taxes
The Cost of Living in Florida in 2022
Take the guessing out of picking where to live in Florida. We compare costs of living just for you.
The post The Cost of Living in Florida in 2022 appeared first on The Rent. Blog : A Renterâs Guide for Tips & Advice.
Tax Planning Shouldnât Be an Afterthought
There are so many elements of a comprehensive retirement plan, such as claiming Social Security, investing, planning for long-term care costs and estate planning. The one thing they all have income is taxes. Tax planning touches on every element of oneâs financial plan, which is why it should never be an afterthought.
The first thing to realize when planning for retirement is that taxes donât stop when you stop receiving a paycheck. Taxes could still be one of your biggest expenses, which is why you need to integrate tax planning into your overall financial plan.
How Will Your Retirement Income be Taxed?
Although you paid into Social Security during your working years, you may still have to pay tax on your Social Security benefit. If your provisional income as an individual is between $25,000 and $34,000 or is between $32,000 and $44,000 as a married couple filing jointly, up to 50% of your benefit may be taxable. If your provisional income as an individual is over $34,000 or over $44,000 as a married couple filing jointly, up to 85% of your benefit may be taxable. Note that these income thresholds have not increased since they were first instituted in 1984, and there are no current plans to adjust them with inflation. If youâre near this threshold, consider that inflation could push you over and trigger this tax.
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If you have a private pension, your pension payments could be taxed at ordinary income rates. If youâre like most retirees these days, you donât have a pension, but you may well have a 401(k) or IRA. These are tax-deferred accounts, which means that what you take out will be taxed as ordinary income, as well as a 10% federal penalty if you take a withdrawal before age 59½. Keep in mind that at age 72, you will most likely be required to take minimum withdrawals from your tax-deferred retirement accounts. These amounts are set by the IRS and may force you to withdraw more than you normally would in one year, causing an increase in your tax burden.
You may also have other sources of taxable income in retirement, such as investment gains and dividends, rental income from a property, or selling your home. There are potential tax-minimization strategies available for all of these with the right amount of planning and knowledge. For example, at any age, you can take $250,000 tax free from a home sale if you meet requirements, including that youâve lived there for two out of the last five years â this doubles to $500,000 for married couples. The two years donât have to be consecutive. This does not apply to other property sales, only primary residences.
Will Taxes Rise in the Future?
We could be living in a time of historically low income tax rates, but this could change soon. Government programs such as Social Security and Medicare are under strain, and government spending increased during COVID. We recently saw President Biden propose a new Billionaire Minimum Income Tax, which could also affect many people who arenât billionaires. While this is just one tax proposal, it could be indicative of the direction tax policy will go in the next 10 years.
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At the end of 2025, we will likely see the expiration of the Tax Cuts and Jobs Act, and no one knows what will take its place. Thatâs why itâs important to plan for the tax rates of tomorrow, not just those of today.
Foresight is 20/20
Many of the most effective tax strategies out there require forethought and advanced planning â sometimes years in advance. For example, a Roth conversion is a strategy that could potentially pay off many years down the line. In exchange for paying tax on the retirement savings you convert from a traditional IRA to a Roth IRA at the known tax rates of today, you can enjoy tax-free income in five or more yearsâ time (after the account has been open for at least five5 years and youâre age 59½ or older).
Consider whether you think taxes will go up, down or stay the same in the next five years. Depending on your answer, a Roth conversion could be a viable long-term tax-minimization strategy.
A Roth conversion could especially be valuable if you have retired and are younger than age 72, the age at which you must start taking required minimum distributions (RMDs) from a traditional IRA or 401(k). Once you reach that âmagicâ RMD age, you cannot convert any dollars that are a part of your RMD â only dollars over and above your RMD. Many times, this severely restricts oneâs ability to continue doing Roth conversions at all. Further, with rising tax rates anticipated in the near future, there is no time like the present to essentially âbuy the governmentâ out at todayâs historically low tax rates.Â
If you are charitably inclined and at least age 70½, utilizing a Qualified Charitable Distribution (QCD) could be for you. Simply put, you can send contributions to qualifying charitable organizations directly from your IRA and bypass paying taxes on the amount given. If you would otherwise take the standard deduction, utilizing this strategy allows you essentially to take the standard deduction AND a charitable deduction by way of not having to report the QCD as income.Â
It’s Not What You Earn, Itâs What You Keep
As the saying goes, itâs not what you earn, itâs what you keep. When we think about our biggest expenses, we often overlook taxes because we assume thereâs nothing we can do to change how much we owe. However, this often isnât the case. Tax planning and developing tax strategies is one of the five major areas we address in our process of building financial plans for our clients. Viewing tax planning as an integrated part of an overall financial plan instead of a separate afterthought could make a big difference in retirement.
We are an independent financial services firm helping individuals create retirement strategies using a variety of investment and insurance products to custom suit their needs and objectives. We do not offer tax, estate planning or legal advice or services. Always consult with qualified tax/legal advisers concerning your own circumstances. We are not affiliated with Medicare or any other government agency.
Harlow Wealth Management Inc. is an SEC Registered Investment Adviser and an insurance agency registered with the state of Washington and other states.
Investing involves risk, including possible loss of principal. Insurance and annuity guarantees are backed by the financial strength and claims-paying ability of the issuing company.
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Montana Storm and Flooding Victims Get More Time to Pay Taxes
The IRS has granted victims of the recent Montana severe storms and flooding more time to file various individual and business tax returns and make tax payments. Specifically, victims of the storms and flooding that began on June 10, 2022, have until October 17, 2022, to file and pay tax returns and payments due between June 10 and October 16.
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The tax relief is available to anyone in any area designated by the Federal Emergency Management Agency (FEMA) as qualifying for individual assistance. At this point, only affected taxpayers who live or have a business in Carbon, Park and Stillwater Counties qualify for the extensions, but the IRS will offer the same relief to any taxpayers in other Montana localities designated by FEMA later.
The IRS will also work with other people who live outside the disaster area but whose tax records are in the disaster area. Call the IRS at 866-562-5227 if you face this situation. This also includes workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization, and anyone visiting the area who was killed or injured as a result of the disaster.
Deadlines Extended
The deadlines that are pushed back for Montana storm and flooding victims include the quarterly estimated tax payments that are due on June 15 and September 15, 2022. The due date for quarterly payroll and excise tax returns normally due on August 1, 2022, are extended to October 17, too. Penalties on payroll and excise tax deposits due from June 10 to June 26 are also waived as long as the deposits were made by June 27, 2022.
The due date for 2021 business tax returns that were properly extended to September 15, 2022, are now due by October 17 for the storm and flooding victims.
Taxpayers don’t need to contact the IRS to get this relief. However, if an affected person receives a late filing or payment penalty notice from the IRS, he or she should call the number on the notice to have the penalty abated.
Deduction for Damaged or Lost Property
Victims of the Montana severe storms and flooding may be able to claim a tax deduction for unreimbursed damaged or lost property. To do so, they typically must itemize and file Schedule A with their tax return. However, victims who claim the standard deduction may still be able to deduct their losses if they can claim them as business losses on Schedule C.
- SEE MORE Create a Financial Plan for Natural Disaster
The deduction can be claimed on the tax return for the year the damage or loss of property occurred or for the previous year. So, for any destruction in 2022, the deduction can be claimed on either a 2021 tax year return or a 2022 return. In either case, you must write the FEMA declaration number on the return claiming the deduction. For the recent Montana severe storms and flooding, the number is DR-4655-MT.
If you decide to claim a deduction for 2021, you can amend your 2021 return by filing Form 1040X. For this purpose, you must file the amended return no later than six months after the due date for filing your return (without extensions) for the year in which the loss took place. So, for Montana storm or flooding losses in 2022, you would need to file an amended 2021 return by October 16, 2023. Affected taxpayers claiming the disaster loss on a 2021 return should also put the Disaster Designation (“Montana Severe Storms and Flooding”) in bold letters at the top of the form. See IRS Publication 547 for details.
- SEE MORE 14 Must-Have Items for Your Home Emergency Kit
The Cost of Living in Colorado in 2022
Make sure your move to Colorado stays within budget with this cost of living breakdown.
The post The Cost of Living in Colorado in 2022 appeared first on The Rent. Blog : A Renterâs Guide for Tips & Advice.
How to Get a Mortgage Loan if You’re Self-Employed With Fluctuating Income
Donât Be Tricked into Voluntarily Paying Higher Taxesâ¯on Your IRA
When you first decided to contribute to an IRA or an employer-sponsored retirement account, it probably seemed like a great deal â at least at the time.
After all, you received an upfront tax deduction on the amount you contributed, and you were able to defer paying taxes on any growth in the account. It was a seeming âwin-win.â
- SEE MORE Should You Consider a Roth Conversion While the Market is Down?
And in many ways, it is a good thing. But if you think the government gave you that upfront tax advantage with no strings attached, think again. This benefit was conditional, and the condition is that anytime you or your heirs take money out of the account, you will owe taxes on the withdrawals.Â
If thatâs not frustrating enough, the government also gets to change the rules that determine how much is owed when those withdrawals happen. So, perhaps years from now, when youâre retired and need to use some of that money, you may find that your tax rate is much higher than it is today. Or you may learn that a rule related to the accounts has changed.
Some rules have already been altered by the SECURE (Setting Every Community Up for Retirement Enhancement) Act of 2017. One change involved the age at which you have to start taking required minimum distributions (RMD). Previously, once you reached 70½, you had to begin taking a certain percentage out each year (and be taxed on it) whether you needed the money or not. The RMD age was changed to 72, giving you an extra 18 months before it kicks in.
But before you start celebrating, remember this: The tax cuts for individuals that were passed in 2017 are set to expire at the end of 2025. So as things stand right now, taxes will be going up in 2026, and when your RMDs kick in, you could be paying a higher tax rate than you currently are.Â
Hereâs another change: Congress eliminated one of the biggest tax benefits of inherited IRAs. In the past, your beneficiaries could defer paying the taxes on inherited IRAs over their lifetime simply by letting that money sit. But now, non-spousal heirs must cash in the accounts within 10 years of your death â and pay the taxes that come along with doing so. Thereâs a good chance they will still be working at the time, so those withdrawals will be added to their regular income, possibly thrusting them into a higher tax bracket.
Lower Taxes in Retirement? Maybe Not
Finally, hereâs one more thing to consider regarding that money thatâs going into an IRA, 401(k) or other tax-deferred retirement account. Most Americans have been conditioned to believe that they will be in a lower tax bracket when they retire. As a result, they reason that when they do withdraw money from their retirement savings, they will be paying at a lower rate than they would be now.Â
But this may or may not be true depending on the declared tax rates at that time.Â
- SEE MORE Which Accounts Should Younger Retirees Tap First? Not IRAs!
And what may be even more relevant under the new IRA rules is the tax bracket your heirs will be in. Even if they are retired themselves, having to cash out the entire IRA they inherited over a brief time span may put them in the highest possible tax bracket. To make matters worse, many heirs live in states that impose state income taxes in addition to the federal tax rate.Â
So, what to do about this situation? Essentially, there are two choices:
- You canâ¯follow antiquated conventional wisdom and continueâ¯toâ¯defer paying taxes for as long as possible.
- Or you can start converting part of your IRA to a Roth IRA, which can make a significant difference in your favor in how much you will pay in taxes.
Pay Now Vs. Pay Later
Roth IRAs grow tax free, and when you make qualified withdrawals from them, the withdrawals are not considered taxable income. In other words, when you reach retirement and need the money, you can take money from the account without paying a cent of tax on it, as long as youâre 59½ or older and have held a Roth account for at least five years.
Of course, you might ask, âWonât I have to pay taxes when I make the conversion to the Roth?â
Absolutely. And letâs face it, the notion of voluntarily paying taxes sooner rather than later seems antithetical to the way most of us are wired. The IRS may even be relying on that notion to maximize tax revenue. Most people (and most accountants) would simply prefer to kick the can down the road and minimize this yearâs taxes rather than worry about taxes at some unstated date in the future.Â
But under the new IRA rules, combined with the 2026â¯increasing tax brackets, the âpay-as-late-as-possibleâ approach will result in the most tax revenue for the IRS.â¯If you want to reduce your familyâs overall tax bill, you should be acting now.
For most people, there will be a substantial discount to convert a portion of their IRA to a Roth each year until 2026, when tax rates are scheduled to increase.Â
In the process of doing it, though, there are several questions to consider:
- What is the size of your IRA?
- What is your marital status?
- What is your projected income over the next several years?
- What is the projected income of your IRA beneficiaries? â¯
- What state do they live in?
- What is their marital status?Â
With the answers to these questions in mind, you should speak with your financial adviser or tax consultant as soon as possible to determine the optimal timing and amount of your Roth conversion strategy.â¯Â
Ronnie Blair contributed to this article.
Singer Wealth Advisors is an SEC-registered investment advisory firm. Singer Wealth Advisors does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only. You should consult your own tax, legal and accounting advisors before making any decisions that may have tax consequences.
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The Cost of Living in Hawaii in 2022
Figure out if you can live in paradise. Here’s what it really costs to live in Hawaii.
The post The Cost of Living in Hawaii in 2022 appeared first on The Rent. Blog : A Renterâs Guide for Tips & Advice.
Certificates of Deposit (CDs)
Money’s complicated. Or at least it can feel that way when you’re a young adult. You’re wondering where to live (and how to pay for it), and just settling into your career. Things like retirement funds and investment accounts may seem a million years away from where you are now. But trust me, you want … [Read more…]
Retirees, Make These Midyear Moves to Cut Next Year’s Tax Bill
To the list of classic midsummer activities like Fourth of July picnics and trips to the beach, you might add one more: Prep for next year’s tax return. These six midyear tax moves are a good place to start if the goal is saving money next April.
Check Withholding and Estimated Payments
Retirees can have taxes withheld from Social Security benefits and taxable retirement account distributions, or they can make quarterly estimated tax payments. Make sure enough money is either withheld or paid quarterly to avoid a penalty for underpayment of taxes when you file your return next year. You can adjust your withholding using Form W-4P for periodic payments from retirement accounts, Form W-4R for nonperiodic payments like a lump sum or payment on demand, or Form W-4V for Social Security benefits. If you’re making estimated payments, increase the amount you pay with Form 1040-ES for the rest of the 2022 tax year. Use the same forms for adjustments if you’re currently paying too much. Note that Social Security will only withhold at a rate of 7%, 10%, 12% or 22%.
Plan Your RMD
Some people wait until December to take a required minimum distribution and then use it to pay estimated taxes for the entire year all at once. When you use an RMD this way, it’s as if you had paid estimated taxes throughout the year. This is true even if the RMD is taken at the end of the year to pay those taxes in full.
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Distributions from retirement savings accounts are first required the year you turn 72. Someone who turns 72 this year has until next April 1 to take an RMD for 2022. For everyone else, that deadline is Dec. 31 of this year for a 2022 RMD. There are stiff penalties for failing to withdraw the required amount from retirement accounts, so if you haven’t yet taken this year’s RMD, decide when and how you’ll do it. Our RMD calculator can help you determine how much to withdraw.
Pad Your Nest Egg
If you’re still working, see if you can afford to squirrel away more money for retirement. For 2022, people age 50 and older can contribute up to $27,000 to a 401(k) or 403(b) plan. Consider saving more during the rest of the year if you’re not on track to reach the maximum. The contribution limit for an IRA is $7,000 this year for savers age 50 or older. You have until April 2023 to put money in an IRA for 2022, but there’s no reason to wait if you can contribute now. IRA contributions may be deductible depending on your income and whether you have a retirement plan at work. Lower-income people saving for retirement may qualify for a tax credit worth up to $1,000 ($2,000 for joint filers).
Consider a Roth Conversion
If you have a traditional IRA, think about converting some or all of it to a Roth IRA. You’ll pay taxes at your ordinary income tax rate on the amount converted this year in exchange for taxfree withdrawals in retirement. This can be a good strategy if you believe your tax rates will be higher in the future, a distinct possibility given that the lower tax rates enacted in 2017 are currently set to expire in 2026.
Give to Charity
Summer is also a good time to plan your charitable giving for the rest of the year. One tax-smart approach is to set up a qualified charitable distribution from an IRA. Because the money goes directly to charity, a QCD counts as an RMD without adding to your adjusted gross income. You must be at least 70½ years old to make a QCD, which can be as much as $100,000 each year.
- SEE MORE Charitable Tax Deductions: An Additional Reward for the Gift of Giving
“Bunching” is another tax-friendly way to donate and consists of consolidating charitable deductions from multiple years into a single year. With this strategy, you can itemize and maximize the deduction for charitable giving simultaneously. Also consider using a donor-advised fund if you’re bunching donations.
Make Gifts to Family or Friends
In 2022, you can give up to $16,000 per person ($32,000 if your spouse agrees) without having to file a gift tax return or tap your lifetime estate and gift tax exemption. Christmas in July, anyone?