It’s impossible to appreciate the tax equivalent return of any investment until you know your effective tax bracket. You also need to know how you should file: individual, head of household, married filing jointly or married filing separately.  For some married couples, filing jointly or separately can usually be determined quite quickly on most tax software. The U.S. tax code is a marginal, “progressive” income tax system. As your income increases or “progresses” from one tax bracket to the next you pay a blended tax rate of each tier, after all your tax deductions and exemptions (providing they’re not phased out) as well as any tax credits to reduce taxes owed. Once you know your effective tax bracket you can determine the value of a financial product, especially tax favored financial products. For example, most participants in a 401(k) plan know their contributions are tax deductible. Is your tax deduction, in your effective tax bracket, worth taking? Keep in mind that by taking the deduction you’re giving up its tax-free basis, i.e. your original contributions. Your 401(k) plan will be taxed at ordinary income tax rates and be included in the provisional income test for Social Security benefit taxation. If   Read more…

The vast majority of seniors need every last dime of their money to enjoy their golden years. Medical and long-term care costs are significant over a lifetime, it doesn’t compare to the accumulated taxes paid over a lifetime. We need to manage both our health and wealth. Part of managing your wealth is managing your taxes and it’s a worthwhile endeavor to learn how to do it. It’s possible that many retirees may be able to generate 10-15% more income by just managing their taxes. And there’s no place better to start than Social Security income. Social Security attracts taxable income like a magnet. With the exception of HSA Accounts, Roth IRAs, Reverse Mortgages and Cash Value Life Insurance, everything falls prey to the provisional income test. Even items you would never consider like municipal bond income or capital gains of non qualified mutual funds or ETFs. Qualified retirement funds are the biggest contributor to Social Security taxation of all income sources. Keep in mind that a qualified plan has no basis, so it’s all taxable. And although you can delay taking distributions from your qualified plan until age 70½, you’re forced to take required minimum distributions (RMDs), which directly   Read more…

“Sanctuary, sanctuary,â€� cried Quasimodo, the hunchback of Notre Dame as he ran into the church with the convicted woman Esmeralda to escape the lynch mop who had tried her and found her guilty. Back in the day the sanctity of the church was a safe harbor for those fleeing the law.  Today many of America’s affluent, upper middle class and even seniors in retirement are fleeing taxes. What tax shelters remain can help you keep more of your money. Here are the most popular for retirement. Health Savings Accounts: Contributing to a qualified health savings account is tax deductible, accumulates tax deferred and is distributed tax-free for medical expenses and medical insurance premiums for coverage like disability, health, Medicare and long term care. The annual contribution limits for 2017 are $3,400 for individuals, $6,750 for married couples and $7,750 for married couples over age 55. There is also a once in a lifetime transfer from an IRA or Roth IRA to an HSA tax free up to $7,750 for married couples over age 55 in a non-contribution year. Roth IRAs: These accumulate tax deferred with tax-free distributions after age 59½. Under the five-year rule you could access part of your   Read more…

Even after the Tax Cuts and Jobs Act of 2017, the wealthy are paying at least a third of their income based on the new tax brackets. (And that doesn’t include their state taxes.) But the additional Medicare surtax they pay in wages (.9%) and capital gains investments (3.8%) just add to their IOU that they already owe the government. And the bleeding doesn’t stop there. Many affluent taxpayers are still subject to the alternative minimum tax, a regressive assessment against high-earning Americans to make sure they pay their so- called “fair shareâ€� in taxes. But now it gets really crazy. “If you don’t talk taxes, you’re not in the game as a consultant to the affluent.â€� For decades, the wealthy have used municipal bonds as a safe haven from taxation. And depending on the issuing jurisdiction the interest rate may be tax-free in one place and not in another. So, it’s important to review the tax con- sequences before purchasing a municipal bond. That being said, even some types of muni bonds may trigger an alternative minimum tax event and could, as unlikely as the odds are, create a capital gain scenario. But even if the client’s muni bonds   Read more…

The economic leverage of life insurance and, in most cases, its tax-free transfer aspect, delivers a financial to beneficiaries like no other product line or planning strategy. Whether indemnifying a single life or two lives, life insurance can pay estate-transfer taxes and costs as well as create an estate with pennies on the dollar. Life insurance is the law of large numbers working for you. Content: Passing an inheritance to family, friends or a beloved charity can financially position them to accomplish goals even when you’re gone. Protecting partners in a business arrangement can add significant solace to the company and fund succession plans in case of the demise of a partner. For domestic planning survivorship, life insurance is ideal, especially if both policy insureds are healthy, but even when they’re not, the leverage or bang for the buck generally remains the economic way to go. The transfer of family assets may incur taxes at the state and federal levels as well as transition costs. With new and improved mortality, survivorship life insurance can also create legacies not just for the succeeding generation, but also for two additional generations. This new trend is already emerging in estate planning where children,   Read more…