Tax Strategies

The Sunset of the Tax Cuts and Jobs Act: What You Need to Know

  As the saying goes, “tax laws are written in pencil”. Indeed, the landscape of taxation is in constant flux, necessitating an ongoing awareness and adaptability to change. As we approach the expiration date, I wanted to describe in more detail the changes that are being made. This is not a comprehensive list but does cover the changes that are most impactful.Authors Opinion: Before I dive into the changes, I do want to put my opinion out there and say that I do not believe we will revert to 2017 tax laws entirely. While anything is possible, I believe the most likely scenario…
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IRC Section 121 and Its Application to a Rental Property Turned Primary Residence

Investing in real estate can provide significant financial benefits, including capital appreciation and rental income. However, the tax implications of selling a property that has been used both as a rental and as a primary residence can be complex. This article will explore how the Internal Revenue Code (IRC) Section 121 exclusion applies when a rental property is converted into a primary residence, focusing on a detailed case study to illustrate the key points.For more on the tax implications of selling rental properties, see Tax Implications of Selling a Rental Property – Gilbert Wealth What is the IRC Section 121 Exclusion?…
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Tax Implications of Selling a Rental Property

Selling a rental property can have significant tax implications, whether you realize a gain or incur a loss. This article will provide a detailed overview of the various tax considerations involved, including depreciation recapture, selling expenses, and passive loss carryforwards. Calculating Real Estate Gains or Losses When you sell a real estate property, or any investment for that matter, you will incur a capital gain or loss. Unless held in a tax-qualified account, the capital gain or loss goes into determining potential tax obligations you may have as a result of the sale. To determine the capital gain or loss on…
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Understanding Tax Implications for Investment Accounts

Understanding the different types of retirement accounts and their respective tax statuses is fundamental for effective financial planning and tax planning. This article offers a comprehensive overview of the four primary tax categories for different accounts each having distinct implications for investment growth and withdrawals.The reason understanding these terms is important as they impact how contributions, distributions, and earnings are taxed as well as other important considerations regarding the account.The four primary account tax categories are:Taxable AccountsTax Deferred AccountsTax-Free AccountsAfter-Tax Accounts  Taxable Accounts Contributions = Not Deductible Tax Deferred Growth = Depends Withdrawal Taxation = Gains Withdrawal Flexibility = Most…
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Withholding Taxes from IRA’s and 401k’s

In my role as an advisor and financial educator, I take time to explain financial concepts that people do not often think about or know to think about. While there are some very easily understood concepts out there, sometimes I am reminded that not all topics make sense at first blush.  Taxes on My Taxes!?! An often confusing aspect of withholding for taxes from an IRA or 401k is that the tax withholding itself is also subject to income taxes. That's right, if you withhold taxes from your IRA or 401k, the withholding itself will be taxes. Taxes on a…
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What is the IRA Aggregation Rule

The IRA aggregation rule is an IRS rule that stipulates that all traditional, SEP, and SIMPLE IRAs owned by an individual to be treated as one for tax purposes when calculating the taxable amount of an IRA distribution or conversion to a Roth IRA. This rule becomes particularly important during the Roth conversion process, as it dictates how the pre-tax and after-tax amounts in your IRAs are considered.The IRA Aggregation Rule has two primary implications:All Traditional, SEP, and SIMPLE IRA's are totaled for the purposes of distributions.Each distribution is a pro-rata distribution of pre-tax funds and basis. Cream in the…
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How to Pay Estimated Taxes

Paying estimated taxes is a crucial responsibility for self-employed individuals, freelancers, and those with income not subject to withholding taxes. Estimated taxes are typically paid quarterly to the IRS (Internal Revenue Service) and, in some cases, to state tax authorities to cover income tax and self-employment tax liabilities. Here's a guide on how to pay estimated taxes: In most cases, you must pay estimated tax if both of the following apply. 1. You expect to owe at least $1,000 in tax (for 2024), after subtracting your withholding and refundable credits. 2. You expect your withholding and refundable credits to be less than the…
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Charitable Lead Trust Basics

Charitable Lead Trusts (CLTs) are sophisticated financial instruments that serve dual purposes: supporting philanthropic endeavors and managing estate or gift taxes. As an estate planning tool, CLTs are particularly appealing to financially affluent individuals who are also committed to making significant charitable contributions.This article reviews the common uses, considerations, and pros and cons of implementing Charitable Lead Trust strategies. CLT strategies are complex and should involve a trusted attorney, accountant, and financial advisor. What is a Charitable Lead Trust? A Charitable Lead Trust is an irrevocable trust where the grantor (the person or persons who created the trust) donates assets…
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Maximizing Your Wealth: The Importance of Understanding Pre-Tax and After-Tax Differences

When crafting a financial strategy, understanding the difference between pre-tax and after-tax net wealth is crucial. This knowledge not only impacts how you plan for retirement but also affects your current financial decision-making and tax planning. This article aims to demystify these concepts for beginners, providing a clear framework for comparing pre-tax and after-tax scenarios and their implications on personal wealth management. Understanding Pre-Tax and After-Tax Net WealthPre-Tax Net Wealth refers to the total value of all financial assets before any taxes are deducted. Taxes are calculated based on the type of asset and the person, or entity, recognizing the income…
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Mastering Tax Brackets for Better Financial Planning: How Progressive Tax Bracket Work

Understanding how the US tax system works is a critical component of providing effective advice as taxes play a notable role in many areas of your financial picture. Tax planning is one of those topics that is interwoven into many other financial planning topics. From understanding the tax implications of various savings strategies to the tax implications of estate distributions, having a solid understanding of how taxes work can help make better decisions.While nearly everyone files taxes every year (yes, there are a few who might not need to), many do not have an understanding of basic, foundational tax concepts. This…
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