Author: Joanne Elizabeth
Source: articleage.com
Of all the forms of income generating investments, annuities are some of the most controversial ones. Annuity - derived from the Latin word 'annus' - is basically an insurance product sold by insurance companies through authorised agents. This type of investment facilitates a series of payments in the future, in a defined manner, in exchange for an up-front payment of money.
There is a group of individuals who think that annuities are a waste of time and there are much better tools of investment such as stock market or property. But then again both the above forms of investment are vulnerable to crash and do not score very high in comparison to annuities, with respect to safety.
Annuities are commonly of two types first Deferred and the other Fixed. In the case of 'Deferred Annuity', the payments are made usually on a monthly basis for a number of years. This form of annuity makes sure that a younger person acquires a good income in his later years. In the latter form that is 'Fixed or Immediate Annuity', the purchaser pays a large capital sum usually to an insurance company and payments begin soon thereafter.
One of the biggest hurdles faced by annuities today is inflation. At the outset the agreed sum to be paid out by the insurance company might look excellent and very heart warming, but inflation can erode the value of your investment at an alarming rate.
Another draw back with annuities is that instead of being a long-term capital gain the earnings on annuities are taxable just as income is. Plus there are certain stringent rules and regulations governing the deposit that may not be customer friendly. One of which is that the customer cannot withdraw the money until he turns 59.5 years or else he would be charged a 10% penalty for withdrawing the same prematurely.
So why should you consider Annuities as a mode of investment?
Frankly any individual planning, income tax bracket, to invest in annuities should be the one who is not already contributing his maximum to other forms of retirement schemes. However, annuities are an excellent mode of investment for individuals in higher tax brackets. In those years of high tax liabilities, annuities make a lot of sense, as these savings are tax exempt. Tax is only due when income is received for the plan. That means you start drawing your annuity after you have stopped earning a high salary.
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Investment via Annuities
Monday, December 14, 2009
Thursday, December 10, 2009
Pay Down Debt With Retirement Account Money? - It's Almost Always a Bad Idea
Author: Kurt Fischer
Source: ezinearticles.com
If you are struggling with high-interest debt, you may be considering tapping the one resource you have left: your 401k, 401b, IRA, or other retirement savings. Though it may not seem like it now, you will retire someday. When you do, you'll need money to live, and Social Security alone won't be enough. You need to save money, and a lot of it, to live comfortably through your retirement years.
Penalty Box If you withdraw money early (before age 59-1/2) from a tax-deferred retirement account, you'll owe the IRS income tax on the amount withdrawn at your normal marginal income tax rate PLUS, unless the money's for an "allowed purpose," a 10 percentage point penalty. So if your normal marginal income tax rate is 15%, you'd pay 25% tax (15% + 10% penalty) on money withdrawn early from a tax-deferred retirement account.
Say you're thinking of withdrawing money from a retirement account to pay off $20,000 in credit card debt. To be sure you've got the money to pay the big tax bill on your withdrawal when April 15 the following year rolls around, you'd have to withdraw from your retirement account $26,667 (if you're in the 15% income tax bracket). Why? Because that's how much you'd need to withdraw to have $20,000 for the credit card companies and still set aside what you'd need to pay the income tax + penalty of 25%.
What About a Loan? Some workplace retirement plans allow participants to borrow from their accounts. If you borrow from your tax-deferred retirement account, you wouldn't have to pay any tax on the loan proceeds, unlike a withdrawal.
Before borrowing from a workplace retirement account, consider the following:
You'll be required to repay the loan by automatic paycheck deduction over 5 years (longer if for a house purchase). How would this reduction in your take-home pay affect your ability to keep up with your bills? You would not be allowed, income tax bracket, to suspend or reduce your retirement plan loan payments if you get behind on bills, so be sure you can live on the new, lower take-home pay.
If you leave your job, by choice or not, the balance of any retirement plan loan likely will be due right away. If you didn't have the cash to repay the loan balance, the IRS would then consider any unpaid balance an early withdrawal. You'd have to pay tax on it plus maybe a 10 percentage point penalty (depending on how you spent the loan proceeds).
If you borrow money from your retirement account, your account won't grow as large as it would have if you'd left it alone. To estimate the effect, use this calculator.
Borrowing from a retirement account may, in certain situations, make sense, but other options are better in the large majority of cases. A free credit counseling session can help to identify and sort through your options for paying off high-interest debt. What about future contributions to your workplace retirement plan? If necessary to help a well thought out debt pay off plan succeed, and only after you've cut your living expenses and increased your income as much as you can, it's okay to reduce temporarily your contributions to a retirement plan. If your employer makes a matching contribution to your account, try to keep contributing enough of your own money to get the full match. If your situation improves, restarting some or all of your retirement account contribution should be at the top of your list of options for what to do with extra money. Don't start splurging on dining out, travel, and other non-necessities before you're again making the maximum contribution allowed to your retirement accounts.
Source: ezinearticles.com
If you are struggling with high-interest debt, you may be considering tapping the one resource you have left: your 401k, 401b, IRA, or other retirement savings. Though it may not seem like it now, you will retire someday. When you do, you'll need money to live, and Social Security alone won't be enough. You need to save money, and a lot of it, to live comfortably through your retirement years.
Penalty Box If you withdraw money early (before age 59-1/2) from a tax-deferred retirement account, you'll owe the IRS income tax on the amount withdrawn at your normal marginal income tax rate PLUS, unless the money's for an "allowed purpose," a 10 percentage point penalty. So if your normal marginal income tax rate is 15%, you'd pay 25% tax (15% + 10% penalty) on money withdrawn early from a tax-deferred retirement account.
Say you're thinking of withdrawing money from a retirement account to pay off $20,000 in credit card debt. To be sure you've got the money to pay the big tax bill on your withdrawal when April 15 the following year rolls around, you'd have to withdraw from your retirement account $26,667 (if you're in the 15% income tax bracket). Why? Because that's how much you'd need to withdraw to have $20,000 for the credit card companies and still set aside what you'd need to pay the income tax + penalty of 25%.
What About a Loan? Some workplace retirement plans allow participants to borrow from their accounts. If you borrow from your tax-deferred retirement account, you wouldn't have to pay any tax on the loan proceeds, unlike a withdrawal.
Before borrowing from a workplace retirement account, consider the following:
You'll be required to repay the loan by automatic paycheck deduction over 5 years (longer if for a house purchase). How would this reduction in your take-home pay affect your ability to keep up with your bills? You would not be allowed, income tax bracket, to suspend or reduce your retirement plan loan payments if you get behind on bills, so be sure you can live on the new, lower take-home pay.
If you leave your job, by choice or not, the balance of any retirement plan loan likely will be due right away. If you didn't have the cash to repay the loan balance, the IRS would then consider any unpaid balance an early withdrawal. You'd have to pay tax on it plus maybe a 10 percentage point penalty (depending on how you spent the loan proceeds).
If you borrow money from your retirement account, your account won't grow as large as it would have if you'd left it alone. To estimate the effect, use this calculator.
Borrowing from a retirement account may, in certain situations, make sense, but other options are better in the large majority of cases. A free credit counseling session can help to identify and sort through your options for paying off high-interest debt. What about future contributions to your workplace retirement plan? If necessary to help a well thought out debt pay off plan succeed, and only after you've cut your living expenses and increased your income as much as you can, it's okay to reduce temporarily your contributions to a retirement plan. If your employer makes a matching contribution to your account, try to keep contributing enough of your own money to get the full match. If your situation improves, restarting some or all of your retirement account contribution should be at the top of your list of options for what to do with extra money. Don't start splurging on dining out, travel, and other non-necessities before you're again making the maximum contribution allowed to your retirement accounts.
Kurt Fischer is a certified credit counselor and founder of http://www.MyMoneyCounselor.com
Tuesday, December 8, 2009
Federal Tax Returns
Author: Kristy Annely
Source: download
Congress first imposed the first federal income tax in 1862 to, income tax bracket, raise money for the Union in the Civil War. A 3% tax was fixed on incomes above $600. Those with incomes above $10,000 had to pay 5% in taxes.
After many changes and appeals, the states ratified the Sixteenth Amendment to the United States Constitution, which made possible modern income taxes. For the first time, Form 1040 appeared. People earning above $3,000 had to pay 1% tax on net personal incomes, and those with incomes above $500,000 had to pay 6% surtax.
Today more than two-thirds of the nation pays taxes. People earning less than $20,000 pay no income tax as a group. Payroll taxes for Social Security, Medicare and Unemployment Insurance amount to 7-10% of every dollar. Personal and corporate income taxes are major earners for federal taxes.
Income tax can be calculated in two ways. First of all gross income minus any applicable deductions is calculated, and on this a marginal tax percentage is applied as per the taxpayer's income bracket. Then, applicable tax credits are subtracted, which gives the income tax owed.
Refundable tax credits are given if these calculations are in the negative or if the federal withholding tax is greater than the income tax that is actually owed. The taxpayer then gets a tax refund. He could receive one even without paying any federal income tax.
The newer Alternative Minimum Tax (AMT) is based on gross income. This was introduced to prevent people from using loopholes in the tax laws. It is calculated without taking into account certain tax preference items. It also has exemptions and deductions. This higher income base is taxed in two rate brackets of 26% and 28%; this depends on the taxpayer's income. Unfortunately the addition of unrealized gain on incentive stock options made it difficult for people who could not come up with cash to pay tax on gains that weren't realized. The modified AMT takes into account this problem.
American salaried people usually pay progressive income tax. Non-resident Americans have to pay taxes as per the flat rate. They also have fewer allowed deductions.
If you have all the documents, it is easy to file taxes yourself. However if you are in the higher tax bracket, you may need a consultant to help you. The IRS also helps in filing your returns; call the IRS customer service representatives toll-free at 1-800-829-1040.
The IRS website (www.irs.gov) gives you extensive information. You could also go to websites like About Taxes (www.abouttaxes.org), Complete Tax (www.completetax.com), or World Wide Web Tax (www.wwwebtax.com). Do keep in mind that a little bit of care in documentation goes a long way to filing a tax return without any ensuing problems!
Tax Returns provides detailed information on Tax Returns, Income Tax Returns, Tax Return Filing Preparations, Federal Tax Returns and more. Tax Returns is affiliated with Free Tax Filing.
Source: download
Congress first imposed the first federal income tax in 1862 to, income tax bracket, raise money for the Union in the Civil War. A 3% tax was fixed on incomes above $600. Those with incomes above $10,000 had to pay 5% in taxes.
After many changes and appeals, the states ratified the Sixteenth Amendment to the United States Constitution, which made possible modern income taxes. For the first time, Form 1040 appeared. People earning above $3,000 had to pay 1% tax on net personal incomes, and those with incomes above $500,000 had to pay 6% surtax.
Today more than two-thirds of the nation pays taxes. People earning less than $20,000 pay no income tax as a group. Payroll taxes for Social Security, Medicare and Unemployment Insurance amount to 7-10% of every dollar. Personal and corporate income taxes are major earners for federal taxes.
Income tax can be calculated in two ways. First of all gross income minus any applicable deductions is calculated, and on this a marginal tax percentage is applied as per the taxpayer's income bracket. Then, applicable tax credits are subtracted, which gives the income tax owed.
Refundable tax credits are given if these calculations are in the negative or if the federal withholding tax is greater than the income tax that is actually owed. The taxpayer then gets a tax refund. He could receive one even without paying any federal income tax.
The newer Alternative Minimum Tax (AMT) is based on gross income. This was introduced to prevent people from using loopholes in the tax laws. It is calculated without taking into account certain tax preference items. It also has exemptions and deductions. This higher income base is taxed in two rate brackets of 26% and 28%; this depends on the taxpayer's income. Unfortunately the addition of unrealized gain on incentive stock options made it difficult for people who could not come up with cash to pay tax on gains that weren't realized. The modified AMT takes into account this problem.
American salaried people usually pay progressive income tax. Non-resident Americans have to pay taxes as per the flat rate. They also have fewer allowed deductions.
If you have all the documents, it is easy to file taxes yourself. However if you are in the higher tax bracket, you may need a consultant to help you. The IRS also helps in filing your returns; call the IRS customer service representatives toll-free at 1-800-829-1040.
The IRS website (www.irs.gov) gives you extensive information. You could also go to websites like About Taxes (www.abouttaxes.org), Complete Tax (www.completetax.com), or World Wide Web Tax (www.wwwebtax.com). Do keep in mind that a little bit of care in documentation goes a long way to filing a tax return without any ensuing problems!
Tax Returns provides detailed information on Tax Returns, Income Tax Returns, Tax Return Filing Preparations, Federal Tax Returns and more. Tax Returns is affiliated with Free Tax Filing.
Sunday, December 6, 2009
Types of Income Tax Wages That Are Safe From the IRS
Author: Ellis Jackson Jr
Source: ezinearticles.com
Looking for a way to keep the IRS from messing with your income tax? There are things you can do to protect your wages. There are types of income that old Uncle Sam can't get his hands on. The law keeps the IRS from taxing these incomes and you need to know what they, income tax bracket, are. Keep a little bit more money come tax time.
Municipal bonds issued by your state is income that that can't be taxed. As the value grows so does your benefit. By placing a certain percent in these types of bonds you can save yourself a nice chunk of chance from the tax man. These types of bonds are easy to get and have low risk of losing all your money.
Car-pooling is another type of income that is not taxable. If you receive income from all the members of your car-pool to cover cost of gas and repairs then that income is not included in your income. Since that money was used to cover all expenses of the car-pool that means you have no additional income and there for cannot be taxed. Think about that the next time you are going to work by yourself.
Instead of taking a regular wage increase try to get it a little bit differently. Since health insurance premiums paid by your employer are tax free see if your employer will put the money towards that instead. By paying down your deductible you will not be put in a higher tax bracket plus you get to pay less for insurance. That is you a net boost in wages without the IRS taxing your additional wages. This works the same with life insurance with your employer. They pay more of your premium, you save by paying less and the employer writes it off on there taxes.
You could also talk to your employer about using your raise to send you to school. Your boss can deduct up to $5,250 a year in educational assistance off there taxes which you can use to get an education. As long as you are not going for sports, hobbies, or games you will be fine.
I think now you are starting to see a pattern. These types of income are non-taxable so by converting your taxable income this way you get to keep more of your wages. The IRS as a long list so you have to work it to your advantage. They are not going to do this for you so look for every opportunity you can to convert that income to save you on taxes.
Source: ezinearticles.com
Looking for a way to keep the IRS from messing with your income tax? There are things you can do to protect your wages. There are types of income that old Uncle Sam can't get his hands on. The law keeps the IRS from taxing these incomes and you need to know what they, income tax bracket, are. Keep a little bit more money come tax time.
Municipal bonds issued by your state is income that that can't be taxed. As the value grows so does your benefit. By placing a certain percent in these types of bonds you can save yourself a nice chunk of chance from the tax man. These types of bonds are easy to get and have low risk of losing all your money.
Car-pooling is another type of income that is not taxable. If you receive income from all the members of your car-pool to cover cost of gas and repairs then that income is not included in your income. Since that money was used to cover all expenses of the car-pool that means you have no additional income and there for cannot be taxed. Think about that the next time you are going to work by yourself.
Instead of taking a regular wage increase try to get it a little bit differently. Since health insurance premiums paid by your employer are tax free see if your employer will put the money towards that instead. By paying down your deductible you will not be put in a higher tax bracket plus you get to pay less for insurance. That is you a net boost in wages without the IRS taxing your additional wages. This works the same with life insurance with your employer. They pay more of your premium, you save by paying less and the employer writes it off on there taxes.
You could also talk to your employer about using your raise to send you to school. Your boss can deduct up to $5,250 a year in educational assistance off there taxes which you can use to get an education. As long as you are not going for sports, hobbies, or games you will be fine.
I think now you are starting to see a pattern. These types of income are non-taxable so by converting your taxable income this way you get to keep more of your wages. The IRS as a long list so you have to work it to your advantage. They are not going to do this for you so look for every opportunity you can to convert that income to save you on taxes.
Tax advice is available for all self employed people out there by going to: Filing Taxes. If you are not self employed and would like to be then check out: http://www.allproman.com/nichemarketing/
Friday, December 4, 2009
Don't Leave Real Estate Donations for Others to Do
Author: Ralph Maupin
Source: download
Most people think that donating real estate to a charity is for the rich. This simple is not true. I have worked individuals, charities, and small corporations for years with donations process. For many people and companies is about the able to rid themselves of unwanted property. They simple want out. They are tired of property taxes, insurance cost and the liability exposure.
The following are the rules that apply for real estate donation:
Individuals:
The following rules apply if the donated property is owned in your own name, with your spouse or other persons: If you have held the property for more than one year, it is classified as long-term capital gain property. You can deduct the full fair market value of the donated property. Your charitable contribution deduction is limited to thirty percent (30.00%) of your adjusted gross income.
Excess contribution value may be carried forward for up to five years. If the property has been depreciated, the fair market value must be reduced by its accumulated depreciation through the date of contribution. Fair market value is most commonly determined by an independent appraisal.
If you elect to deduct your cost basis of the donated property you are allowed a deduction of fifty percent (50.00%) of your adjusted gross income. Excesses here again can be carried forward up to five years. Which method you elect is dependent on the cost basis in the property donated, your tax bracket, the age and health of the donor and whether you plan to make future contributions. Corporate Donors
The following rules apply if a corporation makes your contribution, these rules apply:
If you have a controlling interest in the corporation and the property has been held for more than one year, the corporation can deduct up to ten percent (10.00%) of the net profit of the corporation. Excess contribution amounts can be carried forward up to five years. The fair market value here must be reduced by the amount of accumulate depreciation. If the corporate has elected "Subchapter S" status, then the contribution allowed will be reported on the individual shareholders K1 and may be deducted on the individual return. Partnerships, S-Corporations and Limited Liability Companies
The following rules apply if a partnership, S-Corporation or limited liability company is making your contribution:
The corporation may not claim a deduction for the property donated. Rather, the contribution passes to the individual shareholders on a pro-rated based on their percent ownership in the S corporation. The shareholder can, income tax bracket, claim this deduction on their individual tax return. The same limits and carry forward rules will apply.
Partnerships and limited liability company contribution rules are the same as an S corporation with one exception the partners or member can claim a deduction even if they have no basis in the partnership or limited liability company.
Real estate investing by nature is risky. You can win, lose, or break even. We cannot guarantee a profit or loss. We do not provide legal, accounting, or contracting advice.
* Please consult your CPA/Attorney for your specific tax benefit.
------------------------
Ralph Mark Maupin has purchased and sold in excess of 3,500 single-family homes and many multi family properties. Mark teaches real estate investing seminars, and has real estate mentoring program. Mark co-founded company Donate Real Estate, LLC http://www.donaterealestate.com
Source: download
Most people think that donating real estate to a charity is for the rich. This simple is not true. I have worked individuals, charities, and small corporations for years with donations process. For many people and companies is about the able to rid themselves of unwanted property. They simple want out. They are tired of property taxes, insurance cost and the liability exposure.
The following are the rules that apply for real estate donation:
Individuals:
The following rules apply if the donated property is owned in your own name, with your spouse or other persons: If you have held the property for more than one year, it is classified as long-term capital gain property. You can deduct the full fair market value of the donated property. Your charitable contribution deduction is limited to thirty percent (30.00%) of your adjusted gross income.
Excess contribution value may be carried forward for up to five years. If the property has been depreciated, the fair market value must be reduced by its accumulated depreciation through the date of contribution. Fair market value is most commonly determined by an independent appraisal.
If you elect to deduct your cost basis of the donated property you are allowed a deduction of fifty percent (50.00%) of your adjusted gross income. Excesses here again can be carried forward up to five years. Which method you elect is dependent on the cost basis in the property donated, your tax bracket, the age and health of the donor and whether you plan to make future contributions. Corporate Donors
The following rules apply if a corporation makes your contribution, these rules apply:
If you have a controlling interest in the corporation and the property has been held for more than one year, the corporation can deduct up to ten percent (10.00%) of the net profit of the corporation. Excess contribution amounts can be carried forward up to five years. The fair market value here must be reduced by the amount of accumulate depreciation. If the corporate has elected "Subchapter S" status, then the contribution allowed will be reported on the individual shareholders K1 and may be deducted on the individual return. Partnerships, S-Corporations and Limited Liability Companies
The following rules apply if a partnership, S-Corporation or limited liability company is making your contribution:
The corporation may not claim a deduction for the property donated. Rather, the contribution passes to the individual shareholders on a pro-rated based on their percent ownership in the S corporation. The shareholder can, income tax bracket, claim this deduction on their individual tax return. The same limits and carry forward rules will apply.
Partnerships and limited liability company contribution rules are the same as an S corporation with one exception the partners or member can claim a deduction even if they have no basis in the partnership or limited liability company.
Real estate investing by nature is risky. You can win, lose, or break even. We cannot guarantee a profit or loss. We do not provide legal, accounting, or contracting advice.
* Please consult your CPA/Attorney for your specific tax benefit.
------------------------
Ralph Mark Maupin has purchased and sold in excess of 3,500 single-family homes and many multi family properties. Mark teaches real estate investing seminars, and has real estate mentoring program. Mark co-founded company Donate Real Estate, LLC http://www.donaterealestate.com
Thursday, December 3, 2009
The Jobs and Growth Tax Relief Reconciliation Act of 2003 - - What Does It Mean
Author: Ted Koester
Source: free-articles
the third largest tax reduction in our country's history. Since it is such a large tax cut, it will affect most Americans. The purpose of this article is to summarize the Act and examine its effects.
On Wednesday, May 28, 2003, President George W. Bush signed the Jobs and Growth Tax Relief Reconciliation Act of 2003 (the "Act") into law. It has been reported that this Act is the third largest tax reduction in our country's history. Since it is such a large tax cut, it will affect most Americans. The purpose of this article is to summarize the Act and examine its effects.
Summary Of The Act
All of the tax cuts created by the Act involve income taxes. Transfer taxes, such as gift, estate and generation-skipping taxes, are not affected by the Act.
The Act changes the income tax system in several ways. First, the maximum child tax credit for 2003 and 2004 is increased from $600 to $1,000 per child. The amount of the increase ($400) for 2003 will be advanced to eligible taxpayers this year in the form of checks. However, in 2005 the child tax credit falls to $700 per child, as specified under the law prior to the Act.
Secondly, the Act lessens the effect of the so-called "marriage penalty." This is accomplished by making the standard deduction for jointly filing, married taxpayers twice the amount of the standard deduction for single taxpayers and by increasing the 15% tax bracket for jointly filing, married taxpayers so that it is double the 15% tax bracket for single filers.
A significant change made by the Act is the lowering of the four highest income tax rates. The 10% and 15% rates are not altered, but the 27% rate is lowered to 25%; the 30% rate reduced to 28%; the 35% rate goes down to 33%; and the 38.6% rate drops to 35%. The Act also provides some minimum tax relief to individual taxpayers.
All these amendments to the Internal Revenue Code, as they are significant, are only effective until December 31, 2010. After that date, the law in effect prior to the enactment of the Economic Growth and Tax Relief Reconciliation Act of 2001 goes back into effect.
The Act also reduces the tax rate on capital gains and dividends received by individuals. The 10% capital gains rate is lowered to 5% and the 20% rate reduced to 15%. Dividends are no longer taxed at ordinary income tax rates, but will be taxed at the 5% and 15% capital gains rates. However, these changes aren't permanent, either; they will expire after December 31, 2008.
The Act also contains income tax benefits for businesses. Specifically, the so-called "Section 179" expense amount is increased from $25,000 to $100,000 for tax years 2003 through 2005. Further, certain computer software will now qualify for the Section 179 expense. In addition, the 30% "bonus depreciation" deduction is increased to 50% for qualifying property acquired after May 5, 2003 (but not under contract to be acquired prior to May 6, 2003) and before January 1, 2005.
Finally, the Act contains some provisions granting fiscal relief to states for Medicaid and other government services and pushes the due date for the 25% required installment of corporate estimated tax back from September 15, 2003 to October 1, 2003.
What Do The Changes Mean To You?
Obviously, the child tax credit advance checks many Americans will receive will be a welcomed change. The recipients will be able to use this money for any purpose. However, this author suggests that parents consider depositing this money into education savings accounts for their children, such as Section 529 Plans. These Plans offer many tax benefits to the contributors and the beneficiaries. Plus, Illinois' Bright Startยฎ Plan gives all Illinois contributors a tax deduction on their Illinois income tax return.
Another benefit the Act will provide is more take-home pay to working taxpayers. This will result from the decrease in the ordinary income tax rates, the increased standard deduction, and the, income tax bracket, larger 15% bracket for jointly filing, married taxpayers. The lawmakers believe that this will create more jobs by infusing more money into the economy. But as with most things, only time will tell if that is true. However, this author believes that if people have more money they will, as a whole, be more likely to invest that money - - especially given that the tax on investment returns (capital gains and dividends) has been lowered and the deductions allowed (50% bonus depreciation and Section 179 expense) for such investments have been increased. Of course, the investments made should be sound ones. Thorough analysis is important before making any decisions. Further, this author strongly recommends that the appropriate professionals be employed before making any investment decisions.
Remember that many of the tax cuts in the Act are only temporary and will expire in a few years. All taxpayers are encouraged to take advantage of them now, because the future is uncertain.
Source: free-articles
the third largest tax reduction in our country's history. Since it is such a large tax cut, it will affect most Americans. The purpose of this article is to summarize the Act and examine its effects.
On Wednesday, May 28, 2003, President George W. Bush signed the Jobs and Growth Tax Relief Reconciliation Act of 2003 (the "Act") into law. It has been reported that this Act is the third largest tax reduction in our country's history. Since it is such a large tax cut, it will affect most Americans. The purpose of this article is to summarize the Act and examine its effects.
Summary Of The Act
All of the tax cuts created by the Act involve income taxes. Transfer taxes, such as gift, estate and generation-skipping taxes, are not affected by the Act.
The Act changes the income tax system in several ways. First, the maximum child tax credit for 2003 and 2004 is increased from $600 to $1,000 per child. The amount of the increase ($400) for 2003 will be advanced to eligible taxpayers this year in the form of checks. However, in 2005 the child tax credit falls to $700 per child, as specified under the law prior to the Act.
Secondly, the Act lessens the effect of the so-called "marriage penalty." This is accomplished by making the standard deduction for jointly filing, married taxpayers twice the amount of the standard deduction for single taxpayers and by increasing the 15% tax bracket for jointly filing, married taxpayers so that it is double the 15% tax bracket for single filers.
A significant change made by the Act is the lowering of the four highest income tax rates. The 10% and 15% rates are not altered, but the 27% rate is lowered to 25%; the 30% rate reduced to 28%; the 35% rate goes down to 33%; and the 38.6% rate drops to 35%. The Act also provides some minimum tax relief to individual taxpayers.
All these amendments to the Internal Revenue Code, as they are significant, are only effective until December 31, 2010. After that date, the law in effect prior to the enactment of the Economic Growth and Tax Relief Reconciliation Act of 2001 goes back into effect.
The Act also reduces the tax rate on capital gains and dividends received by individuals. The 10% capital gains rate is lowered to 5% and the 20% rate reduced to 15%. Dividends are no longer taxed at ordinary income tax rates, but will be taxed at the 5% and 15% capital gains rates. However, these changes aren't permanent, either; they will expire after December 31, 2008.
The Act also contains income tax benefits for businesses. Specifically, the so-called "Section 179" expense amount is increased from $25,000 to $100,000 for tax years 2003 through 2005. Further, certain computer software will now qualify for the Section 179 expense. In addition, the 30% "bonus depreciation" deduction is increased to 50% for qualifying property acquired after May 5, 2003 (but not under contract to be acquired prior to May 6, 2003) and before January 1, 2005.
Finally, the Act contains some provisions granting fiscal relief to states for Medicaid and other government services and pushes the due date for the 25% required installment of corporate estimated tax back from September 15, 2003 to October 1, 2003.
What Do The Changes Mean To You?
Obviously, the child tax credit advance checks many Americans will receive will be a welcomed change. The recipients will be able to use this money for any purpose. However, this author suggests that parents consider depositing this money into education savings accounts for their children, such as Section 529 Plans. These Plans offer many tax benefits to the contributors and the beneficiaries. Plus, Illinois' Bright Startยฎ Plan gives all Illinois contributors a tax deduction on their Illinois income tax return.
Another benefit the Act will provide is more take-home pay to working taxpayers. This will result from the decrease in the ordinary income tax rates, the increased standard deduction, and the, income tax bracket, larger 15% bracket for jointly filing, married taxpayers. The lawmakers believe that this will create more jobs by infusing more money into the economy. But as with most things, only time will tell if that is true. However, this author believes that if people have more money they will, as a whole, be more likely to invest that money - - especially given that the tax on investment returns (capital gains and dividends) has been lowered and the deductions allowed (50% bonus depreciation and Section 179 expense) for such investments have been increased. Of course, the investments made should be sound ones. Thorough analysis is important before making any decisions. Further, this author strongly recommends that the appropriate professionals be employed before making any investment decisions.
Remember that many of the tax cuts in the Act are only temporary and will expire in a few years. All taxpayers are encouraged to take advantage of them now, because the future is uncertain.
Wednesday, December 2, 2009
How to Get on With IRS For Getting Married
Author: Chintamani Abhyankar
Source: ezinearticles.com
When you get married, you get an option of filing your tax return under the category -married filing jointly.However there could be a marriage penalty in the sense you may end up paying higher taxes due to higher tax brackets.This is especially possible when the income of the spouses is unequal.Combining those incomes may take to higher tax brackets and consequently ending up paying higher taxes.
However, there are some benefits which can be available for married people from IRS.Let us list them here:
If you are facing higher tax brackets due to marriage, you can continue to file as a single person.However in reality the 'married filing separately' status rarely helps people.This is due to certain restrictions imposed by IRS.If all the spouses prefer to file separately, one cannot take itemized deductions while the other is taking standard deduction.Both have to claim only one choice.
Fringe benefits - marriage may open up with some new opportunities for saving.For example, if you are covered by the medical plan offered to your wife, you need not continue with your medical insurance premiums.Perhaps you can trade on for another benefit.
Benefits on withholding - you may tune Up your withholding after marriage. You need to analyze properly withholding provisions.You can also analyze the fringe benefits so that you can decide which one to continue for yourself and which one to leave to your spouse.This can substantially reduce your withholding, getting you more money for your new life.
Benefits on selling a house - when your filing status changes on marriage, you can claim more tax free capital gain on sale of your house.In fact the amount doubles from $250,000 to $500,000.Remember, there are certain conditions -you should own and live in the house for at least two out of the last five years.If both husband and wife own houses for more than two years before the marriage and they sell those houses in the year of marriage, the exclusion amount can, income tax bracket, be $500,000.
Remember, if you change your name after the marriage, you need to inform such change to the social security administration by filing form SS-5.If the name entered on your tax return is not corresponding to the name with the social security and administration, it will delay several things including your refund.If you are near to the filing deadline and you do not have time to change the details with the social security administration, then you should file joint return under your old name and then the corrected one with the social security administration for the next year's return.
Source: ezinearticles.com
When you get married, you get an option of filing your tax return under the category -married filing jointly.However there could be a marriage penalty in the sense you may end up paying higher taxes due to higher tax brackets.This is especially possible when the income of the spouses is unequal.Combining those incomes may take to higher tax brackets and consequently ending up paying higher taxes.
However, there are some benefits which can be available for married people from IRS.Let us list them here:
If you are facing higher tax brackets due to marriage, you can continue to file as a single person.However in reality the 'married filing separately' status rarely helps people.This is due to certain restrictions imposed by IRS.If all the spouses prefer to file separately, one cannot take itemized deductions while the other is taking standard deduction.Both have to claim only one choice.
Fringe benefits - marriage may open up with some new opportunities for saving.For example, if you are covered by the medical plan offered to your wife, you need not continue with your medical insurance premiums.Perhaps you can trade on for another benefit.
Benefits on withholding - you may tune Up your withholding after marriage. You need to analyze properly withholding provisions.You can also analyze the fringe benefits so that you can decide which one to continue for yourself and which one to leave to your spouse.This can substantially reduce your withholding, getting you more money for your new life.
Benefits on selling a house - when your filing status changes on marriage, you can claim more tax free capital gain on sale of your house.In fact the amount doubles from $250,000 to $500,000.Remember, there are certain conditions -you should own and live in the house for at least two out of the last five years.If both husband and wife own houses for more than two years before the marriage and they sell those houses in the year of marriage, the exclusion amount can, income tax bracket, be $500,000.
Remember, if you change your name after the marriage, you need to inform such change to the social security administration by filing form SS-5.If the name entered on your tax return is not corresponding to the name with the social security and administration, it will delay several things including your refund.If you are near to the filing deadline and you do not have time to change the details with the social security administration, then you should file joint return under your old name and then the corrected one with the social security administration for the next year's return.
There are all sorts of financial decisions you take in your life. You make gifts to your children; you make investments and acquire real estate. Do you really know the tax implications of these decisions, which can save you thousands of dollars?
Stop donating your money to IRS is an e-book on these little known tax secrets. It is written by Chintamani Abhyankar, a tax professional for last 25 years. Get the expert advice
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