How Are Collectibles Taxed?
Capital gains on taxes from selling a collectible item can reach as high as 28 percent. The government sets the tax price of buying and selling collectibles high as the items are worth a significant amount of money.
What Are Collectible Items?
Collectible items are rare objects which have a unique appeal to a buyer. Some examples of collectible items are coins, stamps, rugs, books, artwork, trading cards, gems, and other antiques. These objects usually tend to be special one of a kind items or items which are part of a bigger set.
How Are Collectibles Taxed by The Government?
The tax code released by the Internal Revenue Service (IRS) has a special procedure for collectible items. The tax rates on normal item capital gains of 0, 15, and 20 percent do not apply. Taxes owed are at your normal bracket rate with a cap of 28 percent. Short-term capital gains on the sale of a collectible item are taxed at an ordinary rate.
Personal Use
Beware of the tax language which still works against you even if you purchase the collectible item for personal use. Selling collectibles the investor once owned for personal use can’t be claimed at a capital loss and selling those items for a profit will result in a taxable capital gain.
Conclusion
Being aware of how collectibles are taxed is an important part of ensuring that you’re making the right investment. Think of all of the possible ways you can avoid any capital gains taxes when investing in special collectible pieces.
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What Investors Need to Know About ETFs and Taxes
ETFs have become popular with investors because of their low cost and efficiency. They’re easy to trade, but most investors are unaware of the benefits which ETFs bring, especially when compared against similar investments.
What are ETFs?
Exchange-traded funds (ETFs) are investments traded within the stock market just like traditional stocks. The value of an ETF exists similarly as a stock, bond, or other financial commodity and is traded close to its net value. Most ETFs track an index and allow trading of shares just as you would a stock portfolio.
Tax Efficiency
ETFs have authorized participants who assemble appropriate values and send them to designated banks which then place them into a trust. The exchange-traded funds share value with the authorized participant in the same sense as a mutual fund.
What is a Mutual Fund?
Mutual funds are group-wide investments which allow you to pool money together with other investors in order to purchase stocks, bonds, or other financial products which are difficult to purchase individually. Unlike ETFs, shares in a mutual fund are priced once a day after the market closes and do not fluctuate throughout the day.
Beware of Non-Efficient ETFs
Bond ETFs are tax inefficient investments which often require work to rebalance your investment. Bond ETFs require the investor to pay on any capital gains received.
Conclusion
ETFs are fast, easy, and tax-efficient commodities which are becoming highly popular with investors. Compared to similar ways of investing capital, ETFs are a higher quality investment choice.
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Four Types of Income the IRS Can’t Touch
Not many taxpayers are aware that there are certain types of income the Internal Revenue Service (IRS) cannot touch. No matter how much these activities improve your pocketbook they won’t increase your taxable income.
Collecting Airline Miles
Obtaining frequent flyer miles is not a taxable source of income even though this is a hotly debated topic with the IRS. The only time this can become a problem is when the passenger is compensated in the form of capital.
Rebates
Rebates are considered as a price reduction and not as a form of revenue. Using rebates towards automotive vehicles, alcohol, technology, or other items is not a reportable income for your taxes.
Carpooling
Commuting to work can become profitable if the taxpayer starts up a carpool between co-workers. Any money received from this venture does not have to be included in your income. Commuting costs in general are not deductible, but establishing a car pool where you are compensated for money is a legal way to earn non-taxable income.
Education
Going back to improve your education can be beneficial with a company that can deduct from your amount. Compensation from work to return and enhance your education is tax free as long as it goes toward undergraduate or graduate courses. Any income received from scholarships is also not taxable.
Conclusion
These are just a few examples of income which the IRS can’t touch. Make sure that any business venture you participate in follows along with the rules and regulations of the IRS.
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How Dividends on IRAs Are Taxed
Traditional IRAs, dividends and capital gains from IRAs are all tax-free. Roth IRAs are funded with after-tax capital. These contributions are not tax deductible and are important to know when considering how your dividends on IRAs are taxed.
What is an IRA?
An Individual Retirement Account (IRA) is a savings bank account created to aid with retirement. There are two types of IRA accounts: Roth and Traditional. A Roth IRA allows for a zero deduction rate for your contributions; however, following its rules can lead you to a tax and penalty free retirement. Traditional IRAs allow for deductions with deposits and can help delay taxes on invested funds until withdrawn.
Roth IRA Withdrawal
For a normal bank environment, dividends and other capital gains benefit from taxes. As long as money is withdrawn from the five-year-old account after the retirement age of 59½, you can avoid any extra taxation. If money is removed before the retirement age, you’ll owe a 10% penalty on any gains withdrawn.
Traditional IRA Withdrawal
Traditional IRAs are taxed at one’s current bracket rate. Any capital gains from your IRA do not benefit from lower tax treatments; they are taxed the same rate as your income. The only exception is when contributing to a traditional IRA using capital which has already been taxed.
Conclusion
When removing dividends from your IRA, it’s important to know what type of IRA you are removing your money from. Following careful guidelines and being prepared is the only way to ensure that you’re getting the best use of your money.
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The Basics of Reporting Foreign Bank Accounts on Your Taxes
Americans with foreign bank accounts were once able to rely on secrecy with the IRS. Foreign bank secrecy was a longstanding tradition in many cultures, including the United States. Rampant offshore banking has significantly worn down this tradition and failure to report a foreign account is now considered criminal activity.
What Happened To Offshore Banking?
The IRS has sued the Swiss Global financial services company (UBS) claiming that they encourage American investors to hide income within unreported offshore accounts. After settling criminal charges, the UBS handed over around 52,000 undeclared foreign American accounts. The IRS is also beginning to target other common offshore bank sites.
What’s the Problem?
Not reporting the existence of a foreign account on your Report of Foreign Bank and Financial Account Form (FBAR) can result in serious fines and penalties. The biggest issue with the IRS is that taxes on foreign income earned with the foreign bank are not being paid. This can carry significant civil and criminal consequences leading to fines, penalties, and even jail time.
What Should I Do?
The best preemptive option is a “Voluntary Disclosure.” The IRS Voluntary Disclosure Program proposes a reduced penalty and promises no criminal prosecution. This is better than a “Quiet Disclosure” which involves amending past taxes, but still leads to criminal charges due to unpaid penalties.
Final Word
Failing to amend a rule-breaking foreign account puts you at serious risk and may subject you to severe penalties in the event of discovery. The IRS will only continue to crack down harder on foreign accounts in the future.
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Form 1099-R Explained
The 1099-R form is used to show distribution when you receive $10 or more from your retirement account. This system is used to interpret the circulation of retirement benefits such as your pensions, annuities, rollovers, and IRAs.
Pension and Annuity
These benefits are arranged between a qualified employer’s retirement plan and an employee. Income taxes on most employment plans are postponed; that is, these funds later contribute to your pension and so they are not taxed until they are withdrawn by the employee. Pension and annuity payments are distributed to retired, disabled, and sometimes deceased taxpayers.
Rollovers
A rollover is an act which moves one guardian’s retirement funds to another without paying taxes. Indirect rollovers occur when the owner of the account re-deposits the retirement funds into another account. To avoid early distribution penalties, the funds must be rolled over into a qualifying account within 60 days of the deposit.
IRAs
An individual retirement account (IRA) is a type of savings account with two different methods of helping you save for retirement, traditional and Roth. With the Roth IRA you contribute with post-tax capital and get to take out the money tax-free when you retire. The Traditional IRA takes pre-tax dollars but the taxpayer gets taxed later when they take the money out after retirement.
Closing Thoughts
While the 1099-R form can be daunting at a first glance, pensions, annuities, rollovers, and IRAs all offer great benefits to taxpayers. Establishing an IRA or 401(k) and understanding the inner workings of a 1099-R form can only assist your lifestyle for the future.
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What to Expect If You Are Accused of Tax Evasion
Most evidence obtained by the Internal Revenue Service (IRS) in tax evasion cases comes from the mouth of the accused. It’s important to consider the legal fees, penalties, and possible jail time if you purposely report your yearly income incorrectly. If you are accused of tax evasion, you can expect the IRS to follow through with their investigation in a very thorough fashion.
Keep Calm and Hire Help
The IRS will send a field agent to visit the taxpayer in order to question the alleged fraud. You can prepare yourself against this encounter by hiring an attorney experienced in tax or criminal tax cases. Anyone who questions your business should be forwarded directly to your attorney. The IRS must prove the tax return was fraudulent under the taxpayer’s own admission before they can claim it as tax evasion.
Fraud vs. Negligence
Fraudulent taxes are a “willful act done with intent to fool the IRS.” In most cases, the IRS will give you the benefit of the doubt. However, performing certain tasks such as keeping multiple financial books, claiming a false social security number, and reporting fake dependents are all examples of fraudulent cases. Any case where an individual willfully attempts fraud can result in fines of up to $100,000 and five years in jail.
Closing Thoughts
Keeping good business records, hiring a tax or criminal tax attorney, and recognizing fraudulent activities will help balance your options when it comes to being accused of tax evasion. Tax evasion is a serious offense to the IRS and should not be thought of lightly.
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The Top 5 Highest State Tax Rates
No one enjoys paying taxes. The fact that we have to pay taxes is an unfortunate reality for U.S. citizens. However, you should not pay more taxes than you are required. One way to avoid paying a lot in taxes is to live in states with low tax rates. In this article we will discuss the five states which have the highest local tax rates.
(1) New York
New York has the highest tax rate out of all the U.S. states. You have to pay big money in taxes for that Big Apple lifestyle. New York residents pay an average of $9,718 in state and local taxes. These residents pay a rate that is 39 percent higher than the national average.
(2) California
Living in a state where it supposedly never rains sounds like a great idea, right? That pleasant weather will hurt your pocketbook. California residents pay an annual average of $9,509 in local and state taxes. They pay a rate that is 36 percent higher than the national average.
(3) Nebraska
Nebraska ranks third in the nation when it comes to the amount paid for taxes. Nebraska residents pay a total of $9,450 in local and state taxes. Nebraska residents pay a rate that is 36 percent higher than the national average.
(4) Connecticut
Connecticut residents pay an annual average of $9,099 in local and state taxes. Residents of this state pay 31 percent higher than the national average. This state ranks fourth in the nation.
(5) Illinois
Residents of the state of Illinois pay an annual average of $9,006 in state and local taxes. Illinois residents pay a rate that is 29 percent higher than the national average.
Those are the states with the highest tax brackets. If you live in one of these states and you don’t like these numbers, you could move to a nearby state with a lower tax rate.
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Shedding Light on the New Small Business Tax Rates
Tax laws are always changing. You need to be aware of the new tax laws so you can be sure to take advantage of new tax breaks and deductions for your business. The information included in this article will elucidate some of the new tax rules coming up.
Tax Breaks Extended
Two important tax breaks for businesses have been extended. The breaks that got extended are Section 179 and bonus depreciation. Businesses will be allowed to deduct the full price of software or equipment which was purchased or leased during the year as long as it meets qualifications. The maximum deduction allowed is $500,000.
The bonus depreciation was extended through the year 2017. It allows business owners to depreciate 50 percent of the cost of new equipment that was bought in the year 2015. Businesses will be permitted to use both of these deductions simultaneously.
These are not the only things which were extended. The work opportunity tax credit, the research and development credit, the credit for local and state sales tax, and the energy production tax credit were all extended. These extensions mean that small business owners can invest more in their business with new equipment.
The Affordable Care Act
The Affordable Care Act will affect some small business owners. It will depend mainly on the number of employees you have. If you have 51 to 99 employees, you will be responsible for providing at least 70 percent of your full time employees with health insurance. You could face a hefty fine if you don’t comply. Your tax penalty would be $2000 per employee if you don’t follow this policy.
These new rules can both help and hurt your business. The extension on the tax credits could put more money in your pocket while the health care rules could result in more paperwork. Be sure to talk to your accountant to see how these new rules will affect your business.
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What are the Requirements to Become an IRS Tax Preparer?
If you are considering earning your income as a future IRS Tax Preparer, there are number of requirements you must meet in order to start working with clients in need of a tax service.
Categories of Tax Preparers
The IRS classifies qualified tax preparers into several distinct categories. These categories are:
- Enrolled Agents
- CPAs
- Attorneys
- Supervised Preparers
- Non-1040 Preparers
Each category has its own set of qualifications which must be met in order to prepare individual or corporate tax returns.
Enrolled Agents
Enrolled Agents are the most rigorously qualified preparers of tax documentation. They must pass a three-part, comprehensive IRS exam which covers both individual and corporate returns. They are required to take a minimum of 72 hours of continuing education courses every three years, and must adhere to strict ethical standards. As a result, these preparers have unlimited rights before the IRS.
CPAs and Attorneys
CPAs and attorneys must pass a tax compliance check and a background check, but they are not required to take an IRS exam. Some may be required to complete continuing education courses in order to remain complaint with US law, but this varies. Both have unlimited rights before the IRS.
Supervised Preparer and Non-1040 Preparers
Both the supervised preparer and non-1040 preparer positions require the least amount qualifications. As a result, their ability to represent their clients concerning tax matters is severely limited in dealing with the IRS.
If you are looking for a career in tax preparation, these are the paths you can consider for employment.
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