38:["$","$L39",null,{"category":"$3a","relatedArticles":[{"id":"cG9zdDoyNzA3MDA=","databaseId":270700,"postId":270700,"author":{"node":{"id":"dXNlcjoz","databaseId":3,"userId":3,"avatar":{"url":"https://secure.gravatar.com/avatar/47938df052bf0a5283bd6b77ab786737?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"SmartAsset employs a team of writers and editors with years of experience in the editorial, news and personal finance industries. Some staff members also hold the Certified Educator in Personal Finance (CEPF®) designation from the Institute for Financial Literacy.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"Michael","fullName":"SmartAsset Team","lastName":"Carvin","name":"SmartAsset Team","postCount":{"pageInfo":{"offsetPagination":{"total":1586,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"mcarvin","__typename":"User"},"__typename":"NodeWithAuthorToUserConnectionEdge"},"categories":{"nodes":[{"id":"dGVybToxOTUwOQ==","children":{"nodes":[],"__typename":"CategoryToCategoryConnection"},"databaseId":19509,"categoryId":19509,"link":"https://smartasset.com/tax-policy/articles","name":"Tax Policy","postCount":{"pageInfo":{"offsetPagination":{"total":94,"__typename":"OffsetPaginationPageInfo"},"__typename":"CategoryToPostConnectionPageInfo"},"__typename":"CategoryToPostConnection"},"slug":"tax-policy","ancestors":{"nodes":[{"name":"Taxes","slug":"taxes","__typename":"Category"}],"__typename":"CategoryToAncestorsCategoryConnection"},"parent":{"node":{"name":"Taxes","id":"dGVybToxMzY=","slug":"taxes","__typename":"Category"},"__typename":"CategoryToParentCategoryConnectionEdge"},"__typename":"Category"}],"__typename":"PostToCategoryConnection"},"content":"$3b","date":"2024-12-10T12:19:50","excerpt":"

A protective tariff is a type of tax imposed on imported goods to make them more expensive compared to domestic products. Governments use protective tariffs to shield local industries from foreign competition, often with the aim of encouraging the growth of domestic businesses. By increasing the price of imports, protective tariffs make locally produced goods […]

\n","featuredImage":{"id":"cG9zdDoyNzA3MzI=","databaseId":270732,"altText":"A close-up of a dictionary entry for the word \"tariff.\"","date":"2024-12-10T10:44:17","fileSize":139361,"mimeType":"image/jpeg","modified":"2024-12-10T11:24:54","sourceUrl":"https://smartasset.com/wp-content/uploads/sites/2/2024/12/iStock-944714840-modified-4f08ebf5-c5b4-4bfa-96ed-2091cb92fab6.jpg","__typename":"MediaItem"},"modified":{"datetime":"2024-12-10","readable":"December 10, 2024","readableExtended":"December 10, 2024, 12:19pm ET"},"multipleBylinesByRole":{"editedBy":{"id":"dXNlcjo3Ng==","databaseId":76,"userId":76,"avatar":{"url":"https://secure.gravatar.com/avatar/ff1d12e3cebfaa1fe2b25aef26174d63?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Becca Stanek is an experienced writer and editor who has worked in the personal finance space since 2017. Her work has appeared in a variety of publications, including SmartAsset, The Week, LendingTree, SoFi, Credible, CNN Underscored, Forbes, Policygenius, Buy Side from WSJ and Atticus, among others. 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","

A financial advisor can help you prepare your portfolio for economic policy changes, like new tariffs. Connect with a fiduciary advisor today.

","

How Protective Tariffs Work

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Protective tariffs operate by raising the cost of imported goods through an additional tax, making those goods less competitive against domestically produced items. When a tariff is imposed, the importing company must pay an extra fee to bring foreign products into the country. This cost is often passed on to consumers, leading to higher retail prices for imported items compared to domestic alternatives. As a result, protective tariffs reduce the competitiveness of imports, which can benefit local manufacturers.

","

The mechanics of protective tariffs involve government regulations and international trade agreements. Governments may set tariff rates selectively, targeting specific industries that are deemed vulnerable or important for national economic stability. For example, sectors like steel, agriculture or textiles are often protected to maintain domestic production capacity. Protective tariffs can be part of broader economic strategies, including efforts to promote employment, foster local innovation or achieve self-sufficiency in certain industries.

","

While these tariffs can boost domestic production, they may also lead to retaliatory measures from other countries, affecting international trade relationships. Even though the intended effect is a more favorable market environment for local producers, allowing them to compete without being undercut by cheaper imports, the overall impact of protective tariffs can vary based on global economic dynamics.

","

How Protective Tariffs Impact Financial Markets

","

Protective tariffs can create ripple effects throughout financial markets, affecting both investors and their portfolios.

","

When tariffs are instituted, they can lead to increased costs for companies reliant on imported materials, which in turn can reduce profit margins. Investors might see a drop in stock prices for these companies, particularly in sectors like manufacturing, technology and consumer goods. On the other hand, companies that produce domestically and face less competition from imports may experience stock price gains, as their market position strengthens.

","

For average investors, tariffs can introduce volatility into the markets, leading to uncertainty in portfolio performance. In response, investors may consider diversifying their holdings to include industries that benefit from tariffs, such as domestic producers or sectors less impacted by international trade tensions. Additionally, focusing on companies with strong supply chain adaptability can help mitigate risks.

","

Industries That Benefit from Protective Tariffs

","

Protective tariffs are often designed to bolster specific domestic industries by shielding them from foreign competition. The sectors that typically benefit from these measures are those considered vital for national economic stability or growth.

","

Here are some of the key industries that tend to benefit from protective tariffs:

","

Steel and aluminum: These industries are often targeted for protection due to their importance in infrastructure and defense.
Agriculture: Farmers benefit from tariffs that limit cheaper agricultural imports, helping to maintain competitive pricing for domestic produce.
Textiles and apparel: Protective tariffs can help domestic textile manufacturers compete against low-cost foreign imports, supporting local jobs and production.
Automotive: The automotive sector can benefit from tariffs that make foreign vehicles more expensive, thereby encouraging consumers to buy domestically produced cars.
Technology and electronics: Certain high-tech sectors may benefit from tariffs that limit foreign competition, particularly when governments aim to foster innovation and local production capacity.

","

Industries That Suffer from Protective Tariffs

","

","

While some industries benefit from protective tariffs, others experience negative consequences. These sectors often rely on imported goods or materials and are adversely impacted by the increased costs.

","

Here are some of the key industries that tend to suffer from protective tariffs:

","$4d","

Do Tariffs Actually Work?

","

The effectiveness of tariffs varies based on the context and economic environment.

","

In some cases, protective tariffs have successfully nurtured fledgling industries by shielding them from intense foreign competition. For instance, tariffs helped the U.S. steel industry regain stability and preserve jobs during periods of economic distress. By reducing competition, tariffs allowed local producers to maintain operations and invest in growth.

","

However, there are also instances where tariffs have done more harm than good. They can lead to increased consumer prices, supply chain disruptions and retaliatory tariffs from trade partners. For example, the U.S.-China trade war saw both nations impose tariffs during the first Trump administration, leading to higher costs for businesses and consumers on both sides. In such scenarios, tariffs can escalate tensions and reduce overall economic efficiency, hurting both industries and consumers.

","

The tariffs that were instituted during Donald Trump’s first term in office (which were largely maintained by President Joe Biden) amounted to nearly $80 billion in new taxes on American consumers – “one of the largest tax increases in decades,” according to the Tax Foundation. Those tariffs, which were placed on approximately $380 billion in goods, are expected to reduce the long-term gross domestic product of the U.S. by 0.2% and result in a net loss of 142,000 jobs, the Tax Foundation estimates.

","

Ultimately, the success of tariffs depends on their implementation, the specific economic landscape and the reactions of trade partners.

","

Bottom Line

","

","

Protective tariffs are complex tools used to support domestic industries by making imports less competitive. While they can benefit certain sectors and boost local production, they also risk increasing consumer prices and sparking trade disputes. The effectiveness of tariffs ultimately depends on their implementation and the broader economic environment.

","

Tips for Navigating Big Policy Changes

","$4e","

Photo credit: ©iStock.com/Devonyu, ©iStock.com/Olivier Le Moal, ©iStock.com/EXTREME-PHOTOGRAPHER

"],"experts":null,"link":"/tax-policy/protective-tariffs","modifiedIso":"2024-12-10T12:19:50.000Z","published":{"datetime":"2024-12-10","readable":"December 10, 2024","readableExtended":"December 10, 2024, 12:19pm ET"},"publishedIso":"2024-12-10T12:19:50.000Z","shareInfo":{"title":"What Is a Protective Tariff and How Does It Work?","origin":"/taxes/protective-tariffs"},"isNewsArticle":true},{"id":"cG9zdDoyNDEwNjA=","databaseId":241060,"postId":241060,"author":{"node":{"id":"dXNlcjoz","databaseId":3,"userId":3,"avatar":{"url":"https://secure.gravatar.com/avatar/47938df052bf0a5283bd6b77ab786737?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"SmartAsset employs a team of writers and editors with years of experience in the editorial, news and personal finance industries. Some staff members also hold the Certified Educator in Personal Finance (CEPF®) designation from the Institute for Financial Literacy.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"Michael","fullName":"SmartAsset Team","lastName":"Carvin","name":"SmartAsset Team","postCount":{"pageInfo":{"offsetPagination":{"total":1586,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"mcarvin","__typename":"User"},"__typename":"NodeWithAuthorToUserConnectionEdge"},"categories":{"nodes":[{"id":"dGVybToxOTUwNg==","children":{"nodes":[],"__typename":"CategoryToCategoryConnection"},"databaseId":19506,"categoryId":19506,"link":"https://smartasset.com/tax-planning/articles","name":"Tax Planning","postCount":{"pageInfo":{"offsetPagination":{"total":130,"__typename":"OffsetPaginationPageInfo"},"__typename":"CategoryToPostConnectionPageInfo"},"__typename":"CategoryToPostConnection"},"slug":"tax-planning","ancestors":{"nodes":[{"name":"Taxes","slug":"taxes","__typename":"Category"}],"__typename":"CategoryToAncestorsCategoryConnection"},"parent":{"node":{"name":"Taxes","id":"dGVybToxMzY=","slug":"taxes","__typename":"Category"},"__typename":"CategoryToParentCategoryConnectionEdge"},"__typename":"Category"}],"__typename":"PostToCategoryConnection"},"content":"$4f","date":"2024-03-29T07:30:00","excerpt":"

\n","featuredImage":{"id":"cG9zdDoyNDExNTA=","databaseId":241150,"altText":"A woman files her tax return and learns that she paid the right amount of taxes during the previous year.","date":"2024-03-13T12:18:31","fileSize":31353,"mimeType":"image/jpeg","modified":"2024-03-28T17:25:05","sourceUrl":"https://smartasset.com/wp-content/uploads/sites/2/2024/03/iStock-1197483793-modified-24fa5cd3-79f6-4e90-8de4-68bffa5eace6.jpg","__typename":"MediaItem"},"modified":{"datetime":"2024-3-28","readable":"March 28, 2024","readableExtended":"March 28, 2024, 5:26pm ET"},"multipleBylinesByRole":{"editedBy":{"id":"dXNlcjoxMjA=","databaseId":120,"userId":120,"avatar":{"url":"https://secure.gravatar.com/avatar/9be66d92947dd5b190bf90987b5e85f2?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Patrick Villanova is an Editor for SmartAsset, producing comprehensive personal finance content to help consumers make better decisions with their money. 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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 to the IRS could be invested or saved throughout the year, generating interest instead of sitting idly in government coffers. Avoiding a tax overpayment often comes down to figuring out the correct amount that should be withheld from your paycheck.

","

A financial advisor with tax expertise can help you optimize your tax strategy and potentially save you money in the long run. Connect with a fiduciary advisor today.

","

How Do You End Up Overpaying Your Taxes?

","

Taxes are a complex and often daunting aspect of financial management. Many individuals find themselves inadvertently overpaying on their taxes due to a lack of understanding or attention to detail regarding their tax obligations. The common causes of overpayment can range from failing to adjust withholdings after significant life events to misunderstanding the tax code.

","

For instance, getting married can impact your federal tax bracket and available deductions, while the arrival of a new child might qualify you for additional credits, such as the Child Tax Credit. If these life events are not accounted for by adjusting tax withholdings, one could end up paying more taxes than necessary.

","

Furthermore, income changes from job loss, retirement or a transition to part-time work could also send you into a lower tax bracket and result in a tax overpayment. Staying informed and managing withholdings are both paramount in avoiding overpayment of taxes.

","

Strategies to Avoid Tax Overpayment

","

","

Considering the time value of money, money at your disposal now is inherently more valuable than the same amount in the future due to its potential earning capacity. Consequently, overpaying taxes is akin to lending the government money but receiving no interest for the loan. Doing so deprives yourself of the earnings that could have been accumulated had you saved or invested the extra money you paid the IRS.

","

To prevent overpayment of taxes, adjusting your tax withholdings is a wise decision. Tax withholdings refer to the portion of your income that your employer deducts from your paycheck to cover your federal and state income taxes, as well as other applicable taxes like Social Security and Medicare. These income tax withholdings are based on information provided on your W-4 form, which you complete when starting a new job or whenever your personal or financial circumstances change.

","

Tools like the IRS tax withholding estimator are invaluable in helping estimate the correct amount to withhold from your paycheck. This tool considers factors such as income, deductions and tax credits to help you make an informed decision. By accurately adjusting your withholdings, you can avoid overpaying taxes and giving the government an interest-free loan.

","

Life events such as marriage, divorce or receiving an inheritance can significantly alter your tax situation. It’s important to reassess your withholdings periodically – not just during these events – to ensure they reflect your current financial circumstances.

","

Meanwhile, itemized deductions, such as mortgage interest, property taxes and charitable contributions, as well as tax credits like the earned income tax credit (EITC) and child tax credit, can lower your taxable income and affect your tax withholdings. Reviewing and updating your deductions and credits can ensure accurate withholding amounts.

","

Lastly, stay informed about changes to tax laws and regulations that may affect your withholdings. Tax reforms, adjustments to tax brackets, and updates to withholding tables can impact the amount of tax withheld from your paycheck.

","

What Happens If You Overpay?

","

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When the IRS identifies this overpayment during the processing of a tax return, the usual course of action is to issue a refund for the excess amount.

","

The IRS communicates with taxpayers about overpayments of estimated taxes through the CP24E notice, an official statement that outlines the overpayment on a tax return and the subsequent adjustments made.

","

Upon receiving the CP24E notice, taxpayers have the opportunity to review the changes and ensure that the final assessment aligns with their financial records.

","

What to Do With Your Refund

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If you do end up overpaying your taxes, you’ll have several different options for receiving this reimbursement from the IRS. You can:

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Apply a portion or all of your refund to the following year’s tax return
Receive your refund via direct deposit
Receive your refund in a check
Purchase Series I Savings Bonds with your refund

","

Bottom Line

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A big tax refund can seem like a financial boon, but it likely means that you’ve overpaid your taxes and forfeited the opportunity to put that extra money to work. To avoid this, consider updating your tax withholdings and revisiting your allowances following major life events.

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Tax Season Tips

","$66","

Photo credit: ©iStock.com/ljubaphoto, ©iStock.com/JJ Gouin, ©iStock.com/adamkaz

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\n","featuredImage":{"id":"cG9zdDoyNzAzMzA=","databaseId":270330,"altText":"A taxpayer reviewing form W-8BEN.","date":"2024-12-05T12:02:15","fileSize":479864,"mimeType":"image/jpeg","modified":"2024-12-05T12:02:55","sourceUrl":"https://smartasset.com/wp-content/uploads/sites/2/2024/12/iStock-982702378.jpg","__typename":"MediaItem"},"modified":{"datetime":"2024-12-5","readable":"December 5, 2024","readableExtended":"December 5, 2024, 12:05pm ET"},"multipleBylinesByRole":{"editedBy":{"id":"dXNlcjo5Mw==","databaseId":93,"userId":93,"avatar":{"url":"https://secure.gravatar.com/avatar/04483497dbd73f712b504e401c9c7d22?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Mark Henricks has reported on personal finance, investing, retirement, \r\nentrepreneurship and other topics for more than 30 years. His freelance \r\nbyline has appeared on CNBC.com and in The Wall Street Journal, The New York Times, The Washington Post, Kiplinger’s Personal Finance and other leading publications. 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The W-8BEN form is an IRS document required for non-U.S. individuals who receive interest, dividends or other income from U.S. sources. The form, also known as the Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting, enables nonresident aliens to confirm their foreign status to the tax collecting agency. It is not sent to the IRS but is submitted to financial institutions, which use it to determine the correct withholding rate for income. This rate as set by tax treaties between the U.S. and their country of residence is often lower than the default 30% withholding, so using it can save money. A financial advisor who specializes in tax planning could help you create a plan to lower your tax liability.

","

What Is a W-8 Form?

","

The W-8 Form is a set of several forms that the IRS uses to document the tax status of foreign people and entities that receive income originating in the United States. These include the W-8BEN for individuals and W-8BEN-E for entities. Others such as W-8 ECI, W-8 EXP and W-8 IMY cater to more specific situations involving foreign income.

","

The correct W-8 form is required for any nonresident alien who gets any income from a U.S. source. Examples of income that could require a W-8BEN filing include interest on bank accounts or bonds, dividends on stocks, rental income from real estate, annuity payments or royalties.

","

The forms certify the income recipient’s tax residency and are necessary to allow financial institutions to perform proper withholding. Without such a form in hand, a US bank or other institution has to apply the maximum withholding rate of 30% to any income earned by a nonresident alien.

","

This is often important because many tax treaties specify a lower rate. In these cases, the W-8 Form can prevent overpaying taxes. It’s worth keeping in mind that, if withholding is overpaid due to lack of a W-8 Form, it may be difficult for a nonresident alien who doesn’t file a US tax return to get the money back.

","

About the W-8BEN Form

","

","

The W-8BEN form is the one to use if you are an individual foreign taxpayer who needs to certify foreign status. A private investor who owns U.S. shares of stock that pay dividends, for example, would use this version.

","

To complete the W-8BEN, you will need to provide personal identification details, such as name, country of citizenship and foreign tax identification number (TIN). Some countries, including Australia and Japan, do not issue TINs. If you are unable to provide a TIN for some reason, such as because your country does not issue them, you can explain the situation to your financial institution and file the W-8BEN without a TIN.

","

Bear in mind that the purpose of the W-8BEN is to identify any specific tax treaty provisions that reduce withholding. Filing the W-8BEN correctly can reduce an individual’s overall tax burden by ensuring that withholding follows U.S. tax regulations and agreements with their home country.

","

How to File a W-8BEN

","

Filing a W-8BEN form is a straightforward process that requires gathering key personal information and submitting it to the income payer.

","

First, download the form directly from the IRS website to ensure you are using the correct version. The form must be completed in English, including details like name, country of citizenship, and foreign tax identification number.

","

After completing the form, individuals should sign and date it. Typically, the completed W-8BEN is then submitted to the financial institution or U.S. payer, not the IRS. This ensures that the payer has accurate documentation to apply the correct withholding rate. It’s also advisable to keep a copy of the completed form for personal records.

","

The W-8BEN is generally valid for three years, after which a new form must be submitted if required.It may be necessary to file a new form sooner if circumstances change, such as you move to the United States or to a different foreign country.

","

Consequences of Not Filing a W-8BEN

","

Failing to file a W-8BEN form can be a costly mistake for foreign individuals receiving U.S. income. Without a completed W-8BEN on file, U.S. payers typically have to apply the maximum withholding tax rate of 30% on any income paid to the individual. Tax treaties often specify much lower rates, so it’s usually in the individual’s best interest to pay taxes using the appropriate treaty rates.

","

Failing to submit a W-8BEN can also cause payments to be delayed or withheld if the payer is uncertain of the appropriate tax treatment. It can also complicate claiming a tax refund for an overpayment, as the IRS requires proper documentation to substantiate a claim for reduced withholding.

","

Basically, filing the W-8BEN is necessary to comply with U.S. tax regulations. Without it, no formal record of the taxpayer’s foreign status exists. That can lead to confusion and possibly increased scrutiny from the IRS.

","

Bottom Line

","

","

The W-8BEN form helps financial institutions determine the appropriate tax treatment for foreign individuals receiving income from U.S. sources. By completing and submitting this form, individuals can potentially reduce their tax withholding and avoid complications related to overpayment or delayed income. Not filing the form is a violation of U.S. tax regulations, and could cost a taxpayer money.

","

Tax Planning Tips

","$7e","

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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 be paid in cash. This can significantly impact financial planning and cash flow management. Fortunately, there are a number of strategies that avoid the phantom tax or mitigate its effects.

","

A financial advisor can help you minimize your tax liability, optimize deductions and plan for future tax obligations.

","

How the Phantom Tax Works

","

The phantom tax is a tax owed on income that has not been received in cash. This situation typically arises in investments such as partnerships or mutual funds when income is reinvested rather than distributed.

","

When this happens, investors may owe taxes on paper gains despite not having received any actual cash flow. With this possibility in mind, investors should be aware that even if a cash distribution isn’t received, they may still be liable for taxes on their share of the income. Covering taxes owed on phantom income may require setting aside funds to cover these liabilities.

","

One strategy for coping with phantom tax is to diversify your investment portfolio to include assets that provide liquidity. This can help ensure that you can readily raise the necessary funds to cover any tax liabilities that arise from phantom income. Additionally, working with a financial advisor can provide valuable insights into tax-efficient investment strategies.

","

Why the Phantom Tax Is Important

","

The phantom tax can significantly influence investment decisions, particularly for those holding assets that generate non-cash income. Investors need to consider the tax implications of their portfolio choices, especially when dealing with investments that accrue income without immediate cash payouts. A number of investments exhibit that characteristic.

","

For example, zero-coupon bonds do not pay interest until maturity, which may be years in the future. However, investors are required to pay taxes on the accrued interest annually. Because of this, making informed decisions about investing in these bonds requires factoring in the phantom tax. Some investors may opt for investments that align better with their cash flow needs and tax strategies.

","

How to Avoid the Phantom Tax

","

One way to avoid phantom tax is to invest in tax-efficient funds. These seek to minimize taxable distributions. Another strategy is to hold investments likely to incur phantom taxes in tax-advantaged accounts. such as IRAs or 401(k)s, where taxes are deferred.

","

Navigating the complexities of the phantom tax can be challenging without professional guidance. Engaging with a knowledgeable advisor ensures that you are well-prepared to handle any tax surprises, allowing you to focus on achieving your financial goals with confidence.

","

Assets That Might Incur a Phantom Tax

","

Many investors won’t ever owe any phantom tax. However, a sizable number of investments can expose an investor to this tax. Here are some common assets that might incur a phantom tax:

","$96","

Bottom Line

","

","

The phantom tax occurs when individuals or entities are taxed on income that they have not yet received in cash, often arising from investments in partnerships, real estate, or certain types of trusts. The phantom tax can be challenging because it impacts cash flow, requiring taxpayers to pay taxes on paper profits without possessing the income that created the tax liability. Understanding the nuances of the phantom tax not only helps in managing current financial obligations but also aids in making decisions about how to achieve long-term financial goals.

","

Tips for Tax Planning

","$97","

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