So with tax season officially kicking off next week, as the IRS will begin receiving returns on January 23rd, it would seem that the time to save money on your 2016 taxes is now gone. However, there is still a nice tax break available for this year all the way up till April 18th (the tax filing deadline for 2017). You can still use your contributions to a traditional IRA as a deduction on your 2016 tax return.
In fact, you can even contribute as much as $5,000 for both the 2016 and 2017 tax years; and if you’re older than 50 you can also contribute an extra $1,000 for each year as a catch-up contribution. While you can also do the same for a Roth IRA those contributions are not eligible for a tax deduction. Also, keep in mind that this limit applies to all your IRA accounts. You cannot contribute $5,000 to each, but rather $5,000 collectively.
This is a great way for just about anyone to lower their tax bill, including investors that don’t currently have an IRA set up. The savings can be significant. For example, if you contribute the maximum of $5,500 (for taxpayers under 50 years of age who fall in the 25 percent tax bracket) you would save $1,375 on your tax bill for 2016.
The good news doesn’t end there, because, of course, in addition to the nice tax savings you will also be creating a nice retirement fund for those golden years, which is another a great reason to open and contribute to an IRA. If you need help with this tax-saving idea then contact us today.
It’s almost here. That glorious time of year known and loved by millions as “tax season.” Of course, the reality is that most taxpayers don’t look forward to this time of year – unless they’re expecting a large return – but even those that fall into this category still don’t look forward to the tax filing process. In any case, love it or hate it, tax season is here. In fact, according to the IRS, the official tax filing season kicks off next week, on January 23 and runs through April 18.
There are some other filing notes to be aware of, as well. Anyone who e-files can submit their return before January 23rd; however, whichever software or online program you use will not actually submit them to the IRS until the 23rd. Additionally, anyone claiming the earned income credit or the additional child tax credit will not begin seeing their refund till Feb 23rd, due to a new law to protect against fraud.
So what can you do to start getting ready? First, there are several key forms that you should be looking for, including W-2s, 1099-Misc and 1099-Ks. These should all arrive by January 31. If you haven’t already begun gathering all your important tax and financial documents then now is the time to get started. If your taxes are complicated, or you’re a high net worth taxpayer then you should contact an experienced and qualified tax professional for help.
There is nothing quite like winning the lottery. In almost all cases lotto winners go from rags to riches overnight. There is definitely a thrill and exhilaration that comes with becoming an instant multi-millionaire. Who wouldn’t want to win the lottery? Hold that thought. Winning the lottery comes with several possible catches that could lead to tax trouble. In fact, for some lottery winners, the tax fallout is a real nightmare.
The tax headache can be especially big when several people decide to purchase lottery tickets together, as a group, which is exactly what happened to some recent lottery winners in Tennessee. Twenty co-workers won a $420.9 million Powerball jackpot in November, with the lump sum payment being $254 million. Split evenly, each winner will receive $12.7 million before taxes.
However, the first question that must be answered is could this group be considered a real partnership? The 20 winners have been pooling their money together for eight years, so it’s a legitimate question. It’s also an important one as it could make a big difference in how they report it and their overall tax bill.
Another question is could their agreement be viewed as a trust? If the IRS considers it a grantor trust it’s simply taxed as a flow-through. However, if it is a more complex trust that is taxed the same as a corporation the tax headache can be huge and expensive. So, what should you do if you become an instant millionaire? If you ever end up choosing the right numbers, the smartest thing to do is talk with a qualified tax professional before you even collect the money. This will help you avoid several possible headaches.
Are you ready for some new tax policies under President-Elect Donald Trump? Ready or not, there are likely going to be big changes to the nation’s tax system when Trump takes office this month. All the talk since the election began has been about Trump’s tax cuts helping the rich get richer.
While it’s true that many of the country’s top earners will benefit from Trump’s proposed tax changes, not all of the wealthy stand to benefit. In fact, there are some that could actually see their taxes increase under Trump’s plan.
So who are these unlucky individuals? Well, it turns out that several taxpayers that once fell into the 28 percent tax bracket would now end up in the highest tax bracket under Trump’s three-bracket plan. That means these families and individuals would see their tax rate increase to 33 percent.
So how much do you have to make to end up in the highest bracket? If you are an individual that makes between $112,500 and $190,150 in gross income, or you are married or filing jointly and make between $225,000 and $231,450 in gross income then you would be subject to the new higher rate.
For example, if you make $225,000 your tax bill would be $63,000 at a rate of 28 percent. With a 33 percent tax rate your bill would jump to $74,250. That’s a significant increase. So while many of the nation’s top earners will see a decrease in taxes, there are several wealthy taxpayers who will actually pay more under Trump.
The tax questions continue to grow as the country waits for President-Elect Donald Trump to be sworn in, in just a few more days. Of course, there is much debate as to whether or not Trump’s tax policies will help or hurt our country and it’s overall economy. The nation is as divided over that issue as they were during the election.
One group that is watching this debate closely is hedge fund managers. In fact, at least one major hedge fund manager who has already taken a hit since Trump won the election is still sure that a Trump presidency will be good for the nation’s financial position. Nelson Peltz, who owns Mondelez, which has dropped 10 percent since the election, is still certain that Trump will be good for the economy.
Peltz believes that if Trump is able to enact the tax reductions and changes that he has proposed the country will see improved employment and more companies moving their operations and revenue back to the U.S. In fact, even though Trump has been critical of Mondelez-owned companies such as Chips Ahoy!, for moving jobs to Mexico, Peltz still likes the potential benefits that Trump’s tax plans bring to the country.
One of the many promises president-elect Donald Trump made during his run to the White House was to keep more jobs in America. Now that he has been elected, it appears that he is serious about this promise. Trump recently made it very clear, in no uncertain terms, that companies that try to shift jobs or business operations overseas and then bring that money back here by selling their products in the U.S., without consequences, have another thing coming.
Trump warned businesses that following such a plan would earn them a 35 percent tax if they try to sell their products in America. There is good news though, as Trump has said he plans to significantly reduce regulations and taxes on corporations, which is designed to encourage companies to keep their employees and operations stateside instead of moving them overseas to more tax-friendly locations.
In several posts on Twitter, Trump stated: “The U.S. is going to substantially reduce taxes and regulations on businesses, but any business that leaves our country for another country, fires its employees, builds a new factory or plant in the other country, and then thinks it will sell its product back into the U.S. without retribution or consequence, is WRONG! There will be a tax on our soon to be strong border of 35% for these companies.”
Trump hopes his stern warning will be enough to deter businesses from manufacturing so many product outside of the U.S. and thus produce more jobs for Americans.
Many people believe that the nation’s wealthiest individuals already make too much money without paying their fair share of taxes. Now that billionaire Donald Trump has been elected as our country’s next president, many expect that to only get worse. However, starting next year, it will now be very difficult for anyone to really know how much of a difference Trump’s new tax policies will make to the nation’s top earners.
That’s because the IRS recently announced that it would no longer continue to release its Top 400 Report, which is an annual statistical report of the top 400 taxpayers in the country, according to adjusted gross income. This year’s report, which for now will be the last, showed just how hard the current president’s tax hikes have hit the wealthiest taxpayers over the past several years.
In 2012, the top 400 paid an effective tax rate of 16.72 percent on average adjusted gross income of $226 million. Compare that to 2014 when the same group paid an effective federal tax rate of 23.13 percent on AGI averaging $318 million. If Trump’s tax proposals are put into law then the top 400 are likely to see their effective tax rate go back down again, but now that the IRS will no longer be releasing this report, there is no way to know by exactly how much.
There is a lot of uncertainty for a lot of different reasons now that Donald Trump has been elected as our country’s next president. Whether you have concerns or not, Trump’s proposed tax policies are likely going to affect you one way or another. Another group of people that is also likely watching closely as Trump gets ready to take over the Oval Office is investors on Wall Street. So what should investors be looking for in order to be successful during Trump’s presidency?
The overriding belief is that investing will be profitable under Trump. That’s because investors will likely be keeping much more of their investment returns with Trump in office because the tax on capital gains is expected to decrease sharply. In fact, under Trump’s plans marginal tax rates are expected to be consolidated and lowered to 33 percent, 25 percent and 12 percent, as has been mentioned many times previously in this blog space. The tax rate on capital gains is expected to be half of those numbers.
Therefore, someone in the top tax bracket who now pays 20 percent on capital gains – plus the 3.8 percent Net Investment income tax as part of the Affordable Care Act – would pay only 16.5 percent under Trump’s plan. That’s a savings of 7.3 percent, which is significant. However, one still has to invest wisely in order to receive those benefits. According to many experts there are several investing tips to keep in mind, including:
- Go after investments that produce high income at a steady rate.
- It’s time to reconsider bonds, because interest from bonds is only taxed at half of your marginal rate.
- Seek opportunities that have lower business taxes as the corporate tax rate is expected to be lowered significantly.
- Pay taxes on retirement savings because you only have to pay once. If you pay them while the rates are lower you won’t have to pay again upon withdrawal when rates could be higher.
It’s no secret that Donald Trump’s proposed tax plans would definitely benefit the nations’ wealthiest individuals. The president elect has made it clear he wants to overhaul our country’s tax system and his stated proposals indicate that the wealthy will see a healthy increase in the amount of money they get to keep.
Among the wealthy that will likely be saving a lot of money are professional athletes. Of course, almost all professional athletes make a very comfortable living, but certain of the top athletes in their given sports really stand to benefit from having Trump in the White House. First off, a large percentage of all professional athletes currently fall into the top tax bracket, which is more than 40 percent after adding the ACA net investment income tax of 3.8 percent. Under Trump that percentage would fall to 33 percent.
Here’s just one example of how much one star athlete could save thanks to the new president’s tax plans. Cleveland Cavaliers star LeBron James has a three-year $99 million deal. That means he would save an estimated $2.3 million every year on his salary alone. Add to that the savings he would receive on his endorsement earnings, which would be about $13.8 million a year, and James is likely to save more than $16 million annually in taxes.
There is a downside, as Trump has also proposed capping itemized deductions at $200,000, which means anything over that amount, which is entirely possible for James, he would not be able to deduct, thus reducing his total deductions amount. However, he would still likely have a total savings in excess of $15 million. James might have endorsed Hillary Clinton, but he will save more money with Trump.
While the 2016 tax year is still not quite over, the IRS has already announced some important inflation adjustments for the 2017 tax year, which taxpayers will file for in 2018. While you might be more worried about your upcoming tax return, there are some important changes to know about. However, that being said, with the new president-elect set to take office in January, some, or all of these changes could be changed again, as Donald Trump has already made it clear he wants to rewrite the nation’s tax policy.
In the meantime, the IRS stated that the standard deduction for taxpayers who are married filing jointly will increase by $100 to $12,700. However, the personal exemption for single filers will stay the same as last year at $4,050. The inflation adjustments also increased the top income levels of the tax brackets, but if Trump’s planned changes occur then these brackets would be obsolete, as the president-elect has already stated he wants to drop the current seven bracket system and replace it with just three.
Another tax that would be affected is the estate tax, which currently kicks in on estates with assets that surpass $5.45 million. In 2017 that number increases to $5.49 million. However, Trump has also stated that he would like to completely wipe out the estate tax so this could also be of little consequence by this time next year. Inflation adjustments will also affect the limit above which itemized deductions can be reduced, the maximum amount for earned income credit and the Alternative minimum tax.