Have you considered using an inheritance to buy a house? I had the chance to help a client think through this toward the end of last year. They were building new and needed to have their down payment ready at the beginning of this year for an estimated move-in of Fall 2024. Situations like this can appear to be relatively straightforward. Take the money you inherited, and then use what you need for the down payment. But the reality is that there can be unexpected tax consequences for certain types of inheritances. In this client's case, they had inherited a Traditional IRA. That means that the money in the account hadn't been taxed yet....and yes, that it would be taxed when it is taken out...even by the beneficiary! The trick here was that it would only be taxed when it is actually taken out of the account, not the moment they inherited it. But instead of waiting to take it all out when they needed it (January 2024), we explored some different alternatives. It turned out that in their case, due in part to certain tax credits and the marginal tax bracket they were in, they could save around $2k in taxes by taking SOME of the money out in 2023, and the rest in 2024, splitting the "income" from the IRA over multiple years. In the grand scheme, $2k was a small percentage of the money they inherited. But by itself, it is still a nice chunk of change! Even situations that seem like they don't need much thought can mean thousands of dollars in different outcomes. #taxplanning #inheritance #IRAstrategy
Ryan Johnson, BFA™’s Post
More Relevant Posts
-
What to do when a loved one passes? A tax 🧵. Every year I am contacted by new and currents clients whose loved ones passed away. If you are the executor of their estate you have a few things to do to get taxes in order. 1. File a final individual tax return. This includes anything they received (or paid) from January 1 till their date of death. 2. Generally the rest of their assets are already held in trust or their “estate” is created at the time of death. 3. You will need to get an EIN for their “estate”. 4. In most cases liquid assets are distributed to beneficiaries (cash, IRA, brokerage, 401k) 5. More illiquid assets, homes, business interests etc are sold and fund’s distributed. 6. Most beneficiaries will receive a K-1 with their share of inheritance filed on an trust/estate tax return. 7. Is most cases the winding up of simple estates can takes 2-3 tax years. There are many more complex cases that last decades (most on purpose, some accidental). Working with your parents on estate planning can lesson the burden during an already sensitive time. #taxes
To view or add a comment, sign in
-
Enabling Happier & Wealthier MSP Owners: 🏆 Award Winning and ONLY tax & financial management solution solely for MSPs in the UK, including Accounting, Book-keeping, Tax Planning, Virtual FD, & Mentoring. 💪🏼
TAX TIP OF THE WEEK - Looking to pass wealth on to your kids? 🚼 Piling money into savings accounts while they are under 18 can have some unforeseen tax consequences, however, there is 1 type of gift that comes with tax perks 🎁 ... There are 2 tax traps ☠️ with just transferring money into their savings accounts: 1️⃣ Interest earned from these accounts (if more than £100/annum) couldn't as your income, so you could end up paying tax on it. 2️⃣ Gifts of more than 3k per annum will count towards the annual exemption meaning it could be subject to inheritance tax. The way around this is to make gifts out of unused income, as long as it is regular & doesn't impact your own normal standard of living it is outside of Inheritance tax. To get around the income tax trap you could consider making the gifts to a registered pension plan for your children, ok they may not get access to it until they are 55, but HMRC will top up any contribution made by 20%. 💵 Nice of them to give you something for a change.. Hope you found this useful. 🤔 👋 Daniel Welling Adam Morris
To view or add a comment, sign in
-
**IRS Updates Inherited Beneficiary IRA 10-Year Rule on 4/16/24. They have once again waived the annual required distribution, but the 10-year payout period remains. Talk with your advisor about your situation if delaying makes sense or still voluntarily taking withdrawals while tax rates are low. Delaying could create a larger tax bill at the end of the 10-year period.
To view or add a comment, sign in
-
Financial Planner Helping 30-50 year old Business Owners and Those With Equity Comp Build Wealth 💰. Co-Founder at AllStreet Wealth. Head of Community at Wealth.com
So... you inherited some money How is it taxed? This is a question that comes up a bunch Here's the answer... it depends The type of account or investment you receive makes a difference: 1. Taxable account You get a step up in cost basis Let's say your grandma bought $10k of apple and it is now worth $100k The cost basis moves to $100k for you, so you could sell that day and pay no tax 2. Roth Account You can take all the money out without any tax Probably the best account to inherit 3. Traditional Account Non spouse: has to withdraw the entire account within 10 years Lots of tax planning should be done here. Most inherit while still working and this will shoot you up tax brackets Why? Because you have income from here + income from work = double income And more income in higher brackets But if you are a spouse, can take RMDs based on the life expectancy of the IRA owner Spousal beneficiaries can plan the RMDs from an inherited IRA to take advantage of delaying the RMDs as long as possible So the answer lies in the type of account and if you are a spouse or not Make sure you are doing tax planning when inheriting money
To view or add a comment, sign in
-
I’ve just got off the phone with a client asking the age-old question - how do I reduce my inheritance tax bill? There are lots of ways to do this, but for me, there are three fool-proof methods. 1️⃣ Give assets to a spouse. Tie the knot and avoid IHT liability on your assets. Spouses can also inherit a partner’s unused nil-band rate when they die, which could see their allowance grow to £650,000. What’s more, the allowance for owning a home together can grow to as much as £1 million. 2️⃣ Leave your home to your kids. Rising property prices have seen IHT revenue doubling in the last decade, but you can get an extra £175,000 allowance with the residence nil-rate band if your main property is passed onto family members. You can also combine your allowance with your spouse or civil partner to pass up to £1 million with no tax. 3️⃣ Give money away. The simplest and one of the most efficient ways to avoid IHT is by gifting assets throughout your life. The amounts can’t significantly change your lifestyle, like a house sale, but every individual gets a £3,000 annual exemption, which can be carried forward for one tax year, leaving you with £6,000. The small gift allowance also allows you to give up to £250 each year per person if they haven’t already benefited from your £3,000 annual exemption. Of course, tax mitigation is complex and every one of these has stipulating circumstances to consider. However, I’ve helped countless clients mitigate IHT and other taxation and can do the same for you. #IHT #TaxMitigation #TaxLiabilities
To view or add a comment, sign in
-
There are ways to collect income and gains free from federal income tax. For example, if you receive a gift or inheritance, the amount generally isn’t taxable. And unlike withdrawals from traditional IRAs, qualified Roth IRA withdrawals are free from federal income tax. A qualified withdrawal is one taken after you reach age 59½ and have had a Roth IRA open for over five years, or you are disabled or deceased. Also, you can have a decent income and still owe 0% for long-term gains and dividends. In 2024, single taxpayers can have up to $47,025 in taxable income ($94,050 for married couples filing jointly) and be in the 0% bracket. Contact an Axley & Rode advisor. Advance planning may lead to better tax results. For more information, check out our blog. https://bit.ly/3Z4Kg3Q
6 tax-free income opportunities
axleyrode.cpa
To view or add a comment, sign in
-
Is This the Biggest Financial Scam going on in the Country? 🤔 1️⃣ First, you pay income tax on the hard-earned money you make. 2️⃣ Then, when you go to spend that money on daily expenses, you pay GST or other consumption taxes. 3️⃣ But it doesn’t stop there. When you invest in real estate, buy a car, or save your money in the bank, you’re still paying more taxes on things you bought with already-taxed money. This is the cycle we find ourselves in—constantly paying taxes on money that’s already been taxed. It feels like we’re taxed at every step—earning, spending, and owning. Whether it's through property taxes, capital gains, or even taxes on basic purchases, the burden never seems to ease. So the real question is: are we really able to build wealth, or is this system a never-ending trap of taxation? 🤔 Also, I recently saw a post by Akshat Shrivastava which clearly shows how a change in capital gain tax changes the retirement planning of the individual which he/she makes with the current tax system of capital gains. So this must be addressed in the system otherwise it is impossible to have financial planning for the future. It’s time to have a real conversation about whether this approach to taxation is fair, sustainable, or something that needs a serious overhaul. #Taxation #DoubleTaxation #FinancialFairness #RethinkTaxSystem
To view or add a comment, sign in
-
Property you inherit generally isn’t included in income for tax purposes. However, there are certain items that may have to be included. Here are the details. #IncomeInRespectOfADecedent #AskUs #InheritingProperty
Most people appreciate inheritances. But in some cases, they may turn out to be too good to be true. “Income in respect of a decedent” (IRD) may create a surprise tax bill for those inheriting certain types of property. Fortunately, there may be ways to minimize the IRD tax bite. For the most part, property you inherit isn’t included in your income for tax purposes. Items that are IRD, however, do have to be included, although you may also be entitled to a deduction on account of them. One common IRD item is the decedent’s last paycheck, received after death. Other common IRD items include pension benefits and amounts in a decedent’s IRA at death. Questions? We’re here to answer them: www.ramsaycpa.com. #Inheritance #PropertyInheritance #IRD
To view or add a comment, sign in
-
There are ways to collect income and gains free from federal income tax. For example, if you receive a gift or inheritance, the amount generally isn’t taxable. And unlike withdrawals from traditional IRAs, qualified Roth IRA withdrawals are free from federal income tax. A qualified withdrawal is one taken after you reach age 59½ and have had a Roth IRA open for over five years, or you are disabled or deceased. Also, you can have a decent income and still owe 0% for long-term gains and dividends. In 2024, single taxpayers can have up to $47,025 in taxable income ($94,050 for married couples filing jointly) and be in the 0% bracket. Contact an Axley & Rode advisor. Advance planning may lead to better tax results. For more information, check out our blog. https://bit.ly/3Z4Kg3Q
6 tax-free income opportunities
axleyrode.cpa
To view or add a comment, sign in