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Capital Appreciation on Investments
For many people, the goal of investing in assets like stocks or real estate is to see the price of the investment go up. The objective is to buy at a relatively low price and hope the asset’s value goes up over time. Though it may be easier said than done, this strategy — called […]
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IRS Offers Estimated Tax Relief for Farmers and Fishermen
Like everyone else, farmers and fishermen must pay federal income taxes throughout the year as they earn income. If those taxes aren’t paid through withholding from wages or other sources, quarterly estimated tax payments are typically required. If Uncle Sam doesn’t get paid on time, you could be looking at a stiff IRS penalty. However, if at least two-thirds of your gross income is from farming or fishing, there are a couple of loopholes that let you adjust the normal timetable for making estimated tax payments or avoid them altogether.
- SEE MORE 2022 Tax Calendar: Important Tax Due Dates and Deadlines
First, qualifying farmers and fishermen can pay all the estimated tax they owe with just one payment if the payment is made by the due date for the last quarterly payment of the year. For the 2021 tax year, the last payment was due January 18, 2022 (it’s due January 17, 2023, for the 2022 tax year).
Second, qualifying farmers and fishermen don’t need to make any estimated tax payments at all if they file their personal income tax return for the year by March 1 of the following year and pay any tax owed at that time. (Note: If it falls on a Saturday, Sunday or legal holiday, the March 1 due date shifts to the next business day.)
March 1 Estimated Tax Deadline Pushed Back for 2021 Tax Returns
According to the IRS, taxpayers are having a difficult time electronically filing Form 7203, S Corporation Shareholder Stock and Debt Basis Limitations. Because of this problem, some farmers and fishermen may not have been able to e-filing their 2021 tax returns by the March 1, 2022, due date. As a result, the IRS is pushing the March 1 deadline to April 18, 2022 (April 19 for farmers and fishermen living in Maine or Massachusetts).
- SEE MORE Tax Changes and Key Amounts for the 2022 Tax Year
The extension will automatically apply to any qualified farmer or fisherman who doesn’t report an underpayment penalty on their 2021 tax return. For those who already filed their tax return and included the penalty, the penalty can be abated by filing Form 843, Claim for Refund and Request for Abatement. When filing Form 843, make sure you:
- Write âRequest for Relief under Notice 2022-13â at the top of the form;
- Enter â6654â on Line 4;
- Check the third box on Line 5a;
- Include the dates of any tax or penalty payment on Line 5b; and
- Note that you’re a qualifying farmer or fisherman who is filing a 2021 tax return and paying any tax due on the return in full by April 18, 2022 (or by April 19 if you live in Maine or Massachusetts), on Line 7.
Other Special Estimated Tax Penalty Rules for Farmers and Fishermen
There are a couple of other special rules for farmers and fishermen that can help them avoid the estimated tax underpayment penalty â although there’s no relief this year from the IRS that affects them.
- SEE MORE What Are the Income Tax Brackets for 2021 vs. 2022?
The penalty for not paying enough tax during the year through withholding or estimated payments doesn’t apply if you owe less than $1,000 in tax. The penalty is also avoided if your withholding or estimated tax payments equal at least 90% of your tax liability for the year, or 100% of the tax shown on your previous year’s return (110% if your adjusted gross income for the previous year was more than $150,000).
For qualifying farmers and fishermen, the penalty is avoided if their withholding or estimated tax payments equal just 66.667% of their tax liability for the year (as opposed to the normal 90% requirement), or 100% of the tax shown on their previous year’s return. Also, the higher percentage (110%) requirement for higher-income taxpayers doesn’t apply for qualifying farmers and fishermen.
- SEE MORE What’s the Standard Deduction for 2021 vs. 2022?
What Is a Corporate Bond and How Do They Work?
How Old Do You Have to Be to Open a Bank Account?
If you think itâs never too early to start saving and like the idea of kids getting real world money experience at a young age, you may be wondering how old you have to be to open a bank account. A child generally can open a bank account at any age â as long as […]
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What You Need to Know About Side Gigs in 2022
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.
What Is an HSA? A Primer on How This Account Can Help You Save
Medical insurance jargon can be confusing, especially all the acronyms. We break down what an HSA is and how it can help you save on medical costs.
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.
Donât Let Taxes Dim Your Retirement: How to Plan Ahead with Your âTax Bucket Listâ
Taxes are on the minds of many this time of year with the filing deadline looming. But too often, people think about taxes only on a one-year-at-a-time basis, forgetting or putting off the need to adjust their strategy for future years â most importantly, their retirement.
- SEE MORE Retiring Early? A New IRS Rule Could Mean More Money in Your Pocket
As you prepare for your non-working years, itâs important to consider the burden taxes can pose in retirement. Being proactive and developing a tax-efficient strategy is especially important for those who will retire soon. If you have a tax-deferred retirement account (IRA, 401(k), 403(b), SEP, etc.), you unfortunately have an account that has one of the same features as a variable-rate mortgage. At any point, the IRS can change the rate (here, though, it is the tax rate rather than the interest rate).
Some financial professionals think that given our growing national debt, tax rates will likely go up at some point in the next few years â rising from the historically low rates we have now. And remember that when you withdraw money from one of your tax-deferred retirement accounts, whether because you need the money or you were forced to due to required minimum distributions, you must pay taxes on every dollar.
Do you know what your tax rate will be one, five or 10 years from now? Perhaps you want to withdraw as little as possible and leave it to your children. Do you know what taxes they will have to pay on those funds 10, 20 or 30 years from now? And the future tax burden your spouse could face after your passing is something you must also consider.
The good news is that you can take steps to preserve some of your money in tax-free environments, thereby reducing your debt to the IRS. First, consider the three âtax bucketsâ:
- Tax-deferred bucket. These are assets such as traditional IRAs, 401(k)s and deferred annuities within a qualified retirement plan, etc. These accounts generally grow tax-deferred, which means you only pay taxes when you withdraw the money.
- Taxable bucket. This is the money you have probably already paid taxes on, and if you invest it, you pay taxes when you realize a return. These are non-IRA assets, such as brokerage accounts, savings accounts or certificates of deposits at your bank.
- Tax-free bucket. This money grows tax-free, and whether you withdraw your gains or leave the money to your beneficiaries after your death, it is tax-free, subject to certain limitations. These assets include Roth IRAs and life insurance.
Itâs more common to have most of your money in the tax-deferred and taxable buckets. If you are interested in being proactive for the long term, here are two strategies worth considering to put more in your tax-free bucket:
Roth IRA conversions
Some conditions must be met to contribute to a Roth IRA, such as earned income, income limits and contribution limits, so not everyone can contribute to a Roth. However, converting your tax-deferred money to a Roth IRA is possible for everyone. A Roth conversion must keep the big picture in mind, but if we look at the long-term savings of a Roth conversion, it can be significant.
- SEE MORE The 4 Phases of Retirement
Hereâs an example of a married couple, Greg and Tina, both aged 65 with an annual income of $75,000, whose goal is to convert $200,000 of a traditional IRA (tax-deferred) to a Roth IRA (tax-free). The tax impact on them from a traditional IRA vs. a Roth IRA is based on these assumptions: living through age 90, a 25% effective tax rate (combined federal and state) on RMDs and taxes paid on death, a 15% capital gains tax on reinvested RMDs, and a 5% average rate of return over the period. In a $200,000 conversion to a Roth IRA, they would pay $46,000 in taxes â in the year of their conversion â under the current tax code. If Greg and Tina do nothing (do not convert to a Roth IRA) and instead simply draw their required minimum distributions beginning at age 72 until they have both passed away (surviving spouse passes at age 95), they would pay $62,692 over that period of time.
The bigger tax savings are down the road. For a Roth IRA, their taxes on reinvested funds are $0, and the taxes on the value at death are $0. Total taxes paid for the Roth IRA: the $46,000 paid for the one-year conversion.
By contrast, capital gains taxes on reinvested RMDs for the traditional IRA are $26,796. Taxes on value at death for the traditional IRA: $41,665. Total taxes paid if they had stuck with the traditional IRA: $131,153.
Note: A Roth conversion is a taxable event and may have several tax-related consequences. Be sure to consult with a qualified tax adviser before making any decisions regarding your IRA. This is a hypothetical example provided for illustrative purposes only; it does not represent a real-life scenario and should not be construed as advice designed to meet the particular needs of an individualâs situation.
Life insurance
High-income earners are not the only group of investors who turn to life insurance. Pre-retirees and retirees are interested in this option because, in addition to the death benefit and potential for tax-free income, if the contract includes the additional benefits of long-term care, they can kill two birds with one stone.
The death benefit is also tax-free. If you are looking for the following features, a permanent life insurance policy might be a consideration for you:
- Tax-free death benefit for heirs
- No income limitation on contributions
- Tax-free growth
- Tax-free withdrawals
- Tax-free long-term care benefits (with the purchase of
- an added LTC rider)
Keep in mind, however, that because this is life insurance, there are fees and charges, including surrender penalties for early withdrawals. You will need to qualify for the policy medically and perhaps financially and fund it appropriately for it to remain in force.
If you want the IRS to take the smallest bite possible out of your money, consider these strategies, which allow you to convert your tax-deferred money into tax-free money. Being proactive is the key to enjoying your retirement more on your terms.
Neither the firm nor its agents or representatives may give tax or legal advice. Individuals should consult with a qualified professional for guidance before making any purchasing decisions. Life insurance policies are contracts between your client and an insurance company. Life insurance guarantees rely on the financial strength and claims-paying ability of the issuing insurer. This article is intended for informational purposes only. It is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individualâs situation. Insurance offered through J. Biance Financial, 545 S. Pine Street Sebring, FL 33870 863-304-8959. Investment advisory services offered only by duly registered individuals through AE Wealth Management, LLC (AEWM). AEWM and J. Biance Wealth Management are not affiliated companies. 01232363 03/22
- SEE MORE Factoring Inflation Into Your Retirement Plan
Dear Penny: Can I Stop My Ex-Wife From Claiming Half My Social Security?
Dear Penny, I was married 22 years. The marriage ended in 2002. When my ex-wife retires, will I be able to collect half of her Social Security? If so, how do I go about that? I am 61; she is 62 now. Also, would she be able to come after half of my Social Security? [â¦]
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.