How Will You React If 100% Of Your Retirement Plan Distributions Go To Tax - When Common Sense Fails

By Frank Miller


If you are a Canadian and a non-resident of the United States and you gamble at U.S. based casinos, chances are you have paid, or will eventually pay the Internal Service's dreaded casino gambling tax. Like almost all other taxes, the gambling tax is levied on income. In the case of the casino gambling tax, the taxable income stems from United States based gambling wins.

Canadian gamblers are legally entitled to obtain a U.S. casino taxes rebate, but unfortunately the Internal Revenue Service's arcane rules make the actual process of obtaining a U.S. casino tax rebate almost impossible. Thankfully refund management services are provided by licensed professional firms. Professional firms providing refund management services will streamline the U.S. casino tax rebate process and will allow Canadian gamblers to enjoy their winnings and avoid the headache.

Even though property taxes have skyrocketed along with property values, fewer and fewer taxpayers itemize their deductions. This means that for many taxpayers, income taxes are the same with or without deductions. Taxpayers with IRA distributions have to calculate the taxes due on IRA distributions dedicated to the payment of property taxes. Consider several middle class couples age 65 living in Minnesota. Each is retired from a job that has provided a pension. Assume each has nearly identical circumstances with combined Social Security benefits and pensions of $30,000 each for total cash flow income of $60,000 and file taxes as married filing jointly. The only difference in their circumstances is the property taxes of the mortgage free homes in which they live of $1,900, $3,800, $5,600 and $7,400. All other itemized deductions are the same and are not enough to exceed the standard deduction for their age and filing status. Without an IRA distribution and after the standard deduction and exemptions, each would pay federal taxes of $1,595 and Minnesota taxes of $827. Each couple is squarely in the middle of the 15% tax bracket.

They have found out that they can concentrate on their specialization and do contracts according to their core skills. This allows them to make their personal skills to grow to a whole new level. Higher the skill level, higher the amount of money they can make from their career.

When Canadian gamblers approach the IRS and attempt to apply for a U.S. casino tax rebate, the IRS will generally ask the Canadians to submit their ORIGINAL passports, and will keep the passport for at least 6 weeks. This is done ostensibly to find proof of identity. It also serves to make things so incredibly inconvenient and unreasonable for the Canadian gamblers, the Canadian gamblers almost inevitably give up on their attempts to obtain a U.S. casino tax rebate, thus also allowing the IRS to keep the Canadian gambler's casino gambling tax. .

The rules of thumb and strategies we learned while accumulating are not effective or can even be harmful when retirement plan distributions begin. The scenario described above is just one of many potential scenarios regarding IRA distributions. Paying for a mortgage with IRA distributions may increase your taxes. Your charitable gifts may fatten the US Treasury rather than reduce your taxes. Expect to see your medical insurance and expenses and long-term care insurance deductions diminish once distributions are a part of retirement income. Today's retirees need to find a way to get funds out of an IRA without paying excessive taxes. There is not a one size fits all solution for all taxpayers. A qualified fee-only advisor should review the cash flow, income taxes, assets, liabilities, and other personal circumstances of prospective clients. This is not as easy as it might seem. Most advisors use packaged financial planning products primarily designed to sell products. It took the author an enormous effort to develop a program that will determine both the tax on distributions and to compare the current and future cost or benefit of various strategies. At the risk of sounding self-serving, our clients as well as other advisors tell us they have not found a program that quantifies the value of financial advice in such a clear and concise way.




About the Author:



No comments:

Post a Comment