Most of us don't really think about tax implications of gifts we want to give. However, the IRS has rules about how much money we can gift each year without reporting it, and how much we can gift over our lifetimes without owing gift tax. Let's review some of the highlights:
If you want to give someone a gift, you can give $13,000 in 2010 without having to file a gift tax return. If you and your legal spouse want to gift together, you can "gift split" and give $13,000 each to a person. (As an odd note, if you choose to split your gifts for one person, you must split all your gifts to everyone all year.) This allows you to give away $26,000 a year to someone (like a child or grandchild) and not have to report your gift. Many people use this as a chance to lower the value of an estate and potential liability for estate tax.
What if you give more than $13,000? Well, then you file a gift tax return. The value of your gifts begins to accumulate over time, and when you have eventually gifted over $1,000,000, you must pay gift tax. Remember that gift tax is always paid by the gifter, not the recipient. You don't owe any gift tax until your lifetime gifting exceeds a million dollars.
If you want more information about this, check out IRS Publication 950, available at www.irs.gov.
Be prosperous!
Peggy
Peggy Doviak
Showing posts with label taxes. Show all posts
Showing posts with label taxes. Show all posts
Tuesday, March 9, 2010
Friday, March 5, 2010
Income Tax Tips
Here are a few tips when you complete and submit your income taxes.
1. If you aren't going to be finished in time, file for an extension. You will owe interest, then, on any unpaid liability, but you won't owe penalties, as well.
2. Use a CPA or tax preparation software to help you avoid tax errors. If your return is complicated, the CPA may well save you more money than his or her fee, giving you a net profit.
3. If you choose to go it alone, get everything organized well in advance to help you when you actually begin completing the return.
4. If you calculate your own taxes or use software, proofread everything once you have entered it, just to avoid typos. The IRS knows what was reported, and they will check to make sure the numbers match.
5. Use the Internal Revenue Service website www.irs.gov to help you check regulations.
6. SIGN YOUR RETURN! It's a leading cause of audits!!!
Be prosperous!
Peggy
1. If you aren't going to be finished in time, file for an extension. You will owe interest, then, on any unpaid liability, but you won't owe penalties, as well.
2. Use a CPA or tax preparation software to help you avoid tax errors. If your return is complicated, the CPA may well save you more money than his or her fee, giving you a net profit.
3. If you choose to go it alone, get everything organized well in advance to help you when you actually begin completing the return.
4. If you calculate your own taxes or use software, proofread everything once you have entered it, just to avoid typos. The IRS knows what was reported, and they will check to make sure the numbers match.
5. Use the Internal Revenue Service website www.irs.gov to help you check regulations.
6. SIGN YOUR RETURN! It's a leading cause of audits!!!
Be prosperous!
Peggy
Tuesday, March 2, 2010
Capital Gain Tax
If you hold investments in a taxable account, you have to pay capital gains tax on them. If you just hold investments in an IRA, you don't pay capital gains each year. Instead, you will pay income tax when you take a distribution. Further, if you are currently in a very low tax bracket, you might not owe capital gains tax, but this rule is expected to change shortly, so don't count on it!
Capital gains tax has two different rates. If you hold an investment a year and a day, your rate currently is 15%. I have heard that in 2011, the rate may increase to 20%, which is still likely lower than your income tax rate. If you sell an investment in less than a year, you pay tax at your nominal income tax rate. This difference is one reason why long-term investment strategies might result in lower taxes.
Be prosperous!
Peggy
Capital gains tax has two different rates. If you hold an investment a year and a day, your rate currently is 15%. I have heard that in 2011, the rate may increase to 20%, which is still likely lower than your income tax rate. If you sell an investment in less than a year, you pay tax at your nominal income tax rate. This difference is one reason why long-term investment strategies might result in lower taxes.
Be prosperous!
Peggy
Monday, March 1, 2010
'Cause I'm the Tax Man!
As you know, April 15 is the deadline for filing your taxes (or an extension if you just can't make it). I thought today I'd define a few terms that are confusing. First, is your "nominal bracket." Well, this always makes me think that somehow, they want me to believe the bracket is low--that it's nominal. That's not what it means. We have a series of tax rates that increase as you earn more money. Everyone begins by paying the lowest income tax rate, until they earn more money than applies to that bracket. Then, they fill the next lowest bracket. They continue this process until they run out of money in a certain bracket. This bracket is called their "nominal bracket," and it's the highest bracket the person pays. Any additional dollar they earn will be taxed at this bracket, until eventually they might move to an even higher bracket. As a result, if you take your income and multiply it by your nominal bracket, you will get a tax liability much higher than you actually owe. The tax tables and income levels are available on irs.gov. (If I reproduced them here, you would all fall asleep!) We'll cover more terms tomorrow.
Be Prosperous!
Peggy
Be Prosperous!
Peggy
Friday, February 26, 2010
Differences can be Taxing
Sometimes, as I am talking with clients, I realize that there is great confusion over the different kinds of taxes that we pay. Tonight is a brief overview of tax classifications:
Sales Tax--the taxes we pay when we buy something
Income Tax--the taxes we pay on money we earned
Capital Gains Tax--the taxes we pay on passive income, or income we receive but don't actually do anything to earn. Examples of this are bank interest or gains on a mutual fund.
Transfer Tax--some of us will live our whole lives and never pay transfer tax, but it can still be a huge issue for those who owe it. Transfer tax is paid when large amounts of money are transferred from one person to another. Gift tax, paid by the person giving the gift, is one example. Estate tax is another example. A more rare type is generation skipping transfer tax, when a grandparent attempts to avoid gift tax by giving money directly to a grandchild, rather than giving it to the child, who would then give it to his child (causing it to be taxed twice).
April 15 is our deadline to pay income tax, and we'll talk more about that on Monday.
Enjoy the end of the Olympics, and Be Prosperous!
Peggy
Sales Tax--the taxes we pay when we buy something
Income Tax--the taxes we pay on money we earned
Capital Gains Tax--the taxes we pay on passive income, or income we receive but don't actually do anything to earn. Examples of this are bank interest or gains on a mutual fund.
Transfer Tax--some of us will live our whole lives and never pay transfer tax, but it can still be a huge issue for those who owe it. Transfer tax is paid when large amounts of money are transferred from one person to another. Gift tax, paid by the person giving the gift, is one example. Estate tax is another example. A more rare type is generation skipping transfer tax, when a grandparent attempts to avoid gift tax by giving money directly to a grandchild, rather than giving it to the child, who would then give it to his child (causing it to be taxed twice).
April 15 is our deadline to pay income tax, and we'll talk more about that on Monday.
Enjoy the end of the Olympics, and Be Prosperous!
Peggy
Wednesday, February 24, 2010
Death and Taxes
Nothing is certain but the title of this blog, or so people say. Well, it's almost March, and tax day is a mere 45 + days away! I thought we'd talk about tax issues for awhile, hopefully giving you information before you have to file.
Tonight, I want to share my favorite tax research website with you, www.irs.gov. Yes, it's the same IRS you think it is, but the website is well organized, user friendly, and full of good, free information. The IRS publications are great, short books that provide information on different tax topics. Two of my favorites are publication 590, about IRAs and publication 560, about small business retirement plans. There is also a great small business page.
Other sources are available, but you want to be careful that they are accurate. Only trust sources that give you IRS references, like publications or code sections.
Be Prosperous!
Peggy
Tonight, I want to share my favorite tax research website with you, www.irs.gov. Yes, it's the same IRS you think it is, but the website is well organized, user friendly, and full of good, free information. The IRS publications are great, short books that provide information on different tax topics. Two of my favorites are publication 590, about IRAs and publication 560, about small business retirement plans. There is also a great small business page.
Other sources are available, but you want to be careful that they are accurate. Only trust sources that give you IRS references, like publications or code sections.
Be Prosperous!
Peggy
Thursday, January 28, 2010
Tools and Taxes
Greetings from the Arctic! As I sit working, ice is accumulating on all the trees, the grass, the now, finally, the roads. How happy am I that technology lets me work wherever I am?
No, I'm not talking about hammers and screwdrivers today! I'm talking about the tax impact of different kinds of accounts you can use to save for retirement.
Basically, the tax treatment of your investment accounts take one of three forms, and they each have advantages and disadvantages.
1. You put the money in the account in pre-tax dollars. This means that you don't pay any tax on the money until you withdraw it during retirement. The idea is that you have more money to grow for all those years, and that helps your compound rate of return. (We talked about that a couple of days ago.) Then, once you are in retirement, you are supposed to be in a lower tax bracket, so when you take the withdrawal, you pay fewer taxes than if you had paid taxes back when you were working. This is the most common way to save for retirement. The only thing to ask yourself is whether or not you believe you are in a higher tax bracket today than where you will be in retirement. And this assumes that you do, in fact, retire. I'm beginning to think that for some people, retirement is actually no longer a major goal. Of course, health issues can interfere, but I really believe this demographic is changing quickly.
2. You put the money in a Roth IRA in after-tax dollars. If you wait until you are 59 1/2 and the account has been open for five years, when you take the distributions, you pay no tax. Withdrawals are totally tax free. I love Roth IRAs and will be devoting an entire blog to them in the near future.
3. You put the money in a normal, taxable account in after-tax dollars. Then, rather than paying income tax, you pay capital gains on the realized gains of each investment. A realized gain is a position you actually sold for a profit, not a position that you still hold. Also, if the investment pays any dividends, these are also taxable. Capital gains tax takes two forms: short term and long term. Short term capital gains are for those investments you have held less than a year. The short term capital gain rate is your ordinary income tax bracket. Long term capital gains are for those investments you have held longer than a year. Capital gains tax rates have been very low and are expected to increase, probably in 2011, but only to 20% on most investment portfolios. The advantage to this kind of account is the access to the funds and the lower tax bracket than ordinary income taxes.
What to do? I can't tell you. But I would suggest looking at your financial situation and deciding whether or not you would be wise to diversify the tax treatment of your invested money.
Be prosperous!
Peggy
No, I'm not talking about hammers and screwdrivers today! I'm talking about the tax impact of different kinds of accounts you can use to save for retirement.
Basically, the tax treatment of your investment accounts take one of three forms, and they each have advantages and disadvantages.
1. You put the money in the account in pre-tax dollars. This means that you don't pay any tax on the money until you withdraw it during retirement. The idea is that you have more money to grow for all those years, and that helps your compound rate of return. (We talked about that a couple of days ago.) Then, once you are in retirement, you are supposed to be in a lower tax bracket, so when you take the withdrawal, you pay fewer taxes than if you had paid taxes back when you were working. This is the most common way to save for retirement. The only thing to ask yourself is whether or not you believe you are in a higher tax bracket today than where you will be in retirement. And this assumes that you do, in fact, retire. I'm beginning to think that for some people, retirement is actually no longer a major goal. Of course, health issues can interfere, but I really believe this demographic is changing quickly.
2. You put the money in a Roth IRA in after-tax dollars. If you wait until you are 59 1/2 and the account has been open for five years, when you take the distributions, you pay no tax. Withdrawals are totally tax free. I love Roth IRAs and will be devoting an entire blog to them in the near future.
3. You put the money in a normal, taxable account in after-tax dollars. Then, rather than paying income tax, you pay capital gains on the realized gains of each investment. A realized gain is a position you actually sold for a profit, not a position that you still hold. Also, if the investment pays any dividends, these are also taxable. Capital gains tax takes two forms: short term and long term. Short term capital gains are for those investments you have held less than a year. The short term capital gain rate is your ordinary income tax bracket. Long term capital gains are for those investments you have held longer than a year. Capital gains tax rates have been very low and are expected to increase, probably in 2011, but only to 20% on most investment portfolios. The advantage to this kind of account is the access to the funds and the lower tax bracket than ordinary income taxes.
What to do? I can't tell you. But I would suggest looking at your financial situation and deciding whether or not you would be wise to diversify the tax treatment of your invested money.
Be prosperous!
Peggy
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