With W-2s and 1099s on hand or in the mail, there's no excuse to procrastinate. To help you, WalletPop experts have answered some of your urgent questions about health insurance, dependent credits and IRA conversions.
Answer from Outright.com
Answer from John A. Tracy, CPA and author of Accounting for Dummies
Since the second child lives with you, I assume you provide more than one-half of the actual outlays for support of the child. If so, you are probably entitled to claim the personal exemption for the child, even though legally the ex-husband has custody rights on the child. This situation is not as unusual as you might suspect. A qualified tax preparer, such as a CPA or the local H&R Block office, could provide a final answer on this question. More important, the preparer would advise you how to claim the exemption on your tax return so it will not be questioned by the IRS.
-- Vincent Aversa, Staten Island, NY
Answer from Gary Lesser, author of Roth IRA Answer Book and Quick Reference to IRAs
Only when other factors are introduced (changes in the status quo), can one argue that a Roth contribution is better or worse than a non-Roth contribution. The Roth IRA, however, has several features that may make it more desirable than a traditional IRA.
If you expect tax rates during retirement to be higher, a Roth IRA may be better. In your case, you wish to pass as much benefit on to heirs as possible. In a traditional IRA, required minimum distributions must commence at age 70 1/2. Because a Roth IRA does not require distributions be made during the owner's lifetime, amounts in a Roth IRA will accumulate until death. Assuming age 90, that is an extra 20 years of accumulation, which would not be possible in a traditional IRA. Thus, a Roth IRA will pass more benefit to heirs. Paying taxes on a Roth conversion would initially lower the value of your taxable estate; however, over time, your estate would recover and likely be larger with a Roth IRA.
Other factors to consider: Although the conversion amount isn't that large, the conversion income still has the potential to reduce or eliminate credits, exemptions, deduction, and more, which are based on adjusted gross income (e.g., first-time homebuyer's credit, financial aid, and passive activity loss deduction, to name a few). In general, by converting to a Roth IRA, you would be giving up the "known" for the "unknown." Will Congress change the taxation rules for Roth IRAs, as it did with Social Security? Will tax rates be higher or lower when distributions are made? Getting advice from a competent tax advisor should also be considered before making a conversion.
Answer from Bob Meighan , CPA and vice president of TurboTax
You are correct that the deduction for mortgage interest may be limited. There is one limit for loans used to buy or build a residence (home acquisition debt) and another one not used to buy or to build a residence (home equity debt). All loans secured by your main home or your second home are subject to the same overall limitations. In your case, you cannot deduct interest on more than $1 million of debt for your main and secondary homes.
Your situation will serve as an example. Since your $1.3 million combined debt exceeds the $1 million threshold, your mortgage interest is limited. If we assume your mortgage interest totals $78,000, you may only deduct $60,000 ($1.0 million / $1.3 million x $78,000). The worksheet on page 9 of Publication 936 can help you calculate your allowable mortgage deduction. This is a great question, and we have tax and tech experts live on Twitter to help all season long @TeamTurboTax.