Tag Archives: Tax

Mar
31
2023

Inheritance Tax – The Most Costly Oversight of Your Life?

Inheritance tax, they say, is a tax for people who love the government more than they love their own children. This is because inheritance tax (IHT) is one of the most avoidable taxes of all, and can be slashed or avoided altogether with some good advice, and careful planning.

The current allowance before IHT is due is £325,000 per individual, which means £650,000 for a couple.

Given that IHT kicks in at 40% on funds above that threshold, a little planning can save your children thousands, or even hundreds of thousands of pounds!

Many customers thinking of an inheritance think primarily of their home – but IHT applies to the value of your ‘estate’, which includes many other assets and investments as well.

Or to put it another way – even if your home’s value is still below the threshold, your other investments could well make you liable for IHT by topping up the entire value of your wealth – known as your ‘estate’.

What’s in my estate?

Your estate includes your house, money held in bank or building society accounts, investments (shares, funds, premium bonds), and everything owned in your name (cars, holiday home).

This will then be reduced through the repayment of your liabilities e.g. outstanding mortgage, loans and overdrafts, credit card owings, and your funeral expenses.

The remainder, above and beyond your £325k per person allowance, will be subject to IHT.

How do I calculate IHT?

Working out your IHT liability is a simple calculation. Let us suppose your assets, as set out above, consist mainly of a home valued at £350,000 and insurances and investments of £400,000, plus a further £50,000 for other items. Then let us assume that your debts are £50,000.

This means you own £800,000 in assets, less owings of £50,000, so that your estate’s value is £750,000.

If you are a couple, the first £650,000 of this is tax-free. The remaining £100,000 is taxed at 40%, so that your children lose £40,000 in Inheritance Tax.

You see? Inheritance Tax is simple. Not cheap, but simple.

Worst of all, or best of all, it is often avoidable – with a little forward planning.

Life insurance set up ‘in trust’

You can set up your life insurance cover ‘in trust’ and thus remove it from your estate. In the above example, this would have considerably lessened this couple’s tax liability, and might even have removed it completely.

Gifts and the 7-year rule

One way to transfer some wealth to your children free of tax before you die is to gift it outright, but you must survive for 7 years after that for the sum to become tax-free.

Many do this by setting up a trust for grandchildren who will not have access to funds until they turn 18 – but the seven-year rule still applies. In other words, proceeds from the trust become tax-free if you have survived for 7 years since it was set up.

You can also gift your house to your children before you die, again subject to the 7-year rule. But beware – if you continue to live there, you must pay a rent at market rates, in order to exempt the inheritance from tax.

Some cash gifts are exempt from the 7-year rule. You can gift your children £3,000 per year every year, and when they marry you may give your children £5,000 and your grandchildren £2,500 as wedding gifts.

Inheritance tax is regarded by many as a voluntary tax, since with good advice from an independent broker it can be much-reduced or avoided altogether. However, it needs forward planning, and so it is prudent to act now.

Jan
07
2023

Encountering Different Tax Problems

Tax time is an overwhelming and anxious time for many Americans. Preparing and filing your own personal income taxes can be a frustrating process. You will get confused reading rules and trying to decide which schedule you need from the vast array of IRS forms and references. It gets desperate when your backup documentation goes missing, or important receipts you stored are no longer readable. You deserve to receive the maximum possible refund, and not have to pay any more taxes to the IRS.

Many self-preparers get nervous filing their own returns because they know their skills fall far short of a tax professional; yet, they try to do it themselves, hoping their calculations will yield a large refund.

You might consider hiring the professional services of an accountant. It may cost some money; but, it is usually worth it because they are familiar with tax laws, and have a great potential for saving you money. Hiring them to do your taxes could be a smart move and is definitely worth consideration.

What are some common tax problems that taxpayers run into?

Most people come across inaccurate or incomplete data on a form that needs to accompany their income tax returns. This is why it is so important to fill out your employer’s paperwork completely, including the IRS form W-4, before starting a new job. This way you can let your employer know how much you want withheld from your paycheck for federal income taxes. Make sure you have enough deducted every week for federal withholding, or you might have to pay more tax at year end. Make sure to check the appropriate box on the W-4 that signifies your marital status, so that you can calculate your taxes from the correct table.

You can avoid problems with the IRS by keeping your payroll stubs in a secure place, where they can be easily retrieved so you can refer to them later, if you need to. As your tax situation can change from year to year, it’s important that you have a current W-4 on file in your employer’s payroll department. It’s a smart move to fill out the worksheet any time your pay rate changes to make sure you are having enough tax withheld from your check.

The IRS has true and time-tested ways of collecting delinquent taxes, and one of the more effective is called a lien. Liens can be placed on any item of personal property, like a home or business, to secure an unpaid debt and attach the amount owed onto the property’s title. A levy, on the other hand, is an action by the government to force you to pay your overdue tax. When the IRS slaps you with a levy, they are authorized to take the funds right out of your checking or savings accounts, or even your 401(k) plan.

Besides liens and levies, the IRS has other methods they can use to collect tax from you. They can seize your personal property, garnish your wages, audit your bank accounts or any prior year tax returns. These measures can drastically deplete your bank account and have an adverse effect on the rest of your financial life.

For example, the next time you submit an application for credit, your credit history will reflect the levy or lien’s black mark, and your application will be denied. A similar process will occur when you try to buy a car today and pay tomorrow. Before any auto dealer will agree to sell you a car on credit, he is going to make sure you are in a sound enough financial position to pay him back.

Once you have a poor rating on your credit report because of a government wage garnishment, lien, seizure or levy, you might as well plan on paying for everything you buy with cash until the debt is paid and the encumbrance removed.

May
01
2022

Encountering Different Tax Problems

Tax time is an overwhelming and anxious time for many Americans. Preparing and filing your own personal income taxes can be a frustrating process. You will get confused reading rules and trying to decide which schedule you need from the vast array of IRS forms and references. It gets desperate when your backup documentation goes missing, or important receipts you stored are no longer readable. You deserve to receive the maximum possible refund, and not have to pay any more taxes to the IRS.

Many self-preparers get nervous filing their own returns because they know their skills fall far short of a tax professional; yet, they try to do it themselves, hoping their calculations will yield a large refund.

You might consider hiring the professional services of an accountant. It may cost some money; but, it is usually worth it because they are familiar with tax laws, and have a great potential for saving you money. Hiring them to do your taxes could be a smart move and is definitely worth consideration.

What are some common tax problems that taxpayers run into?

Most people come across inaccurate or incomplete data on a form that needs to accompany their income tax returns. This is why it is so important to fill out your employer’s paperwork completely, including the IRS form W-4, before starting a new job. This way you can let your employer know how much you want withheld from your paycheck for federal income taxes. Make sure you have enough deducted every week for federal withholding, or you might have to pay more tax at year end. Make sure to check the appropriate box on the W-4 that signifies your marital status, so that you can calculate your taxes from the correct table.

You can avoid problems with the IRS by keeping your payroll stubs in a secure place, where they can be easily retrieved so you can refer to them later, if you need to. As your tax situation can change from year to year, it’s important that you have a current W-4 on file in your employer’s payroll department. It’s a smart move to fill out the worksheet any time your pay rate changes to make sure you are having enough tax withheld from your check.

The IRS has true and time-tested ways of collecting delinquent taxes, and one of the more effective is called a lien. Liens can be placed on any item of personal property, like a home or business, to secure an unpaid debt and attach the amount owed onto the property’s title. A levy, on the other hand, is an action by the government to force you to pay your overdue tax. When the IRS slaps you with a levy, they are authorized to take the funds right out of your checking or savings accounts, or even your 401(k) plan.

Besides liens and levies, the IRS has other methods they can use to collect tax from you. They can seize your personal property, garnish your wages, audit your bank accounts or any prior year tax returns. These measures can drastically deplete your bank account and have an adverse effect on the rest of your financial life.

For example, the next time you submit an application for credit, your credit history will reflect the levy or lien’s black mark, and your application will be denied. A similar process will occur when you try to buy a car today and pay tomorrow. Before any auto dealer will agree to sell you a car on credit, he is going to make sure you are in a sound enough financial position to pay him back.

Once you have a poor rating on your credit report because of a government wage garnishment, lien, seizure or levy, you might as well plan on paying for everything you buy with cash until the debt is paid and the encumbrance removed.