading something and being motivated. Right now, there is such a fear of what’s going on with the economy that people are sometimes forgetting the big picture, and that is taxes can make an enormous difference, and I would say particularly today, it’s even more important to get tax strategies right as well as investment strategies.

Beth Bershok: That’s why you should check with a financial professional?

Steve Kohman: I would say that yes, it’s important to go see your tax advisor for planning. Although part of that planning needs to occur early in the year. For example if you planned in the fall to do Roth conversions in January of 09 because you knew you weren’t taking your minimum distribution, you could have jumped on a really good opportunity when the stock market was at 65,000 and done a conversion when the taxes would have been very low on your conversion. So, the plans should be set up in advance, maybe fall is the best time for the CPA to see you.

Beth Bershok: Well, because the CPAs are frequently golfing in April, May, June, July and August. Am I right?

Steve Kohman: Well, late April maybe, yeah, ok.

Steve Kohman: But yeah, the planning process will involve actions to be done throughout the year.

Beth Bershok: It makes it easier for you, I’m guessing? If clients come in and they’re doing some planning with you, it makes it much easier for you when you’re doing their return. Back to estate and gift tax laws; there have been changes..

Jim Lange: I’m going to throw in one more.

Beth Bershok: Ok, sure.

Jim Lange: Steve made a great point, if you had done it early you would have taken advantage of the benefit. Let’s say for example though, it went the other way. Then you would still have time to re-characterize then do another Roth IRA conversion. So sometimes earlier in the year is more appropriate than later in the year. People often come in for year-end planning, but sometimes early year or mid-year is even more effective.

Beth Bershok: Well, sometimes year-end planning–when you guys say year-end planning you mean 4th quarter–but some people mean December 29th. So ..

Jim Lange: Sometimes it’s tough to get things done that late in the year, so it makes sense to get in there before Thanksgiving.

12. Gift Tax Raised to $13,000 Per Beneficiary

Beth Bershok: Ok, can we talk about real quick, I just want to get in that the gift tax went from $12,000 to $13,000, am I right?

Jim Lange: $12,000 to $13,000 is the amount of money you are allowed to give to an individual without eating into your once-in-a- lifetime exclusion.

Beth Bershok: Oh, it’s up to 13?

Jim Lange: Right, so if you were in the habit, or if you are interested in making gifts to your kids, now you can give them– typically kids it could be anybody–but if you are in the habit of making gifts to your children, and you want to give them the maximum amount that you are allowed to give without eating into your once-in-a-lifetime exclusion, it would be $13,000 per beneficiary. If you are married and your spouse joins in the gift, that would be $26,000. And I am a big fan of gifting, assuming you can afford it, and I happen to like three types of gifts. I like just straight-forward gifts to children, say Happy Birthday or Merry Christmas or whatever it might be, here’s some money. I also like section 529 plans which are typically educational forms of gifts usually done for grandchildren, sometimes for children. And I also like life insurance, and in particular if you are married, second-to -die life insurance policies, and I actually like a mix of all three of those types of gifts.

Beth Bershok: Well, the second-to-die life insurance, that’s something else that we cover in our workshops too, and there’s a lot of great information on that in the book, Retire Secure!. 412-333-9385, about 15 minutes left if you have a question for Jim or Steve. Something else that Steve recommends is check to see if your children are subject to the Kiddy Tax. Steve, can you first of all explain what that even is.


Steve Kohman: Well the Kiddy Tax is almost a young adult tax now because they’ve raised the age for kiddies from 17 up to 24.

Beth Bershok: Oh, that’s not a kiddy, that’s not a kiddy at all!

Steve Kohman: So, basically the rule is if they have a lot of investment income, that it’s taxed at their parents’ marginal tax rate which ends up resulting in more tax. It’s something to be aware of, they’ve changed the rules in that regard. It’s a long-held tax- planning strategy to shift money to your kids so they pay income tax at their lower rates, and it’s still a valid planning technique. The thing now is that even kids in college can have the Kiddy Tax applied to them, so it’s a little complicated to go over in this show. It’s something that’s changed and maybe not for the better, but the planning opportunity is still there to transfer money to your kids. Transferring money to your kids is something that happens when you do the $13,000 a year gift like Jim was talking about. The gift is also a good strategy for estate planning because it reduces estate tax, but even people that aren’t subject to federal estate tax or subject to the Pennsylvania inheritance tax, some planners never mention that it’s 4.5% tax for money going to your kids, and it could be over 10% for money going to other people, other relatives. So it saves a lot of money doing gifting if you’re a person who has a lot of wealth and wants to transfer to other people sooner or later.

Beth Bershok: What’s the deadline for that from year to year, is it the end of the year?

Steve Kohman: Yeah, that sort of thing is done every year on a calendar year basis, it can be done every year.

Beth Bershok: So it’s that amount every year, so now it’s $13,000. You could literally, between you and your spouse, do $26,000 every year to each beneficiary.

Steve Kohman: To each person without filing a gift tax return. But even if you go over those amounts, if the child or person needs a lot of money, and you want to help them out, you can file a gift-tax return. It’s not always that complicated of a thing to do, and we’d be happy to do it. Usually you don’t pay any tax when you file a gift-tax return unless your gifts total more than a $1,000,000 in your life.


Beth Bershok: I have a question just in general, because you know we’ve been mentioning that you should see a financial professional and do some planning. When you guys see new clients or you see tax clients at this time of year, what kind of information do you need them to bring? Because I know that some people, and this sounds like it’s really a joke but people do this, they bring like a big old shoebox, and they have all kinds of receipts and all kinds of documents just scattered around in the box. Makes it a little difficult…First of all I’m sure you’d like to see it organized, but really what do you need to see so you can start making some plans for a client?

Steve Kohman: Well, not only do you want to see all the 1099’s and deductions that the person has, the 1099 forms are critical of course and the W2s. They pretty much are sent to you in January, maybe February of every year, automatically. They come in a little envelope that says Important Tax Document here, so you just put it in the file and give it to your CPA. I prefer clients who take it out of the envelope so then I don’t get paper cuts when I open the envelope.

Beth Bershok: Well, that’s getting a bit picky, Steve.

Steve Kohman: But other than that, it’s lists of charitable contributions, business deductions and if you have other sources of income. You sort of make a list of that, it can be a handwritten list; it’s not that big of a deal.

Jim Lange: And that’s assuming you want to get your tax return prepared professionally. If you are in for a strategy meeting which is done with one of our sister firms, The Lange Financial Group as opposed to The Lange Accounting Group, and typically those meetings would be with me. I’m actually more interested in a list of assets and a tax return. We actually have a sample list of assets that have blank forms or blank spaces that you can fill in. So for me when I see a client, I like to have in front of me a list of assets and a tax return.

Beth Bershok: But this is helping you do general financial planning, that is why you need to see that.

Jim Lange: Right, I’m much more interested in the big picture, and in order to give somebody advice on the big picture, I have to know if they have $100,000 or $20,000,000 ..

Beth Bershok: Well, it makes a big difference, it makes your strategy completely different. 412-521-2732 is the office number. So say for instance one of these things interests you, and you want some financial planning done, that would be the number to call, 412-521-2732. I do have, we talked about earlier a special offer that we’re just tossing out tonight that’s good for the next week, and I’m going to tell you about that in just a minute. It’s The Lange Money Hour: Where Smart Money Talks.


Beth Bershok: We are talking smart tax money tonight, The Lange Money Hour: Where Smart Money Talks. I’m Beth Bershok with Jim Lange and Steve Kohman. One week away from the tax deadline, and we’re just minutes away from wrapping this show up, so if you have a question for Jim or Steve the studio line is 412-333-9385. Get your question in here in the last few minutes. Now we have a special offer, and that is an offer of a free extension, and this is what me mean by that. First of all, I should point out that this is for Pennsylvania residents only. But here’s the deal. If you call the office, and this office is in Squirrel Hill, and you say I want to take advantage of this free extension–I will give you the number here in just a second–the professional staff will actually do the paperwork for you. Now, at this point in time they’re really busy, they’re not going to have time to do your estimate which you still have to pay. So you’re going to have to take care of that, but they will do the paperwork. They will make sure it’s delivered, they will make sure the check is delivered, and they will make sure it’s hand-stamped. They’ll take care of all of that, and then they will meet with you after April 15th and make sure they can get your extension rolling. It’s 1-800-387-1129 and Jim and Steve, you guys are making that offer for any Pennsylvania resident?


Jim Lange: Yes we are. Keep in mind though that the extension is an extension to file, it is not an extension to pay. So, if you owe money you have to take it in. One of the nice things about doing it with our firm, or for that matter most any CPA firm, is that we physically hand deliver the extension to the IRS. We get it stamped so there is proof positive that that extension went through as opposed to waiting until midnight on April 15th, and you don’t know when the IRS actually gets it.

Beth Bershok: So you guys are willing to do that in the next week. You do have to call the office at 1-800-387-1129 and just give us your name and phone number, and they will get that all worked out for you. Real quickly, you mentioned that it’s not an extension, it’s an extension to file, it’s not an extension to pay. What if you miscalculate?


Jim Lange: You might owe a bit of penalty and interest. On the other hand, a lot of times you don’t owe anything. The most prudent thing to do, if you think you might owe something to probably put some money in when you file for an extension, just in case.

Beth Bershok: Just in case, so you don’t end up with penalty and interest.

Steve Kohman: The typical procedure is that you would add your estimated tax for the first quarter into the extension payment so if your off by a little bit you’re going to be covered for 2008, and it will adjust the estimated taxes for the next year. So that’s the typical strategy, you add the first quarter estimated payment to the extension payment.

Beth Bershok: Now it takes out the confusion, though, if you take advantage of this free extension offer because you guys will do all of the leg work on it. So, 1-800-387-1129. OK, looking ahead to 2009, and it’s not really too early to start planning. Steve has some ideas for you.


Steve Kohman: Here’s a planning technique not only for 2009 but also for your tax return for 2008 if you haven’t filed it yet. And if you did file it incorrectly, you can amend it. But for people who take the standard deduction and own a home, there’s an additional deduction for real estate taxes that you didn’t have last year, and in 2007 it didn’t exist. But for 2008, you get to add up to $1,000 on a joint return to your standard deduction amount for real estate taxes. Even a simple tax return can get this extra deduction and save you a couple of hundred dollars in taxes. That will again occur next year in 2009, and another good thing for 2009 people may not be aware of and now I’ll point it out. If you buy a new car between now and the end of the year–actually if you bought a car from February 16th, 2009 through the end of the year–you can deduct the sales tax on the purchase of the new car.

Beth Bershok: That’s new?

Jim Lange: That’s new.

Beth Bershok: I was going to say, when did that one crop up?

Jim Lange: It adds on to your standard deduction so you don’t need to itemize deductions to do that. It’s good on sales tax paid on the first $49,500 of a new car.

Beth Bershok: I have to back up when you mention these kinds of things, because it just seems like there are so many new things. Because I’m married to a CPA, I don’t do my own taxes so I don’t look at the return, so I don’t really know. Is this information in front of you when you are doing your tax return? Do you know to do this?

Jim Lange: Not always, people may get the forms and just fill them out the way they did last year. They may not be aware of that.

Beth Bershok: How would you be aware of that?

Steve Kohman: Umm, well let’s see, how would I not know? It’s hard for me to answer because I know!

Jim Lange: By the way, that is an interesting point because one of the nice things about Steve is that he’s not only–and we really haven’t talked about this facet of his career. Where he does all the charts and all the number-running for Roth IRA conversions and after-tax dollars and Roth IRAs and the different strategies, which is already unusual. But what’s very rare is the combination of somebody who understands the strategies and understands the mechanics of doing the tax returns. I remember an old law professor of mine used to say “If you don’t know where it is on the 1040, then you don’t really understand it!” And I think there’s something to that, and one of the advantages of working with Steve is that he has both.

Steve Kohman: One of the things about these tax laws that if you don’t pay attention you are not really aware of what is going on, you might make mistakes. One of the things people did in 2008 was they went out and bought an energy efficient improvement for their home, insulation, maybe new doors or new windows and thought they were getting a tax credit, and then they took it into their CPA, and they had to be told “They didn’t pass that law, it doesn’t apply for 2008.”

Beth Bershok: Why would they though?

Steve Kohman: It applied to 2007 purchases. Everybody knew about it and said “Look at this tax credit, we’re going to get it for 2008”, and then they went and spent the money and didn’t get it for 2008. They didn’t extend that part of the law which was expected to be extended. But the good news is for 2009 and 2010, the energy efficient home improvement credit has tripled to 30% with a new ceiling of $ 1,500, so it’s a much better credit, and it will apply for 2009 and 2010.


Beth Bershok: How long do you have to file an amended return if you realized you made a mistake, or you missed one of these things. Let’s say somebody is listening right now, they already filed their return, and they just found out about the car – the real estate tax. What if they just found out about that?

Steve Kohman: Well, actually they have actually 3 years to file an amended return from the due date of their original return which will be 3 years from the April 15th of this year, so its quite a good bit of time. You have plenty of time to correct a return.


Beth Bershok: I want to real quick, because we are running out of time, this is always a question: married filing jointly or married filing separately. How do you know which one to do?

Steve Kohman: Well, it’s typically better to do married filing jointly. Married filing separately is worse than single filing which you aren’t allowed to do once you’re married. So your status of marriage at the end of the year dictates how you have to file. You can’t file single if you’re married on December 31st, and there are situations where it could be a tax benefit to file separate returns. It takes some considerable calculation to come up with that result. Our office handles that. We use computer programs to calculate the advantage that that might be.


Beth Bershok: Jim, any last minute thoughts on your 2008 taxes before we wrap up?

Jim Lange: I think the important thing is think long-term in addition to short-term. Get in the Roth IRA contributions for yourself, for your spouse, maybe even your kids. Do the non-deductible if your income is high enough, and move forward and plan for the future.

Beth Bershok: And I want to recommend strongly one of our workshops, because they are coming up. I want to mention the dates again. Next Saturday which is April 18th, Comfort Inn Rodi Road 9:30 to 11:30 in the morning, 1to 3 in the afternoon. Same times for May 16th which is also a Saturday. That’s at the Sheridan Four Points in Cranberry, and you can register by calling 1800-748-1571. You can also check out our website which is www.retiresecure.com. And I want to mention that by next week the audio to this show, if you missed it and you want some more ideas will be posted on that website so check it out at www.retiresecure.com. Thank you so much Steve for joining us. Are you going to get back to the office and do more returns tonight?

Steve Kohman: I’ll be up till midnight. The end is coming soon.

Beth Bershok: Jim Lange, Steve Kohman, thank you guys so much. We have a very special guest, two weeks from today, Paul Merriman, and we’ll be telling you more about that on our website, www.retiresecure.com. It’s The Lange Money Hour: Where Smart Money Talks.