Vanity Tax Question

Self | April 17, 2012 | Self

[library user]

I know I shouldn't have waited til the last minute, but wanted to ask tax-savvy FReepers two questions:

1) What are the odds that the figure on line 54 (Total Credits) of your 1040 is going to be the exact same number as that on line 62 (Federal Income Tax Withheld)?

Wouldn't that be one heck of a coincidence, if true? Should I start playing the lottery?

2) Also, my accountant told me to put $510 in a ROTH IRA to get a higher refund. Although I can't find a line item on the 1040 where making such a contribution would affect the refund.

Any suggestions on this? Thanks so much for any insight.

PS: I'm having a hard time getting my accountant to answer these questions. I think he's overloaded by last-minute filers and hasn't responded to my email.

[cripplecreek]

There’s a vanity tax?

[bamagirl1944]

I don’t think the Roth IRA saves you tax up front. I know the older type does, however.

[library user]

There probably should be for me. I have posted several vanities since 2008.

[library user]

The weird thing was accountant told me to put $510 in a ROTH IRA to get a bigger refund, but then said I can withdraw the money a few days later with no penalty, if I want to. Bizarre.

[NEMDF]

Correct. Where the ROTH saves you money is in any growth in it is tax-free.

As to the withholding being the same as credits: ?? this is strange. Can you double-check the federal income tax withheld against your form W2,and any 1099s that might have withholding or any quarterlies you paid?

[lacrew]

I think its line 50....there are income limits, but I assume your accountant knows where you stand with those.

[gunsequalfreedom]

There’s a vanity tax

You are kidding right? What line on my tax form do I enter that into? I can't believe. They tax everything now. Hope you can get back to me quick, I was just about to put my tax form in the mail.

[davandbar]

Is this your ACCOUNTANT (CPA) or TAX PREPARER?

If it is your accountant, I’d recommend you get a new one—he is clearly wrong.

Traditional IRA—tax deferred (you get the write-off up front), and pay taxes upon withdrawal (retirement age).

ROTH IRA—contribute to it with after-tax dollars (no write-off), accrues tax-free and no taxes upon withdrawal (retirement age).

I looked into cashing out a Roth IRA early, and I would have a 10% penalty for doing it. You may be able to cash it out during the same tax year with no penalty—but it is definitely not a write-off.

[library user]

I would have a 10% penalty for doing it.

Isn't the 10% penalty only on the interest? Mine hasn't made any interest. Therefore, I don't think there's any penalty, if you are only withdrawing the amount you funded it with.

[rightly_dividing]

Vanities are not taxed currently, but after ObamaCare kicks in full in 2014, who knows?

[Raycpa]

Although a Roth does not lower your taxable income it does qualify for credit

http://www.irs.gov/newsroom/article/0,,id=107686,00.html

However, it needs to be done today.

[Raycpa]

If it is your accountant, I’d recommend you get a new one—he is clearly wrong.

Not necessarily, check my post above.

[Lurking Libertarian]

1) What are the odds that the figure on line 54 (Total Credits) of your 1040 is going to be the exact same number as that on line 62 (Federal Income Tax Withheld)? Wouldn't that be one heck of a coincidence, if true? Should I start playing the lottery?

"Total credits" means everything you have already paid toward this year's taxes. It will always be the same as your withholdings unless you also made estimated payments.

[ThomasThomas]

Vanity tax? Tax a person at a rate based on how smart they think they are. It would be fair because the smarter you are the more money you should be able to make. Obama and friends would up around 90%

[P.O.E.]

Unless you are a farmer or fisherman or subject to look-back tax or railroad pension exclusion.

[Jedidah]

I hope you’re not paying that guy.

[Skepolitic]

Fortunately, I don’t have to worry about the vanity tax.

I am the most humble person I know.

[davandbar]

Yes, that is correct.

So, I guess you can make principal withdrawals immediately after you set up the account, and take the credit on your return. Is that credit new—I’ve never heard of it?

I stand (some what) corrected!

[Skepolitic]

Many tax credits are limited to the amount of tax.

I suspect you file 1040A. Depending upon both taxable income on line 27 and tax on line 28, a credit for a Roth IRA can be taken on line 32. A single filer gets a 50% credit if line 27 income is less than $17000. The credit percentages phase out to zero at $28250 of taxable income. In all cases the credit cannot exceed the tax on line 28 of 1040A. See Form 8880 for details.