Thrifty Thinking: Avoiding Common Tax Mistakes

Jordan Niefeld, CPA  (Certified Public Accountant) graduated from the W.P Carey School of Business (B.S. in Marketing) at Arizona State University in Tempe, Arizona, and also earned a Masters in Accountancy. Jordan offers  suggestions on relieving common tax mistakes individuals might not realize they are making:

Mistake #1 – The earlier in the year you make your IRA contributions the better! 

Tip: Don’t wait till the end of the year to make your contributions. Why? Simple. Compounding returns. When you put money to work for you sooner, you let the power of compounding make a bigger contribution to your retirement investments. Let your investment returns build on each other each month and watch your IRA grow. 

A quick example of this is with an initial investment of $10,000 with over 30 years  of compounding would equate to over $100,000 versus a similar investment over only 20 years compounding equating to over $30,000, 

(*assume an average annual return of 8%, compounded annually.) 

Mistake #2 – Retirement 101 … Don’t stress about the Taxes

Tip: When it comes to your retirement savings don’t stress about the taxes. The money you put in your traditional IRA grows tax-deferred, and the money you put in your Roth IRA grows tax-free. This means if you are comfortable with the risk, you can invest in aggressive growth investments and not worry about capital gains taxes. 

Some investors may be apt at an aggressive investment strategy. If so, a properly set up retirement plan is a wise place to hold those assets, which under normal circumstances might generate annual tax bills. When you begin receiving distributions at retirement age from a traditional IRA, you will pay normal income tax at your then marginal rate. Roth IRA distributions won't be taxed at all. 

And remember, a taxpayer may always convert their traditional IRA to a Roth IRA if it is more advantageous, but should consult their tax advisor before doing so.

More about Jordan Niefeld:

Jordan works for Gerstle Rosen & Goldenberg, P.A.,  which has maintained its reputation for excellence and client satisfaction in the areas of accounting, auditing, taxation, divorce and fraud forensic, business consulting, governmental, not-for-profit, litigation support, other real estate and construction accounting, as well as federal, state and local governmental accounting, auditing, and consulting services. Gerstle Rosen & Goldenberg, P.A. is one of the most progressive accounting practices in South Florida providing a wide range of diversified services to corporate, small business, individual clients, condominium and home owners associations and non-profit organizations. Jordan Niefeld, CPA can help with inquiries related to small-medium business practices and all condominium, HOA and Not-for-profits in relation to all taxation and auditing matters including: Law firm accounting, Medical Practice Accounting, Dentistry Accounting, Veterinarian Accounting, Small Business Accounting, Non-for-profits, tax preparation and planning, tax problems, any IRS related matters, Condominium and HOA accounting and audit services.