The rich use a variety of strategies, all perfectly legal and available to everyone, to reduce the size of their income tax bills.
This post comes from Amy Fontinelle at partner siteInvestopedia.
Stories about millionaires and billionaires who pay little or no income tax make great headlines, especially when these people have committed tax fraud. However, the methods that most wealthy taxpayers use to reduce what they owe are perfectly legal strategies that anyone can use.
Changes in estate and inheritance taxes at the state level will make it better -- or worse -- for families in the year ahead.
Updated Jan. 23, 2012, 5:05 p.m. ET
This post comes from Ashlea Ebeling at partner siteForbes.com.
As of Jan. 1, the federal estate tax exemption was indexed for the first time, so that for 2012, up to $5.12 million of an estate will be exempt from the current 35% federal estate tax. That's up from $5 million in 2011, meaning an individual could have left $120,000 more tax-free if he'd died on Jan. 1, 2012, instead of on Dec. 31, 2011.
Meanwhile, separate state levies are still a big concern for families. And there are changes for 2012 on the state levies on dying -- for better and for worse.
Expect fewer delays but just as much bureaucracy, as new forms and requirements go into effect. AMT patches are likely to expire but may return.
This post is by Claudia Hill at Forbes.com.
As the end of 2011 draws near, individuals and tax professionals are planning for the annual tax-return preparation ritual. Here's my view of what to expect:
- The absence of excessive congressional tinkering with the tax code provides a smoother start to filing season; taxpayers will receive their refunds earlier. That’s the good news. In filing season 2011, the Internal Revenue Service was not able to accept most categories of returns until Valentine's Day.
- Individual extenders and the alternative-minimum-tax patch from 2010 will expire virtually unnoticed at the end of 2011. This virtually guarantees congressional action in 2012 to prevent millions of taxpayers from an AMT hit next year and creates uncertainty in 2012 planning until it is addressed. The popular deduction for state and local sales taxes as well as tax-free treatment of distributions from IRAs for charitable purposes are among several perennial extenders that also expire at the end of 2011.
- Permitted delays for and filing confusion about documents will continue to frustrate preparers and individual filers who want to comply with the law.
Both parties want to extend the Social Security tax cut, but they disagree sharply over how to pay for it. Plus, politics is at play in dictating what discussions to have when.
This article is by Alan Fram of The Associated Press.
If President Barack Obama, the House and the Senate all want to extend a Social Security payroll tax cut and jobless benefits through next year, why are they fighting so bitterly over doing it?
Obama, House Democrats and lopsided majorities of both parties in the Senate want to immediately renew the tax cut and jobless benefits for the next two months, and find a way later to extend them through 2012. House Republicans want to do it for a full year right away.
That doesn't sound like an unbridgeable gap. Yet the fight has evolved into a year-end partsan grudge match with no clear resolution in sight and with huge political and economic stakes.
Without action, the payroll tax paid by 160 million workers will rise by 2 percentage points to 6.2% on Jan. 1. That would mean $1,000 a year less in the pockets of people making $50,000, or about $19 weekly. In addition, 3 million people currently receiving long-term jobless benefits will begin to lose weekly payments that average under $300 — for many, their only support.
Reclusive mining heiress paid lawyer and accountant thousands every month, but they failed to pay $90 million in federal gift taxes and penalties, estate says.
This article is by Jennifer Peltz of The Associated Press.
An accountant facing questions about his handling of a reclusive Montana copper mining heiress' fortune has resigned from administering her estate as a city official said the accountant and a lawyer underpaid her taxes by tens of millions of dollars.
Irving Kamsler resigned Tuesday as an executor of Huguette Clark's $400 million estate, lawyers for the estate said in a letter that noted that the official was about to ask a court to strip Kamsler and lawyer Wallace Bock from their roles managing the estate.
Kamsler and Bock, while paid thousands of dollars a month for responsibilities that included dealing with the aged heiress' taxes, let $90 million in unpaid federal gift taxes and penalties accrue by early this year, according a probate court filing Tuesday by the Manhattan public administrator, an official who gets involved in certain estate cases.
And the administrator believes "this wrongful conduct is just the tip of the iceberg," wrote the public administrator's lawyers, David R. Gelfand and Peter Schram.
They said that Kamsler and Bock campaigned to get Clark to make a will that left them money and named them executors and that the accountant and attorney asked and got her to pay their legal fees in connection with a Manhattan district attorney's office investigation into their handling of her affairs.
Kamsler and Bock deny any wrongdoing in their dealings with Clark.
Conventional advice to drain taxable accounts first isn't always best. Consider delaying Social Security and tapping taxable and tax-deferred accounts simultaneously to minimize tax bite.
This article is by Anne Tergersen of The Wall Street Journal.
You probably know the conventional wisdom: When spending retirement savings, drain taxable accounts first, to give the money in tax-deferred 401(k)s and individual retirement accounts more time to grow, and leave tax-free Roth IRAs for last.
But with many nest eggs today smaller than they should be, a better approach, some financial advisers say, is to tap these accounts simultaneously in order to minimize taxes over time.
The key is to make full use of the lower federal and state income-tax brackets many retirees are in early in retirement. To further reduce taxes, it may make sense for those with after-tax incomes between $40,000 and $90,000 to defer Social Security, says James Mahaney, vice president of strategic initiatives at Prudential Financial.
Those who stick to the convention of annually spending no more than 4% of their initial retirement savings — adjusted each year for inflation — can "use the tax code to make their portfolios last up to seven years longer," says Baylor University Prof. William Reichenstein, a principal at Retiree Inc., a Leawood, Kan., company that helps retirees plan tax-efficient withdrawals.
The White House turns to social media to make its case for the payroll tax extension. For a taxpayer making $50,000 a year, it means about $40 per 2-week pay period.
What will it mean to you if the Social Security payroll tax cut is not extended?
If you're an average taxpayer, making $50,000 a year, you'll pay an extra $1,000 in Social Security tax next year. That's about $20 a week, or about $40 a pay period for those who get paid every other week.
The White House took its campaign to Twitter, Facebook and YouTube on Tuesday afternoon, asking Americans to let Congress know what $40 means to them. The administration also is collecting Americans' stories online.
President Barack Obama noted that while most members of Congress support extending the payroll tax cut, Republicans in the House have chosen to hold it hostage so they can get other concessions from Democrats and the administration. "This is not a game," Obama said in response to a GOP characterization of the payroll tax debate as "high-stakes" poker.
The House would extend the payroll tax cut through 2012 while the Senate would extend it only 2 months. The measures also differ on benefits for the unemployed.
This post is by The Associated Press.
If you find you can't keep up with the payroll tax debate without a scorecard, you're not alone.
Here are the highlights of the competing pieces of legislation passed by the House and Senate last week:
House bill, approved Dec. 13:
- Price tag more than $180 billion.
- Keeps this year's 4.2% Social Security payroll tax rate paid by 160 million workers through the end of 2012, instead of letting it rise to 6.2% on Jan. 1.
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