A document published by the Internal Revenue Service (IRS) that provides seniors with information on how to treat retirement income, as well as special deductions and credits that are available. IRS Publication 554 outlines what sources of income are taxable and nontaxable, including retirement plans, Social Security and insurance proceeds. The document also lists common itemized deductions, such as medical care, long-term care, nursing services, medicine and hospital services. Seniors who are at least 65 years old or are disabled may be entitled to a higher standard deduction than other taxpayers. In addition, the income threshold for a required tax filing is higher for individuals who are at least 65 years old. The IRS provides extra filing assistance to seniors, and provides volunteers who can help seniors complete their returns. Free tax counseling services are also available.
Federal tax legislation passed in 1982 that modified some aspects of the Economic Recovery Tax Act of 1981 (ERTA). Both of these pieces of tax legislation took place during the Reagan Presidency. The ERTA was a piece of tax legislation that greatly lowered income tax rates, and all very high rates were given a maximum of 50%. The TEFRA modified aspects of the ERTA which caused concern over potential large budget deficits. TEFRA increased the tax received but not the tax rates. This was done by removing some of the tax breaks businesses received in the ERTA, such as the increase in the amount of accelerated depreciation that a company could deduct.
A trust that can't be modified or terminated without the permission of the beneficiary. The grantor, having transferred assets into the trust, effectively removes all of his or her rights of ownership to the assets and the trust.This is the opposite of a "revocable trust", which allows the grantor to modify the trust. The main reason for setting up an irrevocable trust is for estate and tax considerations. The benefit of this type of trust for estate assets is that it removes all incidents of ownership, effectively removing the trust's assets from the grantor's taxable estate. The grantor is also relieved of the tax liability on the income generated by the assets. While the tax rules will vary between jurisdictions, in most cases, the grantor can't receive these benefits if he or she is the trustee of the trust. The assets held in the trust can include, but are not limited to, a business, investment assets, cash and life insurance policies.
A country that offers individuals and businesses little or no tax liability. There are several countries in the Caribbean that are considered tax havens.
An increasingly popular investment strategy that attempts to time future assets sales and income streams to match against expected future expenses. The strategy has become widely embraced among pension fund managers, who attempt to minimize a portfolio's liquidation risk by ensuring asset sales, interest and dividend payments correspond with expected payments to pension recipients. This stands in contrast to simpler strategies that attempt to maximize return without regard to withdrawal timing. Liability matching is growing in popularity among sophisticated financial advisers and wealthy individual clients, who are using multiple growth and withdrawal scenarios to ensure that adequate cash will be available when needed. The use of the Monte Carlo method of analysis, which uses a computer program to average the results of thousands of possible scenarios, has grown in its popularity as a time saving tool used to simplify a liability matching strategy.
Selling securities at a loss to offset a capital gains tax liability. Tax gain/loss harvesting is typically used to limit the recognition of short-term capital gains, which are normally taxed at higher federal income tax rates than long-term capital gains. Also known as "tax-loss selling". For many investors, tax gain/loss harvesting is the single most important tool for reducing taxes now and in the future. If properly applied, it can save you taxes and help you diversify your portfolio in ways you may not have considered. Although it can't restore your losses, it can certainly soften the blow. For example, a loss in the value of Security A could be sold to offset the increase in value of Security B, thus eliminating the capital gains tax liability of Security B.
A one-time payment for the entire amount due, rather than breaking payments into smaller installments. Some lump-sum distributions receive special tax treatment. A commission check or a pension plan distribution because of the pensioner''s death are two examples of lump-sum distributions. In general, distributions from qualified plans are treated as lump sum, if the following requirements are met: 1. The total plan balance is distributed over the same tax year. 2. The distribution is made as a result of the employee:- attaining age 59.5 - being deceased (applicable to beneficiaries)- separating from service (not applicable to self-employed individuals - but applies to their common-law employees) or - being disabled (applicable only to self-employed individuals). 3. The distribution occurs after five years of participation (this requirements is waived for beneficiaries).
Tax free refers to certain types of goods and/or financial products (such as municipal bonds) that are not taxed and with earnings that are not taxed. The tax free status of these goods and/or funds may incentivize individuals and business entities to increase spending or investing, resulting in economic stimulus. Governments will often provide a tax break to investors purchasing government bonds to ensure that enough funding will be available for expenditure projects. Tax free purchases and investments do not incur the typical tax consequence of other purchases and investments. Tax Free Weekends occur in many states where, once or twice a year, store purchases are not taxed, thereby reducing the overall cost to the consumer. Frequently these Tax Free Weekends occur before school starts in the Fall to incentivize spending on school supplies, clothes, computers, calculators etc. Tax free investments such as tax-free municipal bonds (munis) allow investors to earn interest tax free.
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