In December 2017, the Tax Cuts and Jobs Act, a sweeping $1.5 trillion tax-cut package, became law. College students and their parents dodged a major bullet with the legislation, as initial drafts of the bill included the elimination of Coverdell Education Savings Accounts, the Lifetime Learning Credit, and the student loan interest deduction. Also on the table in early drafts of the bill was the taxation of tuition waivers, which are used primarily by graduate students and employees of higher-education institutions. In the end, none of these provisions made it into the final legislation. What did make the final cut was the expanded use of 529 plans.
Tax season can bring new possibilities – especially when it comes to what to do with your refund or, on the flip side, how to settle your bill. We’ve gathered some ideas that may fit into your financial landscape.
TENDING TO YOUR WINDFALL
So you worked diligently with your tax preparer to complete your return, only to discover some of the fruits of last year’s labor will be coming back in the form of a refund. So, what can you do with your bounty? Here are some possibilities:
It’s been a few years now to get familiar with the Medicare payroll tax and surtax that went into effect at the beginning of 2013. If you need a reminder, taxpayer with modified adjusted gross income (MAGI) of $200,000 for individuals or $250,000 for couples filing jointly face a 3.8% surtax on net investment income or the amount of MAGI that exceeds the thresholds prescribed for high-income taxpayers. The second 0.9% Medicare payroll tax applies to wages and self-employment income over the same MAGI thresholds. And while we may have gotten more used to the higher tax, that doesn’t mean we shouldn’t look to smart planning to avoid overpaying. Talk to your financial advisor, alongside your accountant or tax advisor, to identify and implement the strategies that are most advantageous for your situation. Here are some options to consider.
Though tax policies haven't received top billing in this year's presidential election dialogue, they're still part of the conversation. Here's a quick review of each candidate's tax proposals based on information released by their campaigns. Keep in mind that regardless of who wins in November, any changes to tax policy would require congressional action.
If you are a non-spousal beneficiary on an annuity contract, there is a lesser known tax strategy that can significantly reduce the income tax you may pay if there is a built up gain in the policy. Distributions from a non-qualified annuity contract are taxed “gain first” as ordinary income called income in respect to a decedent. When the owner of a non-qualified deferred annuity dies and leaves the money to a non-spouse individual beneficiary, that beneficiary has several different distribution options: 1) The Five-year Rule 2) Nonqualified Stretch or 3) Annuitization
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