Your Social Security Benefits: Any Idea if Taxable or Not?

Some taxpayers must include up to 85% of their Social Security benefits in taxable income, while others find that their benefits are not taxable at all. If Social Security is your only source of income, your social security benefits probably won’t be taxable. In fact, you may not even need to file a federal income tax return. If you get income from other sources, however, you may have to pay taxes on at least a portion of your Social Security benefits. Your income and filing status will also affect whether you must pay taxes on your Social Security benefits.

A quick way to find out if any of your benefits may be taxable is to add half of your Social Security benefits to all your other income, including any tax-exempt interest. Next, compare this total to the following base amounts. If your total is more than the base amount for your filing status, then some of your benefits may be taxable. The three base amounts are:

$25,000 for single, head of household, qualifying widow or widower with a dependent child, or married individuals filing separately and who did not live with their spouse at any time during the year.
$32,000 for married couples filing jointly.
$0 for married persons filing separately who lived together at any time during the year.

To avoid tax time surprises, Social Security recipients can request that federal income tax be withheld from their benefit payments. Withholding is voluntary and can be initiated by completing IRS Form W-4V (“Voluntary Withholding Request”), requesting to have 7%, 10%, 15%, or 25% (those are the only choices) withheld for federal income tax, and submitting the form to the local Social Security Administration office. Voluntary withholding can be stopped by completing a new Form W-4V.

Taxing a Child’s Investment Income

Some children who receive investment income are required to file a tax return and pay tax on at least a portion of that income (and possibly at the parents’ marginal tax rate). This is often referred to as the kiddie tax. The kiddie tax cannot be computed accurately until the parents’ income is known. Thus, the child’s return may have to be extended until the parents’ return has been completed. Additionally, if the parents’ return is amended or adjusted upon IRS audit, the child’s return could require correction (assuming the changes to the parental return affect the tax bracket). If a child cannot file his or her own tax return for any reason, such as age, the child’s parent or guardian is responsible for filing a return on the child’s behalf.

There are tax rules that affect how parents report a child’s investment income. Investment income normally includes interest, dividends, capital gains, and other unearned income, such as from a trust. Some parents can include their child’s investment income on their tax return. Other children may have to file their own tax return. Special rules apply if a child’s total investment income is more than $2,000. Finally, the parents’ tax rate may apply to part of that income instead of the child’s tax rate.

Note: Higher income individuals subject to the 3.8% net investment income tax (3.8% NIIT) may benefit from shifting income to and having their child claim investment income on the child’s tax return. This may be advantageous because the child receives his or her own $200,000 exclusion from the 3.8% NIIT.

Social Security Benefits & Family Wealth Management

Social Security Benefits

Preserving and managing family wealth requires addressing a number of major issues. These include saving for your children’s education and funding your own retirement. Juggling these competing demands is no trick. Rather, it requires a carefully devised and maintained family wealth management plan.

Start with the basics

First, a good estate plan can help ensure that, in the event of your death, your children will be taken care of and, if your estate is large, that they won’t lose a substantial portion of their inheritances to estate taxes. It can also guarantee that your assets will be passed along to your heirs according to your wishes.

Second, life insurance is essential. The right coverage can provide the liquidity needed to repay debts, support your children and others who depend on you financially, and pay estate taxes.

Prepare for the challenge

Most families face two long-term wealth management challenges: funding retirement and paying for college education. While both issues can be daunting, don’t sacrifice saving for your own retirement to finance your child’s education. Scholarships, grants, loans and work-study may help pay for college — but only you can fund your retirement.

Uncle Sam has provided several education incentives that are worth checking out, including tax credits and deductions for qualifying expenses and tax-advantaged savings opportunities such as 529 plans and Education Savings Accounts (ESAs). Because of income limits and phaseouts, many higher-income families won’t benefit from some of these tax breaks. But, your children (or your parents, in the case of contributing to an ESA) may be able to take advantage of them.

Give assets wisely

Giving money, investments or other assets to your children or other family members can save future income tax and be a sound estate planning strategy as well. You can currently give up to $14,000 per year per individual ($28,000 if married) without incurring gift tax or using your lifetime gift tax exemption. Depending on the number of children and grandchildren you have, and how many years you continue this gifting program, it can really add up.

By gifting assets that produce income or that you expect to appreciate, you not only remove assets from your taxable estate, but also shift income and future appreciation to people who may be in lower tax brackets.

Also consider using trusts to facilitate your gifting plan. The benefit of trusts is that they can ensure funds are used in the manner you intended and can protect the assets from your loved ones’ creditors.

Overcome the complexities

Creating a comprehensive plan for family wealth management and following through with it may not be simple — but you owe it to yourself and your family. We can help you overcome the complexities and manage your tax burden.

Charitable giving’s place in family wealth management

Do charitable gifts have a place in family wealth management? Absolutely. Properly made gifts can avoid gift and estate taxes, while possibly qualifying for an income tax deduction. Consider a charitable trust that allows you to give income-producing assets to charity, but keep the income for life — or for the charity to receive the earnings and the assets to later pass to your heirs. These are just two examples; there are more ways to use trusts to accomplish your charitable goals.

Need A Do-over? Amend Your Tax Return
Like many taxpayers, you probably feel a sense of relief after filing your tax return. But that feeling can change if, soon after, you realize you’ve overlooked a key detail or received additional information that should have been considered. In such instances, you may want (or need) to amend your return.

Typically, an amended return — Form 1040X, to be exact — must be filed within three years from the date you filed the original tax return or within two years of the date the applicable tax was paid (whichever is later). Your choice of timing should depend on whether you expect a refund or a bill.

If claiming an additional refund, you should typically wait until you’ve received your original refund. Then cash or deposit the first refund check while waiting for the second. If you owe additional dollars, file the amended return and pay the tax immediately to minimize interest and penalties.

Bear in mind that, as of this writing, the IRS doesn’t offer amended returns via e-file. You can, however, track your amended return electronically. The IRS now offers an automated status-tracking tool called “Where’s My Amended Return?” at https://www.irs.gov/Filing/Individuals/Amended-Returns-(Form-1040-X)/Wheres-My-Amended-Return-1.

If you think an amended return is needed or warranted, please give us a call. We will be glad to help.

Revenue Tax Obligation

In the United States, a percent of all the cash that businesses, as well as individuals, gain and invest is gathered by federal, state and city governments to be used in public spending. Individuals and also organizations are needed to pay various kinds of tax obligations. These are sales tax obligations, real estate tax, payroll tax, and income tax obligations.
Revenue tax obligations are the main source of earnings for the federal government. Numerous states, even some towns, and cities impose earnings taxes. For many individuals, federal income tax obligation is the biggest category of tax they pay. So to be an excellent cash manager, it’s important to understand some fundamental ideas concerning government earnings tax obligations.

A tax return is an electronic or pre-printed form you fill out to report info that the government Irs (IRS) uses to determine your taxes. One example of a federal tax obligation return is an Internal Revenue Service Form 1040.
Filling out a tax return form and also submitting it to the Internal Revenue Service is called submitting your tax obligations. Some individuals work with an expert to fill out their tax forms while others do the job themselves.

The feasible advantages to working with a professional tax obligation preparer include:

  1. Specialist evaluation and recommendations.
  2. They might provide you tax-saving tips.
  3. Professional assistance in the situation of an audit. (This is when the taxing company determines to very carefully examine your go back to establish whether the info is true, the tax obligation quantity has been calculated properly, and also the positions taken on the return are allowed by law.).

Possible negative aspects consist of:

  1. You need to spend for this service.
  2. During the hectic tax obligation period, you might have to wait your turn while your preparer takes care of other consumers.
  3. Also, specialists can make mistakes, and also in some states, there are no licensing laws for tax obligation preparers. Determine whether the preparer you’re considering has understanding, experience, and an excellent track record in service.

Possible advantages of preparing your own income tax return include:

  1. Free; you don’t pay another person.
  2. You obtain important economic experience.
  3. You have overall control over your tax details and also paperwork. If you use tax obligation software application, it might assist you to reduce mistakes and even identify deductions, and declaring online is immediate. Check to see if you’re eligible free of cost software application with the irs.gov website.

Possible drawbacks consist of:

  1. You might make potentially expensive blunders.
  2. You may not know all the reductions (reductions in gross income) to which you’re qualified.
  3. Some tax software programs can be confusing and might set you back as long as working with a specialist tax preparer.

    Consider preparing your taxes on your own and after that taking them to a professional to look over, repair any errors, and settle the types. This technique might offer you both good experience as well as satisfaction.

    If you are a UNITED STATE citizen or resident alien, whether you must file a government tax return relies on your gross earnings, your filing status (see below), your age, as well as whether you are a dependent (i.e., you rely on another person for financial backing).
    the quantity of earnings tax you pay is based upon your gross earned income (incomes, salaries, suggestions, and also dividends if you have stock) plus unearned income (for instance rate of interest revenue, dividend revenue, or resources gains), much fewer credit reports, exceptions or deductions. The resulting amount– the amount that goes through federal income tax obligations– is called your taxable income.

    A deduction is an amount that decreases your taxable income and consequently lowers the tax obligation to be paid. The federal government uses a number of various kinds of reductions.

    The typical deduction is a buck amount established by the federal government that reduces the amount of income on which you are taxed. A lot of taxpayers have an option of detailing or taking a typical reduction (separately detailing) their reductions. You can utilize the method that gives you the reduced tax obligation if you have an option.

    Taking the standard deduction can make it quicker as well as easier to submit your taxes; nevertheless, numerous taxpayers select to itemize their real deductions, such as clinical expenses, philanthropic contributions, and tax obligations.

You may take advantage of detailing your reductions if you:

  1. Do not get the typical reduction, or the amount you can claim is restricted,
  2. Had big without insurance clinical or dental costs during the year.
  3. Paid passion as well as tax obligations on your residence.
  4. Had big unreimbursed staff member business expenses or other miscellaneous deductions.
  5. Had a huge uninsured casualty or burglary losses.
  6. Made huge contributions to qualified charities, or.
  7. Have overall itemized deductions that are greater than the typical reduction to which you are otherwise qualified.

Before you can identify which IRS type to use when you file, the amount of your common reduction, and also your proper tax obligation, you need to establish your filing status. Also, Check on One step you can take in 2020 to head off a tax surprise.

Settle Your Debt – The Fresh Start Program

IRS Initiative

Did you know that 14 million Americans have some sort of tax issue or delinquency with the IRS? To combat that the IRS developed the Fresh Start Program as a tax relief service. It settles an owed balance quickly and easily. Let us clarify what it is – the Fresh Start Program is not a set program. Rather a series of IRS Collection procedures and policies to help individual taxpayers and small businesses settle overdue tax liability. You may qualify for IRS assistance with this program under several conditions and stipulations. US Tax Relief can help you examine the best policy options for your financial situation under that program.

Installment Agreement

One option is the Installment Agreement. It is a payment plan to help taxpayers pay off their debt in smaller monthly increments. The amount owed each month is at the discretion of the IRS and taxpayers approved for this type of plan. They must ensure they never miss or default on a payment. If you can’t pay off a tax debt of %50,000 within 6 years, US tax relief agencies can step in. With your tax consultants to help you devise an installment agreement that IRS Assistance will approve of. Working with a team will help you with a plan. Make offers to the IRS a reasonable monthly amount which takes into consideration your monthly income minus essential living expenses. Approval of the payment plan will be more likely if the IRS sees that you are working with tax professionals. It helps you make tangible steps towards settling the debt.

Offer in Compromise

The other option would be to do an “Offer in Compromise”. It is useful if the taxpayer can prove to the IRS that the debt is insurmountable. Tax Lawyers have helped many taxpayers decrease the amount owed through this system. Working with tax professionals to assess personal assets, unpaid tax, and analyze the likelihood of paying back the full debt. Getting approval is rare. You can take months to get an outcome. Gladly there are taxpayer advocates whose life’s work is to make sure you have the strongest claim.