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THE TRUMP TAX CUT: IT’S A HOAX By Chuma Megafu This is the biggest hoax cast upon the American people ever.... so declared Republican Sen. Bob Corker of Tennessee the Chairman of Senate foreign committee. The plan is a typical Republican tax plan, in that it advocates deep tax cut to the wealthiest of Americans, with the belief that the wealthy will then somehow trickle down the gains to the general population called THE TRICKLE DOWN THEORY. A term coined after the massive ...Continue reading

THE 401(K) As a metaphor for claiming your double portion. by Chuma Megafu... People of Judea Christian belief often use the term double portion to refer to over and beyond blessings or gifts. There are six instances in the Bible where specific references are made to double portion with the most notable one being, toward the end of Prophet Elijah's Ministry. He offered his assistant Elisha a gift: what can I do for you before I am taken away? Elisha answered, Please let there be a double portion of your spirit on me. (2:Kings 2:9) Sure enough Elisha performed double the miracles of Elijah, showing he was indeed granted a double portion. So, also you can use the 401(k) to claim your double portion. The 401(k)enacted into law in 1978 by congress, it was intended to give taxpayers a break on taxes on deferred income. It wasn't until 1980 that Ted Benna regarded as the father of the 401(k) took note of this obscure provision and figured out that it could be used to create a 401(k) plan, which simply is an arrangement that allows an employee to choose between taking compensation in cash or deferring a percentage of it to a 401(k) account. The amount deferred is usually not taxable to the employee until it is withdrawn or distributed from the plan. Several variations of the 401(K) has since emerged such as the Roth 401(k), which can be funded with after tax dollars, but for the sake of simplicity I will limit discussion to the traditional 401(k). The other popular feature of the 401(k) plan is called The Match. This is when an employer matches a percentage of employee compensation up to a certain portion of total salary. For example: Assume your employer offers 100% on all your contribution each year up to a maximum 3% of your annual income If you earn $60,000.00, the maximum amount your employer will contribute will be $1,800.00, if you contribute $5000.00 and your employer maxes out the matching requirement it will give you a total contribution of $6800.00 in a year. The pretax contributions earning from investment in a 401(k)account (in the form of interest, dividends and capital gains) and the resulting compounding interest with delayed taxation becomes a very powerful vehicle to accumulate wealth when held over long periods of time. In other words, all things being equal the money just sits there and grows. The IRS imposes severe restrictions on withdrawals from 401(k) plans and imposes a 10% excise tax equal to the amount distributed when the taxpayer is under the age of 59 1/2 (this is on top of the ordinary income tax that must be paid). However, the last economic meltdown of 08/09 saw many taxpayers in financial distress and dipping into their 401(k) and opting to pay the penalties with the often-familiar phrase; I had nowhere else to go. There are some exceptions allowed by the IRS on the 10% excise tax which includes: Distribution after death or disability of the employee Distribution made under a qualified domestic relations order usually done during divorce Distribution to pay medical bills exceeding 10% of adjusted gross income Distribution taken as a series of substantially equal periodic payments over the taxpayer's life Distribution done for hardship as defined under the plan Distribution to correct excess contributions or deferrals Section 72(p) of the IRS codes also allows employees to take loans from their 401(k) plans if the employer offers it. The loans itself is not taxable income nor subject to the 10% penalty and must be paid back for a term not longer than 5 years with a reasonable rate of interest charged. If employee do not adhere to the strict guidelines of Section 72(p) the loan is declared in default and becomes a taxable distribution. This I see happen very frequently. Account owners must begin making distribution by April 1, of the calendar year after turning age 70 or April 1, of the calendar after retiring. The amount of the distribution is based on life expectancy according to appropriate IRS tables. The penalty for not making the required minimum distribution is 50% of the amount that should have been distributed, one of the most severe penalties the IRS applies. The 401(k) plan is not without its detractors, the most vocal being the man who created it in the first place, Ted Benna. He laments he has created a monster and feels wall street firms are racking too much in fees to manage 401(k) plans he also feels and that the 401(k) is susceptible to the volatility of the market. He further laments that the 401(k) has eclipsed the defined benefit plan (which guarantees a fixed payment) as primary retirement plan. According to Investment Company Institute as of March 31 of 2016 Americans held $4.8 trillion in 401(k). All in all, when planned properly, 401(K) is an exceptional wonderful program to earn over and beyond what should have been, in that you have an employer match your savings which grows tax free in the plan. When you retire and distribution starts chances are you are in a lower tax bracket. This has been only a summary of the 401(k)plan. As the saying goes "there is more than six after five" and it can get very complicated and involved. It can also be used as a tax planning tool. For further discussion on using 401(k) as a tax planning tool please contact us at: Prime Financial and Tax Service 323-933-4183

THE 401(K) As a metaphor for claiming your double portion. by Chuma Megafu...Continue reading

Now that taxes are over: Are you happy with the outcome of your taxes? Did you get a refund or did you incur a tax liability. Regardless of the outcome, their are simple steps you can take for a better outcome next tax season. If you incurred tax liability, you probably are not having a enough withheld from your paycheck through the year or as I often hear ," oh I went exempt during the year , I meant to change it after a while but I totally forgot." If that is you, be reass...ured you are not alone. Emergencies do come up and it might seem like a good idea to go exempt and have all of your money now, but then at the end of the tax season you are struck with a tax liability. If you got a refund are you happy with the refund? Would you use a bigger refund next filing season? If you plan prudently, you can use the income tax for effective budgeting and savings , which can be used for those big ticket item purchases. The earned income credit which the government provides for taxpayers earning less than $51567.00 for the tax year 2013 can be as much as $6044.00 with three dependents, $5372.00 with two dependents, $3250.00 with one dependent and for taxpayers with no dependents and earning below $14340.00 this credit can be as much as $487.00. However the Obama administration is pushing congress to increase the amount available for taxpayers with no dependents to $1100.00. Another tax credit available for tax payers with dependents under the age of 17 is the child tax credit. This Bush era tax cut was set to expire end of 2012. However the fiscal cliff deal signed on Jan 3, 2013 extended this credit for 5years. This credit provides up to $1000.00 for each child you claim . The education credit is another credit that is also currently available and can provide as much as $2500.00 for qualified tuition, registration and books for higher education for students taking at least 6 units in a calendar year. This credit is also available for your dependents . So as the saying goes " education does pay." Depending on your family size and limiting your withholding to one or zero and enrolling in school you will be smiling to the bank next tax season. A word of caution, some tax advisors see this strategy of the government holding on to your money all year with no interest being paid as rather expensive but I feel that is the prize you pay for getting that fat check all at one time. for further discussion on how to minimize your tax liability and increase your refund , you can reach us at 1296 S La Brea Ave Los Angeles Ca 90019 323-933-4183 See more