Source: http://www.retirementincomevisions.com/retirement-income-visions/income-tax-planning/
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Retirement Income Visions: Income Tax Planning
New Tax Law – Don’t Let the Tax Tail Wag the Dog – Part 2 of 2
Part 1 of this post focused on the two investment-related tax areas of the new tax law that went into effect on January 1st – (a) the Medicare investment income tax and (b) long-term capital gains and qualified dividends. It made the point that while the amount of potential income tax liability resulting from exposure to one or both of these changes may be significant, neither one in and of itself, or in combination for that matter, should cause you to overhaul an otherwise appropriate retirement income planning investment strategy.
After preparing income tax projections using current vs. prior tax law, your CPA or other income tax professional will be able to determine two things: (a) the total amount of your additional projected income tax liability attributable to various changes in the law, and (b) the amount of your additional projected income tax liability attributable to specific changes in the law, including the Medicare investment income tax and 20% long-term capital gains and qualified dividends tax.
Continue reading "New Tax Law – Don’t Let the Tax Tail Wag the Dog – Part 2 of 2" » Posted by Robert Klein at 01:00 AM in Income Tax Planning | Permalink
401(k) plan, above-the-line deductions, adjusted gross income, cafeteria plan, capital gain, capital loss, deductions for adjusted gross income, gross income, health savings account, income tax projection, itemized deductions, itemized deductions limitation, long-term capital gains, married filing joint, Medicare investment income tax, modified adjusted gross income, net operating loss, passive activity loss, qualified dividends, retirement income planning, self-employed health insurance premiums, self-employed retirement plan contributions, self-employment income, taxable income
As pointed out in the two posts, there are now five different definitions of income affecting seven different tax areas as a result of the new legislation. What I have found interesting as a CPA retirement income planner is the fact that while only two of the seven affected tax areas are directly related to investments, these two areas have commanded the vast majority of the media's attention to date.
Continue reading "New Tax Law – Don’t Let the Tax Tail Wag the Dog – Part 1 of 2" » Posted by Robert Klein at 01:00 AM in Income Tax Planning | Permalink
adjusted gross income, American Taxpayer Relief Act of 2012, CPA, Economic Growth and Tax Relief Reconciliation Act of 2001, Economic Recovery Tax Act of 1981, Health Care and Education Reconciliation Act of 2010, income tax projection, long-term capital gains, married filing joint, Medicare investment income tax, modified adjusted gross income, net investment inocme, qualified dividends, retirement income planner. Tax Reform Act of 1986
Per last week's blog, as a result of President Obama's signing on January 2nd of the American Taxpayer Relief Act of 2012 following changes legislated by the 2010 Health Care Reform Act effective beginning in 2013, there are now five different definitions of income affecting seven different tax areas. Exhibit 1, which was also included in last week's post, summarizes 2013 individual federal income-based tax law changes, comparing each one with the law in effect in 2012.
Please see last week's post for a discussion of the first three definitions of income. This week's post examines the last two.
Continue reading "The 2013 Tax Law Schizophrenic Definition of Income – Part 2 of 2" » Posted by Robert Klein at 01:00 AM in Income Tax Planning | Permalink
2010 Health Care Reform Act, adjusted gross income, American Taxpayer Relief Act of 2012. Economic Growth and Tax Relieft Reconciliation Act of 2001, income tax bracket, income tax liability, itemized deductions, itemized deductions limitation, long-term capital gains, married filing joint, Medicare Earned Income Tax, Medicare Investment Income Tax, personal exemption, personal exemption phaseout, qualified dividends, taxable income
The 2013 Tax Law Schizophrenic Definition of Income - Part 1 of 2
QUOTED AND LINKED IN JANUARY 11, 2013 WALL STREET JOURNALAnd you thought that the tax law was already too complex. As a result of President Obama's signing on January 2nd of the American Taxpayer Relief Act of 2012 following changes legislated by the 2010 Health Care Reform Act effective beginning in 2013, there are now five different definitions of income affecting seven different tax areas.
With a schizophrenic name ("Taxpayer Relief Act"), this comes as no surprise.
Although the most publicized affected income level is individuals with taxable income exceeding $400,000 for single tax filers and $450,000 for married filing joint tax filers, everyone with employment or self-employment income of any amount with limited exceptions will pay more tax in 2013 than they did in 2012, all else being equal.
Continue reading "The 2013 Tax Law Schizophrenic Definition of Income - Part 1 of 2" » Posted by Robert Klein at 01:00 AM in Income Tax Planning | Permalink
2010 Health Care Reform Act, adjusted gross income, American Taxpayer Relief Act of 2012, employment income, income tax, investment income, married filing joint, Medicare investment income tax, Medicare tax, modified adjusted gross income, net investment income, self-employment income, Social Security tax, taxable income
Annuitization Tax Treatment of Nonretirement Distributions
Per last week's post, there are four things that you don't receive when you purchase an income rider with a fixed index annuity that are associated with fixed income annuities. The first three, i.e., annuitization, immediate payments, and ability to receive payments over a fixed period, were discussed in last week's post. The fourth thing – annuitization tax treatment of nonretirement distributions – is the subject of this week's post. Before we discuss tax treatment of distributions, I want to talk briefly about taxation of annuities during the accumulation stage before any distributions are made. Similar to IRA's and other qualified retirement plans, unless they're immediately annuitized, all annuities, including fixed income annuities, enjoy tax-deferred growth. That is, until distributions are taken, there's no taxation. This is true whether the annuity is held within a nonretirement account, a traditional IRA or other qualified plan, or a Roth IRA.
Continue reading "Annuitization Tax Treatment of Nonretirement Distributions" » Posted by Robert Klein at 01:00 AM in Annuities, Fixed Index Annuities, Income Tax Planning | Permalink
annuities, annuitization, annuitize, fixed index annuity income rider, last-in first-out, LIFO, nonretirement distributions, ordinary icnome, Roth IRA, tax-deffered growth, traditional IRA
Sizeable Capital Loss Carryover? Rethink Your Retirement Plan Contributions
Last week's post answered the question, "What is the right mix of retirement vs. nonretirement investments in a retirement income plan?" with a simple, but correct, answer: "It depends." It pointed out that each scenario is different, requiring a professional analysis by a qualified retirement income planner of the interaction between a host of many variables unique to that situation. One of the variables mentioned last week was income tax carryover losses. There are limitations on the amount of losses arising from various types of transactions that may be deducted on the tax return for the year in which the loss incurred. The portion of the loss that isn't deductible in the year of origin of the loss must instead be carried forward to the following year, and potentially to additional future years, until the requisite type and amount of income becomes available to absorb the loss.
Continue reading "Sizeable Capital Loss Carryover? Rethink Your Retirement Plan Contributions" » Posted by Robert Klein at 01:00 AM in Income Tax Planning, Retirement Income Planning | Permalink
401(k) plan, capital gain, capital loss, capital loss carryover, long-term capital gain, net capital loss, retirement income plan, retirement income planner, SEP-IRA, short-term capital gain, tax carryover losses
If you read Part 3 of this series last week, you should be familiar with my football analogy. Specifically, when it comes to winning the Social Security retirement benefit game once you start receiving benefits, you need to win two halves of the game: (1) reduce taxable benefits, and (2) reduce the tax attributable to your benefits. Parts 2 and 3 of this series discussed how to win the first half. Now that the halftime entertainment is over, we're ready to start the second half. In order to reduce the tax attributable to your Social Security retirement benefits, once you've employed appropriate strategies for reducing your taxable benefits, the focus should be on maximizing your itemized deductions – without increasing your exposure to alternative minimum tax ("AMT"). If the total amount of your itemized deductions is less than the standard deduction – game over. If you're able to itemize your deductions, read on.
Continue reading "Increase Your After-Tax Social Security Benefits – Part 4 of 4" » Posted by Robert Klein at 01:00 AM in Income Tax Planning, Social Security | Permalink
adjusted gross income, alternative minimum tax, itemized deductions, marginal income tax rate, Social Security, standard deduction
Since it's Super Bowl Sunday as I write this post, let's discuss strategy as it pertains to winning the Social Security benefit game. If you want to be successful at increasing your after-tax Social Security benefits, you need to have a winning strategy. Hopefully you read Part 1 of this post and if you're not yet receiving benefits, you've begun to implement your pre-benefit receipt game plan. Once you've begun receiving your retirement benefits, there are two halves to winning the game when it comes to increasing after-tax benefits: (1) reduce taxable benefits, and (2) reduce the tax attributable to your benefits. If you've read Parts 1 and 2 and/or the previous two-part Say Goodbye to Up to 30% of Your Social Security Benefits series, you know that reduction of taxable benefits is all about minimizing the three components of "combined income," i.e., (1) 50% of Social Security benefits, (2) adjusted gross income, and (3) tax-exempt income. Components #1 and #3 were addressed in Part 2.
Continue reading "Increase Your After-Tax Social Security Benefits – Part 3 of 4" » Posted by Robert Klein at 01:00 AM in Income Tax Planning, Social Security | Permalink
adjusted gross income, capital gain, combined income, deductions from gross income, deferred income annuity, health savings account, immediate income annuity, itemized deductions, passive activity loss carry forward, required minimum distribution, Roth IRA, Roth IRA conversion, Social Security, tax-exempt income
Given the fact that Social Security benefits are taxable when you exceed certain income thresholds, your financial professional(s) should design a Social Security plan for you that includes strategies for minimizing Social Security taxation and maximizing your after-tax Social Security benefits. As pointed out in Part 1 of this post, there are two types of planning opportunities: (1) Pre-benefit receipt and (2) Ongoing benefit receipt. Part 1 discussed various pre-benefit receipt strategies, including mentioning the importance of analyzing and potentially implementing them beginning in one's 40's. Once you flip the Social Security switch and start receiving your benefits, while you generally won't be able to control the amount or timing of your benefits, there are nonetheless opportunities available to reduce the amount of taxable benefits as well as the amount of tax attributable to your benefits that you ultimately pay. Strategies for reducing taxable benefits will be discussed in this post and Part 3. Part 4 will address reduction of income tax attributable to benefits. Continue reading "Increase Your After-Tax Social Security Benefits – Part 2 of 4" » Posted by Robert Klein at 01:00 AM in Income Tax Planning, Social Security | Permalink
adjusted gross income, combined income, file and suspend, Social Security, tax-exempt income
The last two posts, Say Goodbye to Up to 30% of Your Social Security Benefits – Parts 1 and 2 discussed taxation of Social Security benefits. As explained in both posts, up to 50% or 85% of Social Security benefits can be taxable depending upon the amount of one's "combined income" (50% of Social Security benefits plus adjusted gross income increased by tax-exempt income) compared to specified thresholds that are dependent upon one's tax filing status (i.e., single, head of household, married filing separate, or married filing joint) and one's tax rates. Although, as pointed out in last week's post, taxation of Social Security benefits has been a thorn in Congress' side ever since it came into being in 1984, it appears that it's here to stay. Income taxation of Social Security benefits can be reduced or, in some cases, eliminated, in one or more years with proper planning. While much of the planning is ongoing throughout the years that one is collecting benefits, there are several opportunities that should be analyzed and potentially implemented beginning in one's 40's, many years before the receipt of one's first Social Security check. This post focuses on pre-benefit receipt planning and Parts 2, 3, and 4 address planning strategies during the Social Security benefit receipt years. Continue reading "Increase Your After-Tax Social Security Benefits – Part 1 of 4" » Posted by Robert Klein at 01:00 AM in Annuities, Income Tax Planning, Retirement Income Planning, Roth IRA, Social Security | Permalink
Say Goodbye to Up to 30% of Your Social Security Benefits – Part 2 of 2
Taxation of Social Security benefits has been a thorn in Congress' side ever since it came into being in 1984. As aptly stated by one of Retirement Income Visions'™ readers after reading Part 1, it's a tax on a tax. After having one's earnings, up to a maximum limit, reduced by a payroll tax of 6.2% for all of one's working life, it's difficult for Social Security recipients to stomach the fact that their benefits may be reduced by yet another tax -- income tax. Per last week's post, since 1984, up to 50% of Social Security benefits became subject to income tax, with this percentage increasing to 85% beginning in 1994. Although the "combined income" (50% of Social Security benefits plus adjusted gross income increased by tax-exempt income) thresholds are relatively low for having up to 85% of one's benefits subject to tax (i.e., greater than $34,000 if you use single, head of household, or married filing separate filing status and over $44,000 for married filing joint status), and, furthermore, haven't ever been increased for inflation, you will never forfeit 85% of your benefits. Continue reading "Say Goodbye to Up to 30% of Your Social Security Benefits – Part 2 of 2" » Posted by Robert Klein at 01:00 AM in Income Tax Planning, Social Security | Permalink
adjusted gross income, combined income, exemption, head of household, income tax, married filing joint, married filing separate, net Social Security benefits, payroll tax, single filing state, Social Security, standard deduction, tax-exempt income
Retirement Income Visions™ began a series of posts on the topic of Social Security on September 27th, focusing on various little-known strategies for maximizing Social Security benefits. In addition to the strategies not receiving a lot of publicity, when they are discussed, income taxation is often overlooked. Given the fact that a large portion of Social Security benefits can be subject to income tax, maximization of after-tax Social Security benefits should be your goal with each strategy. Prior to 1984, Social Security benefits were nontaxable. Beginning in 1984, up to 50% of Social Security benefits became subject to taxation. The percentage was increased from 50% to up to 85% beginning in 1994. Since 1994, up to 85% of Social Security benefits are taxable, depending upon the total of two individual calculations: (1) 50% of Social Security benefits plus (2) adjusted gross income increased by tax-exempt income. While tax-exempt income generally isn't taxable, it comes into play when calculating the taxable amount of one's Social Security benefits. Whenever the total of these two amounts, otherwise referred to as "combined income," exceeds a specified threshold, a portion of Social Security benefits is taxable.
Continue reading "Say Goodbye to Up to 30% of Your Social Security Benefits – Part 1 of 2" » Posted by Robert Klein at 01:00 AM in Income Tax Planning, Social Security | Permalink
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