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Plan and take
advantage of the new Capital Gains Tax Rates!!!
For
sales and other dispositions of property after May 5, 2003 (including
installment payments received after that date) the maximum tax rates on
net capital gain have changed as follows: The 20% and 10% tax rates have
been lowered to 15% and 5%, respectively. The 8% tax rate for qualified
5-year gain has been eliminated. Instead, the new 5% rate applies to gain
that would have been qualified for the 8% rate.
Suppose a father has owned stock for more than 1 year, and its value has
risen sharply. If Dad sells it, he would get hit with a 15% capital gain
tax. But if he gives it to his child who will be age 14 or older before
the end of 2003, the child can sell the stock next year, and the gain
will be taxed at only an 5% rate if the child is in the regular 15% bracket.
The cost basis and holding period would carry over to the child (better
way to finance your kid's tuition).
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Getting
Divorced???
When
dividing marital property as part of a divorce, be sure to consider the
property's after tax value, not just its market value, if you don't, what
had seemed to be a fair settlement can become very one-sided. For instance,
a couple with 1,000,000 of assets agrees to divide them 50-50. One spouse
takes the family house worth 500,000, and the other takes investments and
IRA worth 500,000 combined.
Trap: The spouse who takes the house can sell tax free after living in it
for only two years. But the other spouse will owe capital gains tax on the
investments, and ordinary income tax on IRA withdrawals.
From Tax Hotline. May 2001 issue. |
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Retirement
Plan Contribution Limits for 2006:
401(k):
The maximum contribution for 401 (k) plan is $14,000, up from $13,000 in
2005. Individuals that will reach 50 years or older in 2004 can make an
additional $4,000 contribution to their account for a total of $18,000.
SIMPLE: The limit is $9,000 in 2004, up from $8,000 in 2003. Taxpayers age
50 or older by the end of 2004 can contribute an additional $1,500 for a
total of $10,500.
IRA's: The maximum contributions is $3,000, same as 2003. People age 50
or older by the end of 2004 can contribute an additional $500, for a total
of $3,500. These limits apply to both regular IRAs and Roth IRAs. Plan properly:
Contribute to a 401(k) if your employer provides matching funds, if not
consider a Roth IRA which will give you tax free retirement income. |
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What
are your options when you can't pay your taxes by April 15th?
If you
need more time, you can pay through an installment agreement. An installment
agreement simply gives you more time to pay your taxes, the IRS adds interest
and penalties to your balance. You can obtain one automatically, if the
tax you owe is below $10,000 and you don't owe any previous tax obligation.
Apply for an agreement by filing IRS form 9465, "Installment Agreement
Request". If the balance on your taxes exceeds $10,000 approval by
the IRS is not automatic, they will want to make sure you are initially
paying as much as you can, and you may have to negotiate the agreement's
terms. The IRS will look at your past record of tax compliance as well as
at your assets.
If you can't pay your taxes and don't think that you will be ever to pay
them, you can make an offer to compromise (OIC) to the IRS. If the IRS accepts
your OIC, a partial payment of the tax you owe will result in full settlement
of your bill giving you a fresh start. Because by accepting an OIC, the
IRS will be waiving taxes, interest and penalties you owe they are not an
easy task. To submit an OIC, file IRS form 656 "Offer in Compromise".
You will also have to submit an extensive financial disclosure statement,
Form 433-A for individuals and 433-B for businesses. After you submit this
information the IRS will review your financial situation and make a decision
on the amount they are willing to compromise. |
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