Catch Up On Some Tax Planning
July 23, 2010 by Taxcut Editor
Filed under Personal and Business Taxes
Anytime is a good time to improve tax fitness with a few simple exercises.
Consider Roth IRA assets. By keeping assets inside a Roth IRA, they can grow tax free for retirement. Also, this year people can convert traditional IRAs to Roth IRAs. Account holders are no longer subject to the $100,000 modified adjusted gross income limit. With conversions that occur in 2010, they can also split their conversion amounts equally and report them as income for tax years 2011 and 2012.
Take advantage of tax-deferred retirement accounts. If you have a 401(k) or other employer-sponsored retirement plan available, contribute as much as you can afford to contribute. By increasing contributions every time you get a raise, you can increase your savings. The plans are basically funded with pretax dollars, which will reduce taxable income. Also, that money will grow tax free until it is withdrawn. If the contribution is to a Roth IRA, it is made with post-tax money, so the funds can be withdrawn tax free after the age of 59½.
Consider a 529 college savings plan. The annual $13,000 gift would go a long way toward the amount needed to save for education expenses. Contributors may also be eligible for a state tax deduction or credit. They can also take advantage of a special five-year accelerated gifting provision, which is $65,000 in one year per contributor. That covers the current year and the next four years.
Hold assets more than a year. Any capital gain made within a year is considered taxable income, like a salary. But gains taken after a year are considered capital gains, which in 2010 is taxed at the maximum rate of 15 percent. The capital gains rate is almost always lower than the income tax rate. Also, the capital gains rate is expected to go up to 20 percent next year, so some people are taking advantage by taking their gains this year.
Give to charity. Contributing to charities is always a good idea. But if you are planning a gift, it might be best to do it soon, because some in Washington have been looking at cutting back on charitable deductions as a revenue-saving measure.
Thomas P. Marshall is President of Virginia Estate and Retirement Planning Advisors, Inc., a Fee-Based Richmond Financial Planner with offices throughout Virginia.
Related posts
How To Compute Quick Expression And Long Expression Cash Attain Taxes From Assets In Shares
May 8, 2010 by Taxcut Editor
Filed under Personal and Business Taxes
How to Compute Quick Expression and Long Expression Cash Attain Taxes From Assets in Shares
Most of you ought to be conscious that as per Income Taxes Act, 1961, any profits or achieve from any supply is liable for payment of tax. Gains from assets in stocks and shares are liable for Cash Achieve Tax Trading Pro System Review, which is divided into quick phrase and long expression capital acquire tax. Gains from investment funds used for much less than 1 12 months (but additional than one particular day) is chargeable as STCG Tax and gains from investment used for more than one 12 months is chargeable as LTCG Tax. Calculation of earnings and reduction from investments in stocks and shares and the resulting tax liability is relatively easy, because it consists of basic math. Even so, numerous persons are usually afraid when it comes to salary tax calculations. On this post, I have explained how to calculate profit and reduction and tax in the transactions involving investments in store.
Initial of all, allow me allow it to be obvious that stock buying and selling and investment in share are two distinct aspects from your point of view of revenue tax. On this write-up Tax Liens Made Easy Review, I’ve not touched revenue from store buying and selling (morning trading or Intra-Day transactions), and trading in Futures and & Options or salary from speculative business, as is known inside Income Taxes jargon.
Let’s see how to calculate STCG and LTCG Tax.
1. Revenue and Reduction: Profit and Loss = Cost of Sale – Cost of Buy (Cost of Acquisition);
Cost of sale = The gross sale or realization amount – Expenses incurred for marketing the stocks and shares
Cost of acquisition = Gross obtain amount + Expenses incurred on acquiring the stocks
2. Expenses: Transactions involving sale and acquisition of stocks and shares include the following types of expenses. You are able to refer the Contract Notes issued by your broker to find out the exact amount of brokerage, Service Taxes, Securities Transaction Taxes and Other Statutory Fees
Brokerage: Brokerage paid to your brokers is the main component of expenses on sale and acquisition of stocks.
Service taxes and Education Cess: Your commodity broker has to pay service taxes and education cess at the rate of 10.3% for the brokerage amount, which in turn is passed on to you.
Other Charges: Transactions in stock involve other statutory charges such as stamp duty, turnover taxes, and transaction charges of the investment exchanges, which are also passed on to the investors.
DP Charges: It includes DEMAT annual maintenance charges and transaction charges. You’ll be able to get the amounts from DP Statements issued by your broker.
Securities transaction taxes (STT): Although STT is an expense for you but it cannot be claimed as a deduction from the revenue and reduction from investment funds in stocks and therefore, in your calculations of income and loss, you have to exclude STT.
3. Capital Gains Taxes: After having calculated the revenue and reduction, the next step is to calculate the taxes liability. At present, the rate of quick term cash achieve taxes is 15% and long expression cash attain on assets in stocks is exempted from revenue tax, that may be, lengthy phrase cash acquire taxes is zero Surefire Trading Challenge.
You’ll be able to visit Financial Awareness Portal to get much more info with practical examples on the way to compute Quick Expression and Lengthy Phrase Funds Gains Taxes using a spreadsheet.
Related posts
Madison White Useful And Easy Guide To Follow When Buying 1031 Exchange Explained
March 28, 2010 by Taxcut Editor
Filed under Personal and Business Taxes
A 1031 Exchange is an Internal Revenue Condition which permits for a tax-deferred exchange with like properties. These exchanges need to occur inside a chosen amount of time to qualify for the tax benefit. These exchanges are most often related to real estate but can be done with different real property. There are specific regulations for individuals or businesses to follow so as receive a tax-deferral for the exchange of property avoiding high capital gain or alternative taxes.
1031 Exchange may be performed for either businesses or personal assets. It can even be done from a business to an individual or vice-versa. The exchange refers back to the properties of the asset as being exchanged plus not who is exchanging it.
The person or entity seeking to do a 1031 Exchange has forty-five days to complete the exchange. If like-property has not replaced the initial property, this is thought of as a sale followed by a buy and can be subject to taxes and not deferred in accord with the Internal Revenue Code Section 1031. This can be extraordinarily difficult when it comes to real estate which may have contingencies which extend escrow.
Items eligible in 1031 Exchanges are real estate, boats, vehicles and alternative tangible assets including farm animals. To qualify for the tax-deferral, it's vital [that the] person doing the exchange perceive what is like-kind. A house cannot be exchanged for a boat. Nor can a male cow be exchanged for a female cow as they have different definable economic properties. Whereas they must have the same properties, they are able to differ in quality or grade. Learn more about 1031 exchange explained here.
Real estate must have a particular classification to qualify for a 1031 Exchange. It must be for business or investment use. A property that is being exchanged from business use must be exchanged for either business use or investment use but can't be exchanged for person use or general sale. Thus a rental property can be exchanged for land to be developed.
Stocks, bonds, plus other securities aren't eligible for a 1031 Exchange. Inventory maintained in warehouses is simply not eligible either. Additionally, mortgages and other debts may not take any tax-deferred advantage in a 1031 Exchange plus are not eligible items.
Related posts
1040 Tax Form Reviews & Tips
February 5, 2010 by Taxcut Editor
Filed under Personal and Business Taxes
The 1040 tax form should be your starting point for your personal IRS income tax returns. It’s designed to help you calculate the amount of tax you need to pay based on the amount of income you’ve declared.
By using this form regularly as your income changes, you’ll be more aware of whether you need to take steps to reduce your potential tax penalty or you might actually calculate that you’ll receive a return.
This is the ‘long form’ or the more complete version and should be used if you have complicated tax issues to calculate. Things like investment income or loss, capital gain or loss or multiple itemized deductions should be entered individually on your 1040 tax form to help you get a clearer idea of the amount of tax you should be paid or withholding.
Although the form could be only 2 main pages, they have 11 different attachments or schedules that follow with it. Each different schedule covers a specific aspect of your tax return, so that you may not need all.
1040A Tax Form
The 1040A Tax Form is the form that helps you to estimate tax return for the fiscal year. If you do not have complex tax toting up for the year as capital gains or deductions on individual itemized, then the short form will be ideal for you.
1040EZ Tax Form
The 1040EZ tax form is a more simplified version of the longer form of 1040 and is still able to help you determine what your tax bill could be the end of the year very quickly. Again, this is ideal for those with no tax issues not complicated to explain.
1040NR Tax Form
The 1040NR tax form designed to facilitate non-resident aliens to calculate the total of IRS tax return. For non-resident alien who has been in the United States for less than five years and has an income on which tax must be paid has to use this form.
This form shows the IRS the original figures you submitted and then highlights what those figures should have been according to your calculations. In some cases the irs help can help you to increase the amount of tax refund you were due or it might even reduce a pending tax penalty you might incur.
Related posts
Your Tax Bracket Finding your tax bracket, and understanding it
November 12, 2009 by taxman
Filed under IRS News Items
- 2009 tax rate schedules (returns filed in 2010)
- 2008 tax rate schedules (returns filed in 2009)
- 2007 tax rate schedules (returns filed in 2008)
Your tax bracket can be used to estimate the amount of additional tax you’ll pay if your income increases — or the amount you’ll save if you can claim a deduction. If you’re in the 25% tax bracket you can expect to pay about $250 additional tax if you have $1,000 additional taxable income. In the 15% tax bracket, a $200 deduction will save you about $30. Knowing your tax bracket can help you make better tax planning decisions.
Where tax brackets come from
Congress establishes tax rates that apply to different levels of taxable income. Current law provides rates from 10% to 35%. The higher your income, the higher your tax rate.
The range of income where you stay at any particular rate is known as a tax bracket. For a single person in 2008 the rate on taxable income between $32,550 and $78,850 is 25%, so those numbers establish the 25% bracket. If you’re single and your taxable income is between those two numbers, your tax bracket is 25%.
Frequently asked
Here are some of the most frequently asked questions about tax brackets.
- Is my tax bracket established by the amount I earn on the job?
Some people have in mind the general notion that their tax bracket depends on how much they earn as an employee and won’t be affected by other kinds of income. In reality your tax bracket depends on your taxable income, regardless of the source of that income. For example, you can move into a higher tax bracket because of increased interest income or a distribution from a pension plan — or even because of a decrease in your deductions. - Will capital gain or dividend income push my other income into a higher tax bracket?
No, the tax rates apply first to your “ordinary income” (income from sources other than long-term capital gains or qualifying dividends) so these items that are taxed at special rates won’t push your other income into a higher tax bracket. - If my ordinary income puts me in the 15% tax bracket, can I receive an unlimited amount of long-term capital gain at the 0% rate?
No, the 0% rate applies only to the amount of long-term capital gain and dividend income needed to “fill up” the 15% tax bracket. For example, if your ordinary income is $4,000 below the figure that would put you in the 25% bracket and you have a $10,000 long-term capital gain, you’ll pay 0% on $4,000 of your capital gain and 15% on the rest. - Will my overall tax go up sharply when my income reaches the point where I’m in the next tax bracket?
No, there’s no reason to be concerned about this possibility. When you reach a higher tax bracket, any additional income will be taxed at the higher rate, but the income required to reach that level is still taxed at the lower rates. For example, if your taxable income is just $100 above the limit on the 15% bracket, the last $100 dollars will fall in the 25% bracket and will cause your tax to increase by $25, but won’t affect the tax you pay on all your other income. - Can I determine my tax bracket by looking at the withholding rate on my paystub?
No, Withholding rates are based on averages, not specific tax brackets. For example, your withholding rate may be about 20%, even though there’s no tax bracket between 15% and 25%.
- Are tax brackets the same as marginal rates?
Not exactly. In some cases the added tax you pay when your income goes up isn’t the same as your tax bracket. That’s because the added income can cause you to lose some other tax benefit. For example, added income can mean smaller itemized deductions or a reduction in the amount you claim for your exemptions. You may find that $1,000 of added income causes your tax to go up by $292 even though you’re in the 28% bracket. Your tax bracket is just an approximation of the added tax. To be more precise, we would say you have an effective marginal rate of 29.2%. In most cases, the tax bracket is close enough to the effective marginal rate for purposes of tax planning.
Finding your tax bracket
Finding your tax bracket involves two steps. First, determine your taxable income for the relevant year. Then look that number up in the relevant tax rate schedule.
Tip: If you use tax software to prepare your returns, check to see if it will generate a report that includes information about your tax bracket.
Taxable Income
You can find your taxable income for a previous year by looking at your tax return. It’s clearly labeled — but not very conspicuous. Just look for the words “taxable income.”
If you need to estimate your taxable income for a year in the future, usually the best way to start is to know your taxable income for the most recent year. Then make adjustments for changes you might anticipate: increases or decreases in income or deductions, and perhaps a change in filing status.
Tax Rate Schedules
Once you know your taxable income and filing status, you need to look it up in the appropriate tax rate schedule. This is not the same as the tax tablesyou use to look up your tax! Those tables give you dollar amounts but not tax rates. What you want is a schedule that tells you the tax rate as a percentage for your level of taxable income.
The IRS publishes tax rate schedules in the instructions for Form 1040, and also for 1040-ES (the form used to pay estimated tax) — but not in the instructions for Forms 1040A or 1040EZ. Current tax rate schedules for every filing status can be found by calling our firm (877) 530-6505 .
Here’s a sample tax rate schedule: the 2008 tax rate schedule for single filers.
|
Single |
||||
| Taxable income is over | But not over | The tax is | Plus | Of the amount over |
| $0 | 8,025 | $0.00 | 10% | $0 |
| 8,025 | 32,550 | 802.50 | 15% | 8,025 |
| 32,550 | 78,850 | 4,481.25 | 25% | 32,550 |
| 78,850 | 164,550 | 16,056.25 | 28% | 78,850 |
| 164,550 | 357,700 | 40,052.25 | 33% | 164,550 |
| 357,700 | 103,791.75 | 35% | 357,700 | |
Better Business Award GOLD Star to New Century Tax Consultants, our team of Expert Attorneys, CPA's, and Tax Practitioners.
The Taxcut Editor recently visited the Green Festival in Denver, see what he had to say.
