Tag Archives: income

   4 Questions to ask before you retire  

Choosing to retire is one of the biggest financial decisions you’ll ever make. Giving up your salary means having to live from other sources of income, and if you haven’t planned extensively, then you might not even be aware of the resources at your disposal, let alone how much money they might provide toward your support.

By considering the following questions, you’ll be in a much better situation to decide whether now’s the right time to take your gold watch and end your career.

How will you take care of your healthcare needs?

One of the most important issues that would-be retirees need to address is how they intend to cover their healthcare expenses. If you’ve had health insurance coverage at work, then quitting your job means giving up that coverage.

Those who wait until age 65 can generally qualify for Medicare, which goes a long way toward covering healthcare expenses for retirees. If you’re thinking about retiring earlier, then you’ll need to know how to bridge the time gap before Medicare kicks in.

If you’re married and your spouse is still working, then you might be eligible for coverage under your spouse’s group health plan. Continuation coverage under COBRA can also be an option to cover short periods of 18 months or less, but you’ll have to pay the full monthly cost of insurance yourself — not just the employee portion that you used to pay when you were still working. That can be shockingly expensive if you’re not prepared for it.

Other alternatives include marketplace coverage under the Affordable Care Act, but with healthcare legislation in limbo, it’s dangerous to assume that such coverage will be there for you as long as you need it.

How much of your income will you be able to replace?

Losing your paycheck means having to figure out how you’ll be able to afford your living expenses. Some of your costs will fall when you stop working, but you might also want to do more things with all of your newfound spare time. Many retirees find that the pastimes they take up in retirement are just as expensive as the work-related expenses they use to have to pay when they had a job.

To figure out how much income you’ll have, you’ll want to look closely at two things. First, Social Security will likely kick in at some point to provide you with stable monthly income that tracks inflation each year, and you can estimate what your benefit will be.

Second, using a simple guideline like the 4% rule to determine how much you can safely withdraw each year from your retirement nest egg will provide another basis for financial support.

Add those two things up and compare it to your after-tax pay. If they’re roughly comparable, then you’re likely in good shape. If there’s a big shortfall, then you’ll have to figure out how to economize — or wait on retiring a bit longer.

What will you do with your time?

Before you retire, you need to understand exactly what you expect from retirement. Many people look forward to retiring for years, only to find that when they leave work, they’re also leaving behind their closest social network.

If you’re retiring just for retirement’s sake without any concrete plans about what you want to do with your time, then you’re opening the door to potential unhappiness.

Many workers have started looking into the idea of phasing into retirement by staying on in a part-time or advisory role at their place of work. That’s especially useful if you’re in a financial position where having some extra income is helpful, and it also makes sure that you don’t lose touch with the people you spent time with during your career.

Regardless of whether you go that route, be sure to plan how you’ll maintain your social relationships so that you can avoid feeling isolated and lonely.

How should you invest after you retire?

Finally, would-be retirees need to know how they’ll need to handle their investment portfolios once they quit work. If you’ve followed a gradual path toward more conservative investing as you age, then you probably won’t have to make major changes on the day you retire.

However, if you’ve been an aggressive risk-taker with your investments when you had a paycheck coming in, retirement is a good time to think about making your portfolio last.

You won’t want to give up on stocks entirely even after you retire. With many retirements lasting 30 years or more, you’ll need the growth that stocks can provide. Yet by focusing on dividend-paying stocks and companies that are in more stable and mature businesses, you can reduce the risk of your stock portfolio while still having growth potential to make your money last longer

by Dan Caplinger for The Motley Fool

   Ten Income Tax Benefits for Farmers

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Farming has often been viewed as the backbone of the American economy. While technology and other recent developments may have changed this thinking, farmers still enjoy a preferred status, at least as federal income taxes are concerned. For instance, there are several special tax code provisions relating to farming, most of them beneficial. At the same time, taxpayers in the agriculture field may be in line for the same tax breaks available to businesses in general.

What sort of tax provisions are we talking about? Periodically, the IRS provides insights through online postings. Here are ten items that may be of interest.

1. Depreciation deductions: Like other businesses, farmers can take advantage of enhanced writeoffs for property placed in service in 2017. Specifically, a farmer may claim a maximum expensing deduction of $510,000 under Section 179, subject to a phase-out for acquisitions above $2,030,000, plus 50% “bonus” depreciation on qualified property.

2. Crop insurance proceeds: Crop insurance may be purchased by farmers to protect against losses caused by natural disasters –such as hail, drought and floods — or lost revenue due to declines in prices of agricultural commodities. However, the proceeds generally have to be reported as income in the year they are received.

3. Sales due to weather: On a related note, if a farmer sells more livestock and poultry than would normally occur in a year because of weather-related conditions, the business gets a reprieve: It can postpone reporting the gain from sales of the additional animals due to the weather until the next year.

4. Farm income averaging: Regular income averaging has gone by the boards, but farmers may still average all or some of the current year’s farm income by allocating it to the three prior years. This may lower tax for the current year tax if current income from farming is high and taxable income from one or more of the three prior years was low.

5. Deductible farm expenses: As with other businesses, farmers may write off ordinary and necessary costs of operating a farm for profit. An “ordinary” expense is one that is common and accepted in the farming business, while a “necessary” expense must be appropriate for the business.

6. Employees and hired help: Similarly, a farmer can deduct reasonable wages paid for labor hired to perform farming operations. This includes both full-time and part-time workers. Of course, the business is responsible for withholding income and payroll taxes for its employees.

  1. Items purchased for resale: Not all farm products are home-grown. Farmers may to deduct the cost of items purchased for resale in the year the sale occurs. This includes livestock and freight charges for transporting the livestock to the farm.

8. Net operating losses: If the deductions claimed by a farming operation exceed its profits, it may report a net operating loss (NOL) for the year. The NOL can be carried back for two years and then forward for up to 20 years to offset income in other years. As a result, the farm business may be entitled to a refund from a prior year or benefit from a tax reduction in a future year.

9. Loan repayments: When a taxpayer takes out a personal loan, he or she can’t deduct interest on the subsequent loan repayments. However, if loan proceeds are used in a farming business, the taxpayer may deduct the interest paid on the loan on the farm’s tax return.

10: Fuel and road use: Finally, farmers may be able to claim a credit or refund of federal excise taxes on fuel used on a farm for farming purposes. Other taxpayers often illegally claim this off-road credit, but it’s legitimate for those in the farming industry.

 

Ken Berry

   How Are Gambling Winnings Taxed?

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Most people don’t think about taxes on their way to the track or casino, but what might seem like nothing more than the chance to win some extra money actually carries significant tax implications. As is often the case, federal and state governments single out casino winnings for unique taxes of their own. Failure to properly report your haul may result in penalties and headaches, so be aware of these rules to stay on the safe side:

How Much You Win Matters

Gamblers are lucky in that casino taxes are not progressive like income taxes are. That is, you will owe the same percentage to the IRS on a $100,000 jackpot as a $10,000 one. Yet, it’s important to know the thresholds that require reporting. Winnings in the following amounts must be reported:

  • $600 or more at a horse track (if that is 300 times your bet)
  • $1,200 or more at a slot machine or bingo game
  • $1,500 or more in keno winnings
  • $5,000 or more in poker tournament winnings
All of these require giving the payer your Social Security number, as well as filling out IRS Form W2-G to report the full amount won. In most cases, the casino will take 25 percent off your winnings for the IRS before even paying you.
Not all gambling winnings in the amounts above are subject to IRS Form W2-G. W2-Gs are not required for winnings from table games such as blackjack, craps, baccarat, and roulette, regardless of the amount. Note that this does not mean you are exempt from paying taxes or reporting the winnings. Any and all gambling winnings must be reported to the IRS. It only means that you do not have to fill out Form W2-G for these particular table-based games.

Reporting Smaller Winnings

Even if you do not win as much as the amounts above, you are still legally obligated to report. You also need to report any awards or prize money you won during the year in question. Yes, even if you only win $10, you still technically have to report it (even if the casino didn’t). Gambling income plus your job income (and any other income) equals your total income.

Fortunately, you do not necessarily have to pay taxes on all your winnings. Instead, if you itemize, you can offset taxes owed on your winnings by reporting any losses you incurred as well. You are allowed to claim as much as the total amount won that appears on Form 1040, which would eliminate your taxable gambling income. Just be sure any deductions taken this way (in combination with other itemized deductions) are higher than the standard amount. Otherwise it would make more sense not to itemize, even if it meant foregoing your gambling loss deductions.

   2016 Tax Brackets

Did you know that not everyone or every dollar earned is taxed the exact same amount? This is because the United States tax system aims to be progressive. A progressive tax system tries to collect more tax from those who earn more. In essence, a million dollar earner pays more total tax as well as a higher percentage of their income in tax than someone who earns far less.

One of the ways our tax system achieves this is through tax brackets. A tax bracket is simply a range of incomes that are taxed at a set rate.

For the 2016 tax year, there are seven tax brackets of varying size with the lowest bracket being subject to a 10% marginal tax rate and the highest being subject to 39.6%.

How this looks in real life:

  • If you’re a single filer who earns $60,000 a year after you take all the necessary exemptions, adjustments and deductions, the first $9,275 in earnings will be taxed 10%. From $9,276 to $37,650 you will be taxed 15%. On the rest, you’ll be taxed 25%. You are in the 25% tax bracket though your effective tax rate will be much lower.
  • If you are married filing jointly, the first $18,550 will be taxed 10%. Any amount over $18,550 to $75,300 is taxed at 15%.

The tax brackets are adjusted each year for inflation, so the 2016 tax brackets are higher than the 2015 tax brackets.

Mentioned above were exemptions, adjustments and deductions. What you earned from your job is considered ordinary or gross income but you are taxed on your adjusted gross income, which is your income minus those exemptions, adjustments, and deductions.

When you know your tax bracket, you can easily calculate how valuable different tax deductions are for you. If you are in the 25% tax bracket, a $1000 deduction will reduce your tax liability by $250.

Not all of your income is taxed based on these brackets. If you have long term capital gains and qualified dividends, that rate will depend on your tax bracket. If you are in 10% or 15% tax brackets, you pay 0% on long term capital gains and qualified dividends. If you are in the 25%, 28%, 33% and 35% brackets then you’ll pay 15%. Those in the highest bracket, 39.6%, will pay 20% on long term capital gains and qualified dividends.

Understanding how tax brackets work as well as which bracket you are in can help you make better informed financial decisions, but you don’t need to know how to calculate tax brackets when you can just consult your local Dallas CPA Firm.  A CPA will figure out your tax bracket based on your information and give you the tax deductions and credits you deserve.

   Don’t Gamble with the IRS – Reporting Winnings & Losses

Going on a fun trip this summer where you’re planning to do some gambling? Whether you like to play the ponies, roll the dice or pull the slots, your gambling winnings are taxable. You must report all your gambling income on your tax return. If you’re a casual gambler, odds are good that these basic tax tips can help you at tax time next year:

1. Gambling income.  Gambling income includes winnings from lotteries, horse racing and casinos. It also includes cash prizes and the fair market value of prizes like cars and trips.

2. Payer tax form.  If you win, you may get a Form W-2G, Certain Gambling Winnings, from the payer. The IRS also gets a copy of the W-2G. The payer issues the form depending on the type of game you played, the amount of your winnings and other factors. You’ll also get the form if the payer withholds taxes from what you won.

3. How to report winnings.  You must report all your gambling winnings as income. This is true even if you don’t receive a Form W-2G. You normally report your winnings for the year on your tax return as ‘other income.’

4. How to deduct losses.  Gambling losses can be deducted on Schedule A, Itemized Deductions. The amount you can deduct is limited to the amount of the gambling income you report on your return.

5. Keep gambling receipts.  You should keep track of your wins and losses. This includes keeping items such as a gambling log or diary, receipts, statements or tickets.

Whether you’re gambling on a cruise, in Vegas, or maybe you won a summer sweepstakes, it’s important to keep track of winnings (or losses). The IRS expects taxpayers to report this income on tax returns.  When it comes time to file, be sure to mention any winnings, and be on the lookout in your mailbox for a W-2G.