It may be tempting to invent income for a child, such as paying them to do the dishes, in order to qualify for a Roth IRA contribution. Don’t do it!
taxable compensation
Your Year-End Bonus
As the end of the year approaches many employers will pay and many employees will receive year-end bonuses. While often the icing on the cake for a productive year employee should be aware of the tax consequences of their bonus. Percent vs. Aggregate Method When it comes to taxing the bonus an employer may choose the percentage method versus the aggregate method. Under the aggregate or wage holding bracket method the employer will use the withholding tables generally used for the employee normal paycheck. Then, the supplemental wages are aggregated with the employee’s normal pay and taxes are withheld accordingly.
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State Income Tax and Retirement Income
On only a few rare occasions does it make sense to defer money to your 401(k) or other employer sponsored plan instead of a Roth IRA. Those occasions include when your gross income excludes you from contributing directly to a Roth IRA (you can still convert), you are currently at a very high tax rate or the case of when you live in a state where retirement income is excluded from state taxation. Here in Illinois, the current law exempts retirement income from being taxed at the state level. What this means, is that any contributions to a 401(k), 403(b), SEP, SIMPLE and 457 avoid state income taxation. Qualified distributions at retirement are only taxed at the federal level, and then only as income. If you contribute directly to a Roth IRA that money is after-tax money going in. After-tax in this case meaning it’s been already taxed at the […]
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What Income is Taxable?
It may be tough to figure out which parts of your income you’ve received over the year are taxable, and what parts are not taxable. This is because certain kinds of income may seem like they should not be taxed (but they are), while other items of income seem like they should be taxed (but they’re not). The IRS has published a Tax Tip to help understand which income is taxable and which is not. The complete text of IRS Tax Tip 2013-12 is detailed below. Taxable and Nontaxable Income Most types of income are taxable, but some are not. Income can include money, property or services that you receive. Here are some examples of income that are usually not taxable: Child support payments; Gifts, bequests and inheritances; Welfare benefits; Damage awards for physical injury or sickness; Cash rebates from a dealer or manufacturer for an item you buy; and […]
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Do You Need to File a Tax Return This Year?
Image via Wikipedia Have you ever wondered if it was actually necessary to file a tax return? Perhaps your income is relatively low, and so you wonder if it’s really required of you to file a return. Often it’s not entirely a case of a return being required, but rather it might be in your best interest to file a return in order to receive certain credits against your income. Recently the IRS issued their TAX TIP 2012-02 which goes over some of the things you need to be aware of when considering if it’s necessary or in your best interest to file a return. Portions of this TIP are listed below, with additional information added. Do I Need to File a Tax Return This Year? You are required to file a federal income tax return if your income is above a certain level, which varies depending on your filing […]
Sterling Raskie, MSFS, CFP®, ChFC®
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And if you’ve come here to learn about queuing waterfowl, I apologize for the confusion. You may want to discuss your question with Lester, my loyal watchduck and self-proclaimed “advisor’s advisor”.