January 26, 2016

Another Tax Season with Another New Tax

richardBy Richard J. Schillig, CLU, ChFC, LUTCF
Independent Insurance and Financial Advisor

It’s another income tax season – an annual ritual of sifting through receipts and documents to prepare 2015 tax returns. This time of year always brings an awareness of the amount of tax we pay. During the course of the year we sometimes tend to forget this risk, but the taxation risk remains a risk to our retirement income. Higher taxes results in lower income. Taxation is a threat and a risk to our retirement income. Annuities have income tax benefits that clearly help to minimize this risk.

Both qualified and non-qualified annuities enjoy the benefit of income tax deferral. In today’s very low interest rate environment, annuity earnings are not subject to tax. Interest earnings on fixed and fixed index annuities remain income tax deferred. We do not receive a 1099 for income tax returns as we do with many other investment plans. Income tax deferral of the annuity is a huge asset with today’s higher rates of tax. A quick review of the income section of your 1040 form will help determine the tax deferred benefit of fixed and fixed index annuities. Over a period of years, this benefit becomes more significant. Even more significant, the income from an immediate annuity (non-qualified) is subject to that wonderful annuity tax-exclusion ratio. The Internal Revenue Service states that the portion of an annuity payment that represents return of principal is not subject to income tax. The portion of an annuity payment that represents gain is subject to income tax. The result of this calculation is the ‘exclusion ratio’ – the portion of an annuity payment not subject to income tax. Boy – in today’s high tax rate world – what an opportunity to help minimize or even eliminate income taxes!

Today’s taxpayer can look at the creative use of our annuity portfolios to help minimize taxes. I cannot overemphasize the tax benefit these strategies provide. Annuities continue to offer not only traditional income tax deferral. Annuities properly arranged may allow you the advantage of the exclusion ratio. It is legal. It is allowable. It is available. It is like driving your car and electing to take an alternate route to avoid a road toll or bridge toll. Perfectly legal and allowable – why not make use of these annuity strategies? Call us for more details on these strategies.

Another new tax that crept in this year is for new Medicare eligible folks is the increase for base cost of Medicare part B. Base premium (tax) for Medicare part B is now $121.80. Taxpayers with higher incomes will be charged a higher premium (tax). Recall the prior base premium (tax) was $104.90. AND that rate will remain for those folks. However new enrollees to Medicare will now pay the higher $121.80. That new cost (tax) is another one of those famous taxes that just crept in on us without media coverage or publicity. The new tax just happens.

We will continue providing our monthly Community Meetings for newly eligible Medicare folks. If you are aging into Medicare – turning age 65 – sometime this year this meeting is for you. We review the basics of Medicare at each meeting and focus on the options available for Original Medicare with Medicare Supplements OR Medicare Advantage Plans. Meeting is scheduled for Tuesday February 16 and Thursday February 18. The Tuesday meeting emphasizes Medicare Supplement plans and Prescriptions Drug Plans. Thursday meeting emphasizes Medicare Advantage plans. Call for reservation for these very informative meetings.

Filed Under: Finance

Trackback URL: https://www.50pluslife.com/2016/01/26/another-tax-season-with-another-new-tax/trackback/