MY WIFE SARAH AND I recently dusted off our old Scrabble board. We reviewed the rules and were reminded of the Scrabble Bingo—the 50-point bonus awarded to a player who figures out how to play every letter tile from the tray on a single turn.
Neither of us could remember ever achieving the Scrabble Bingo. That wasn’t surprising, we reasoned, because it’s rare for all the stars to align. You’d need the right combination of seven letters,
EXCHANGE-TRADED funds are popular, but their complex structure makes them difficult to understand. A question I hear frequently: Are exchange-traded funds (ETFs) more tax-efficient than traditional mutual funds?
The evidence suggests they are. One recent study found that ETFs distribute capital gains to shareholders much less frequently than traditional mutual funds and, when they do, those gains are smaller. It’s worth understanding why that’s the case.
Let’s first look at the mechanics of a traditional mutual fund.
I GOT AN ANGUISHED call from an investor last week. Let’s call her Emily. Emily’s accountant was finishing up her tax return and was surprised to see a $113,000 capital gain. The explanation turned out to be just as surprising.
The issue stemmed from a well-intentioned move by Vanguard Group. In late 2020, the firm announced it was broadening access to a set of lower-cost mutual fund share classes.
Mutual fund share classes are like fare classes on an airplane.
A POPULAR REFRAIN is that we shouldn’t let the tax tail wag the investment dog. I struggle with this one.
Currently, 87% of our stock portfolio is in broad-based, low-cost index mutual funds, with the other 13% in individual stocks. I prefer the index funds—and yet I continue to hold the individual stocks because I don’t want to pay the taxes on our gains.
About 6.7% of our total stock portfolio, equal to half our money in individual stocks,
INFLATION HAS BEEN the big economic story of 2022. Steep increases in consumer prices have hurt families in many ways—some of which aren’t so obvious.
You’re likely aware of the hefty increases in borrowing costs, home prices, rents, gas prices and groceries. But here’s something else to consider: how inflation can lead to higher taxes.
Important parts of the federal tax code aren’t indexed for inflation. Result: If inflation leads to nominal increases in a family’s income,
I’M NOT IN THE HABIT of celebrating half-birthdays, but my next one has me thinking. In a few days, I’ll turn age 59½.
That, of course, is the age at which you can tap your retirement accounts without paying the 10% early withdrawal penalty. Though I don’t currently need to pull spending money from my retirement accounts, I like the feeling that I can now do so penalty-free.
Even without that 10% penalty, however,
MY WIFE AND I recently took advantage of one of the most valuable tax breaks for the typical American family. The tax code provides a generous exemption on the profit from the sale of a primary home. Although this is widely known, it also—based on my conversations with a variety of people—seems to be widely misunderstood.
The Taxpayer Relief Act of 1997 made a major change to the taxation of home sales. Prior to this,
IS THE IRS NO LONGER able to provide basic services to the public?
When my father passed away, he left his financial assets in a trust for my siblings and me. A trust is a good estate planning tool, but there are some disadvantages. Among them: A trust has to file its own income tax forms.
My mother is the trustee. She uses a local CPA to prepare the tax returns for the trust.
I JUST COMPLETED my fourth year preparing tax returns as part of the federal government’s Volunteer Income Tax Assistance (VITA) program. I’ve seen first-hand how confusing our tax code can be for many taxpayers. Here are the 10 areas of confusion I’ve encountered most often:
1. Income. Anyone looking through a tax return will see multiple definitions of income. There’s total income, adjusted gross income (AGI), modified adjusted gross income, provisional income and taxable income.
MY TAXES ROSE 50% in 2021. I’ve never paid so much before, not even during my peak earning years. I’m not upset about having to pay my fair share, but the extent of the increase puzzled me. After examining my tax return, I came away with a handful of insights.
To be sure, I wasn’t expecting a large refund. The reason: I suspected that a onetime employment windfall would cause me to owe money,
THIS IS MY FOURTH year serving in AARP Foundation’s TaxAide program. I prepare federal and state tax returns three days a week for a mixture of retirees and lower-income citizens.
Each week, I see clients who are baffled by the complexity of our tax code. Many have been paying hundreds of dollars to commercial preparers because they’re afraid of making a mistake.
And no wonder. The federal tax code has myriad twists and turns that can confound the average taxpayer.
I LEARNED SOMETHING new while preparing a tax return recently for a widowed senior citizen. I volunteer for AARP Foundation’s TaxAide program. A widow in her mid-70s had received her 2021 required minimum distribution (RMD) from her IRA—and it consisted entirely of Exxon Mobil stock.
Her account’s custodian, instead of selling the stock and distributing cash, gave her the actual shares. This had never happened to her before, and she hadn’t requested it. Why did the custodian do it?
MY WIFE AND I PAID just $234 in federal income taxes on 2021 adjusted gross income of $98,370, giving us an effective tax rate of less than 1%.
How did we end up paying so little? It all started with my October 2020 layoff. I was age 57 and had, until then, enjoyed a 34-year newspaper career. One of my immediate concerns: getting health insurance coverage.
That turned out to be easy in 2021.
TAX DAY IS ALMOST here, and I have a feeling that some of you may be less than excited. The cash that changes hands every year around this time gets a lot of attention, but it tells an incomplete story. The size of the check you write—or the refund you’re receiving—doesn’t, by itself, say much of anything about your tax situation.
Back in the days before technology made transferring money so convenient, did you ever let a tab run both ways with a friend?
IT’S OFTEN SAID THAT beauty is in the eye of the beholder. The same could be said of fairness in taxation.
A recent article by Kelly Phillips Erb addresses this contentious topic. Erb, who tweets as @TaxGirl, is the team lead for insights and commentary at Bloomberg Tax and Accounting. Her article was titled, “Did you pay your ‘fair share’ of federal income tax this year?”
The piece discusses the history and current state of U.S.