- What Is a Liquidating Dividend and How Are They Taxed?
A liquidating dividend, unlike regular dividends that are paid from a company’s profits, is distributed from the company’s capital base during the process of winding down operations or liquidating assets. This dividend returns part of the investor’s original investment rather than a portion of earnings. Liquidating dividends are taxed differently from regular dividends, as they… read more…
- What Is the Phantom Tax?
Phantom taxation occurs when individuals or businesses are required to pay taxes on income they haven’t actually received. Phantom income can arise with investments such as partnerships, real estate or mutual funds when taxable income is reported but not distributed to the taxpayer. Though the income is phantom, the tax liability is real and must… read more…
- Guide to Capital Gains Taxes on Commercial Properties
Capital gains tax on commercial property depends on several factors. Factors include how long the property was held and the taxpayer’s income level. When a commercial property is sold for more than its original cost basis, the profit, or capital gain, is subject to taxation. Knowing how these gains are calculated can help you identify… read more…
- Are Employee Stock Purchase Plans (ESPP) Pre-Tax?
Employee stock purchase plans (ESPPs) are benefits offered by companies to help employees invest in company stock at a discount. These plans are designed to encourage ownership and align employee interests with those of the company. Understanding the tax treatment of ESPP contributions can help employees make the most of this benefit. Specifically, many may… read more…
- 4 Tax Benefits of Using an LLC for Your Rental Property
Forming a limited liability company (LLC) can be a smart move for real estate investors seeking both tax benefits and legal protection. LLCs offer pass-through taxation, allowing profits to flow directly to your personal tax return and potentially reducing your overall tax burden. Investors may also qualify for a special tax deduction available to LLCs.… read more…
- What Are the Tax Consequences of Inheriting a CD?
If you inherit or leave a certificate of deposit (CD), some taxes may apply. The CD’s principal passes without income tax, but any interest earned after death is taxed as ordinary income to the heir. Federal estate tax only applies if the estate exceeds the exemption, and there is no federal inheritance tax, though some… read more…
- Can Short-Term Capital Losses Offset Long-Term Capital Gains?
Understanding this aspect of tax strategy is crucial for investors looking to optimize their financial outcomes. In essence, the IRS allows taxpayers to use capital losses to offset capital gains, which can potentially reduce the amount of tax owed. Short-term capital losses, which occur when an asset is sold at a loss within a year… read more…
- Are Health Insurance Premiums Tax Deductible When You Retire?
As you transition into retirement, understanding the financial implications of your health insurance premiums becomes increasingly important. One common question that arises is whether these premiums are tax deductible. The answer can significantly impact your financial planning and tax strategy during your golden years. Generally, health insurance premiums can be deductible if you itemize your… read more…
- I’m Going to Get $3,300 per Month From Social Security. How Can I Reduce My Taxes?
Approximately 40% of households pay taxes on their Social Security benefits, according to the Social Security Administration. If you do owe taxes on your benefits, managing them effectively could save you a lot of money. If you need help planning for Social Security or taxes in retirement, consider working with a financial advisor. However, there… read more…
- How to Avoid Overpaying Your Taxes
Getting a tax refund can seem like a financial windfall, but it means you’ve overpaid your taxes and given the government an interest-free loan. While some taxpayers prefer to receive a lump sum refund, others view tax overpayments as a missed opportunity to have their money work for them. That’s because the extra money paid… read more…
- What Are the Imputed Interest Tax Rules?
Imputed interest rules can turn what seems like a simple act of generosity into a taxable event. These IRS regulations require interest to be calculated and reported on certain transactions, even when no interest is formally charged. The goal is to ensure fair taxation on arrangements involving deferred payments or below-market interest rates. Because tax… read more…
- What Is a Gift Loan and How Does It Work?
A gift loan is essentially a loan with an interest rate well below the market average, or even no interest at all, which can be a strategic way to support family members financially or for estate planning purposes. As beneficial as these loans may appear, with their potential tax benefits and flexible repayment options, they… read more…
- What Is Net Investment Income and How Is It Taxed?
Net investment income (NII) is defined as the profit gained from investments after deducting certain related expenses. This includes various forms of income such as interest, dividends, rental income and capital gains. It’s essential to know not just what comprises NII, but also how it’s calculated and the tax implications it carries, especially for those… read more…
- 9 Common Tax Mistakes and How to Avoid Them
The more money you make, the higher your tax liability could be. And making a mistake in your filing can end up costing you more in fees and penalties. Here’s a roundup of common tax mistakes that could cost you money this tax season. A financial advisor who specializes in tax planning could also help… read more…
- How to Make a Charitable Gift From Your IRA
Each year, you can make a tax-free charitable gift from your IRA known as a qualified charitable distribution (QCD). These distributions allow you to meet your annual required minimum distribution without paying taxes on that amount. To do so, you must transfer the assets from your IRA to the charity directly. The amount you can… read more…
- Do I Have to Worry About Taxes if I Loan a Family Member $45,000?
It’s common for family members to lend money amongst themselves, and many choose to charge less than market interest rates as a favor to loved ones. However, the IRS does care about these transactions so there are some things to think about as you’re planning such a loan. While the IRS does afford a break… read more…
- How Does the IRS Verify Cost Basis?
The IRS expects taxpayers to keep the original documentation for capital assets, such as real estate and investments. It uses these documents, along with third-party records, bank statements and published market data, to verify the cost basis of assets. This is an issue that will come up if the IRS has reason to believe that… read more…
- Do I Have to Worry About the Gift Tax If I Give My Son $75,000 Toward a Down Payment?
Unless you have given away more than $13.99 million in your lifetime, a $75,000 gift will not trigger the federal gift tax. Using this for a down payment also does not affect the result. A financial advisor with estate planning expertise can help you navigate the gift and estate taxes. Connect with a fiduciary advisor… read more…
- What Is a Graduated Income Tax?
A graduated income tax is the same thing as a progressive income tax system, where you pay a larger percentage of tax on your income as you earn more money. This system works differently from the flat tax system, in which everyone gets taxed at the same percentage of their income. Here’s a breakdown of… read more…
- What Is a Flat Income Tax and How Does It Work?
A flat income tax system is one where everyone is taxed at the same rate, no matter how much money they earn throughout the year. Many people argue that it is a fair way to tax everyone in an equal manner because an alternative progressive system sees you paying a higher percentage of tax as… read more…
- My Dad Left Me $450k in an IRA, But I’m in the 32% Tax Bracket. How Should I Structure My Withdrawals?
There are a couple of different sets of rules around inherited IRAs and you’re subject to theleast flexible. While there are more options for a spouse or someone who’s chronically ill ordisabled, a minor child, or someone not more than 10 years younger than the deceased IRAowner, you have just 10 years to withdraw the… read more…
- How to Avoid Prohibited Transactions With Your Self-Directed IRA
A self-directed IRA is a retirement savings plan that allows you to decide what investments will be made. These accounts can hold a variety of investments and provide opportunities that you may not have with other accounts. However, there are certain rules you must follow with a self-directed IRA, like the prohibited transactions rule. Violating… read more…
- I’m Selling My House to Downsize for Retirement, and I’ll Net $620k. Do I Have to Pay Capital Gains Taxes?
When you sell your primary home, the IRS allows you to exclude a significant portion of the profit from your taxes. This exclusion – $250,000 for single filers and $500,000 for married, joint filers – is large enough that many sellers don’t end up paying federal taxes on the capital gains from a home sale.… read more…
- What Documents Do I Need to File My LLC Taxes?
If you are the owner of an LLC and want to file the correct tax return for your business, the job starts with gathering the right documents. You’ll need records to validate all your business’s income, deductions, expenses and other figures reported across various forms. The tax forms you’ll use vary depending on whether you… read more…
- How to Reduce Your Tax Liability on a Roth IRA Conversion
Converting your current retirement accounts to a Roth IRA is typically a very tax-efficient strategy. It can help lower your lifetime taxes significantly. However, it does come with a large up-front bill. While there’s no way to avoid conversion taxes completely, you can restructure them to make this much more manageable. By staggering out your… read more…