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Avoiding or Evading?

Richard Connor  |  Apr 8, 2024

OUR INCOME TAX SYSTEM is based on voluntary compliance. Taxpayers are responsible for reporting all their income and paying the required taxes.
In assessing tax returns, the IRS differentiates between tax avoidance and tax evasion. Tax avoidance is “an action taken to lessen tax liability and maximize after-tax income,” while tax evasion is “the failure to pay or a deliberate underpayment of taxes.”
What are the major sources of tax evasion? Under-reporting income seems to be No.

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Owning My Mistake

Richard Connor  |  Apr 1, 2024

I RECENTLY WROTE an article about our purchase of a new primary residence, and our plans for our existing beach house. On the same day, HumbleDollar published a companion article that I also wrote. That second piece discussed the tax implications—and complications—of converting a former primary home to a rental property.
We had purchased the new home using a mortgage, and our plan was to refinance the beach house and use those funds to pay off the mortgage on our new primary residence.

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Fox in the Henhouse

Marjorie Kondrack  |  Mar 27, 2024

ALBERT EINSTEIN reportedly once said, “The hardest thing in the world to understand is income taxes.” Which makes me wonder: How did I end up wandering into this mind-boggling field? 

I like knowing how my money gets taxed because it helps me better control our finances. By managing taxes, we can significantly boost how much money we have for retirement.

Why is the tax system so complicated? The system is trying to do more than just collect taxes.

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The Downside of Up

Richard Connor  |  Mar 14, 2024

SAVINGS YIELDS SOARED in 2023—and all that interest income is now showing up on people’s tax returns.
Forbes published historical average money-market rates based on FDIC data. The average rate in 2020 and 2021 was 0.1%. That jumped to 0.15% in 2022 and 0.59% in 2023. But remember, those are averages, and it isn’t difficult to find higher yields. For instance, interest rates on high-yield savings accounts are up sharply since spring 2022.

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Targeting Taxes

Adam M. Grossman  |  Mar 10, 2024

RETIREMENT CAN—ironically—take work. It requires us to restructure how we think about both our time and our finances. That rethinking extends to tax planning, which tends to move to center stage once we quit the workforce. Already retired or approaching retirement? There are several tax strategies worth considering.
But before we review specific strategies, it’s worth pondering a more fundamental change wrought by retirement. During our working years, the usual goal is to minimize our tax bill each year.

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The Taxman Cometh

Ken Begley  |  Feb 27, 2024

FOR A FEW YEARS early in my career, I was an internal revenue agent for the IRS. I audited the tax returns of small businessmen, drug dealers, doctors, lawyers, a professional basketball player and everybody in between.
That was 43 years ago, when the IRS was much bigger relative to the population. One result: A larger percentage of the population were subjected to audits.
I saw and heard a lot. Some people would put dogs,

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Called to Account

Jonathan Clements  |  Jan 27, 2024

MY FAMILY HAS BEEN regularly visiting a remote corner of southwest England since 1968, when I was five years old. My maternal grandparents retired to the area, and for a while my parents owned a holiday house nearby. It is, to me, the world’s most beautiful place.
Decades ago, while walking the country lanes, I came across the ruins of a church that was under the protection of a group called Friends of Friendless Churches,

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Taxing Our Brains

Dan Smith  |  Dec 20, 2023

I SPENT A GOOD portion of my early adult life in neighborhood taverns. Back then, I sold beer for a living. You can imagine that I saw and heard some crazy things. Remember the sitcom Cheers? I knew doppelgangers for each and every Cheers character.
But the things I heard in those bars didn’t come close to the things I heard later when I worked as an income-tax preparer.

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Running Up the Tab

Michael Perry  |  Dec 9, 2023

A FEW DAYS AGO, I RAN the numbers on our likely 2023 taxes, and reached two conclusions: We have a small refund coming—and we should find a way to pay more taxes.
How can both be true? I project that our 2023 taxable income will be well below $190,750, which is the top of the 22% tax bracket for those married filing jointly. Getting taxed at 22% strikes me as a good deal, given the likelihood that we’ll be taxed at an even higher rate later in retirement.

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Location, Location

Howard Rohleder  |  Oct 12, 2023

WANT TO IMPROVE YOUR portfolio’s long-run performance? You could boost your stock allocation—something I wrote about last year—or cut your investment costs. But don’t overlook another key strategy: thinking carefully about which accounts you use to hold your various investments, or what financial experts call “asset location.”
My wife and I have taxable accounts, Roth IRAs, traditional IRAs and a health savings account. Earnings in each account get different tax treatment both now and in the future.

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Roll This Way

Richard Connor  |  Aug 28, 2023

I THOUGHT I HAD a pretty good handle on health savings accounts, or HSAs. My wife and I contributed to HSAs over the decade before we retired. The money we accumulated has come in handy in the early years of retirement. I’ve also written several articles extolling their virtues.
But I recently learned that we missed an opportunity to further fund these accounts, while simultaneously reducing future required minimum distributions. The trick is to do a rollover from an IRA to an HSA.

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Getting Squeezed

Marjorie Kondrack  |  Aug 14, 2023

MY CONTENTION: ONE of the most egregious parts of the tax code is the stealth tax on Social Security benefits.
To be sure, if your income is low enough, your benefits won’t be taxed. But around 56% of retired Americans pay taxes on up to 85% of their Social Security benefits. And the number grows each year. Incomes rise, if only because of inflation-driven increases, and yet the thresholds for taxing benefits have never been adjusted for inflation or wage growth.

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Piling On the Pain

Adam M. Grossman  |  Aug 6, 2023

LOOK UP THE WORD “nit” in the dictionary and you’ll find a few definitions—none of them particularly positive. Perhaps, then, it’s no surprise that the tax commonly known as NIIT can be a bit of an annoyance.
NIIT is short for net investment income tax. It originated back in 2013 to help pay for the new health care law. The net investment income tax rate is relatively innocuous at 3.8%, and it’s already been on the books for 10 years,

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What Did We Pay?

Aaron Brask  |  Jul 14, 2023

WHAT’S THE COST BASIS of the stocks you own? It’s hardly surprising that this information occasionally gets lost, especially if we’re talking about shares acquired years or even decades ago. In fact, you may never have known the cost basis if you received the shares as a gift and, to make things even more confusing, the IRS has quirky rules for gifted shares.
Whatever the reason, many people are missing cost basis information—a significant problem because cost basis directly affects the taxes you may have to pay when selling investments held in a regular taxable account.

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A Late Save

Richard Connor  |  May 26, 2023

MANY RETIREMENT savers fund tax-deferred accounts—with good reason: The money we contribute pre-tax to an IRA or 401(k) reduces our taxable income, plus that money grows tax-deferred until withdrawn.
But there are two lesser-known benefits that are worth keeping in mind. First, with IRAs and solo 401(k)s, you can contribute for last year right up until the tax-filing deadline in April of the following year. That means you can calculate your tax bill, make an IRA contribution that’s credited to last year—and voila—cut the tab you owe Uncle Sam.

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