2020 Tax Brackets and Rates

Text 408-8541883 and agent near you to show you income and disability benefits from life insurance products like Index Universal Life Insurance and Fixed Indexed Annuities.

In the United States we have what is known as a progressive tax system. This means that we pay a higher percentage in taxes as our income goes up. What people may not necessarily realize is that we actually pay taxes at each one of these tax brackets along the way.

There are 12 states with zero or less income taxes such as Nevada.

Capital Gains

Long-term capital gains are taxed using different brackets and rates than ordinary income.

 For Unmarried IndividualsFor Married Individuals Filing Joint ReturnsFor Heads of Households
 Taxable Income Over
0%$0$0$0
15%$40,000$80,000$53,600
20%$441,450$496,600$469,050
 Additional Net Investment Income Tax
3.8%MAGI above $200,000MAGI above $250,000MAGI above $200,000
Source: “2020 Tax Brackets,” Tax Foundation and IRS Topic Number 559

Qualified Business Income Deduction (Sec. 199A)

The Tax Cuts and Jobs Act includes a 20 percent deduction for pass-through businesses against up to $163,300 of qualified business income for single taxpayers and $326,600 for married taxpayers filing jointly (Table 7).

Filing StatusThreshold
Single Individuals$163,300
Married Filing Jointly$326,600
Source: Internal Revenue Service

Annual Exclusion for Gifts

In 2020, the first $15,000 of gifts to any person is excluded from tax. The exclusion is increased to $157,000 for gifts to spouses who are not citizens of the United States.

Comments from We the People demands Trump’ tax returns

Richard Sclove

Amherst, Massachusetts 2 hours ago

Mr. Trump has behaved in ways that establish a prima facie case that he may already be in violation of the Constitution’s emoluments clause. He also invited the Russian government to interfere in the election by hacking and releasing Hilary Clinton’s emails. In addition there have been unproven allegations – on which U.S. intelligence agencies have briefed him — that his campaign may have colluded in other ways with the Russian government to tilt the election his way.

Mr. Trump has also established a record of lying unabashedly. He did so most recently this week with false allegations that voter fraud tipped the popular vote of the election against him.

As a result of this pattern, there is no reason to believe anything that Mr. Trump has said regarding his taxes, his dealings – financial or otherwise – with Russian institutions, or his insistence that his decisions as President are not being influenced by financial conflicts of interest.

These circumstances provide sufficient grounds for Congress to initiate impeachment proceedings. This would compel Mr. Trump to provide evidence – including his tax returns – bearing on his financial circumstances and on potential conflicts of interest that may be compromising his fitness of office.

If he has nothing to hide on these scores, evidence that he provides to Congress will exonerate him. This will clear the air so that he can execute the duties of his office free of self-imposed darkening clouds of suspicion.

Leo Gugliocciello

St. Louis MO 2 hours ago

This is pivotal. And likely the corpse that Trump operatives hoped would stay buried when the mysterious tax documents surfaced, that showed Donald Trump to have claimed shocking but legal business loss deductions, and made him a momentary, and false, victim of dolchstoss. Yet another smoke screen to distract from the larger question of whether Mr. Trump has tangled obligations to foreign actors, which his tax documents might well illuminate. This should be the single question with which the press hammers the Trump presidency: Donald Trump agreed to release this information. Where is it? Lesser questions should be met with repeats of that question, and turned backs until the tax documents are made public. Even Republicans have no excuse in this question. If Trump is clean, the question is answered. If not, after either an impeachment or Amendment 25 action, they get Pence. Who could have thought that it might come to this: A choice between a full-blown psychopath and a mealy, bigoted functionary?

Terence

San Francisco 2 hours ago

For me, this issue of Trump not releasing his tax returns becomes an issue of his patriotism. Like the majority, I hate having a chunk of my wages taken away. But, also, I realize it is a part of living in a great democracy, and paying my taxes is helping ensure that the infrastructure and institutions of this country are not going to collapse.

Because of Trump’s refusal to release his tax returns, I feel his patriotism – his love and commitment to this country – needs to be questioned.

The New York Times’ video “Trump Tax Records”, published on Oct. 1, 2016, reports how he declared a $916 million loss in 1995, which may have allowed him not to pay federal taxes for 18 years.

If this is true, I have to consider that Donald Trump is either a very bad business man or he has deliberately created losses so he could avoid paying taxes over large periods of time. If the latter is true, then Donald Trump is not a faithful, selfless patriot of the USA, but just another conniving, self-centered capitalist looking out for his own best interests.

Trump must release his tax returns. If anything, it may be the gesture that begins the healing process for this very divided and angry country.

Girish Kotwal

Louisville, KY 2 hours ago

We the people should demand that Trump not get distracted by the press and enter into press traps. Time for nonsense is over. The size of the crowd at the inauguration is as irrelevant as the size of his hands or any other part of his body. Now that Trump is president he stopped putting out Tweet about whether he would have won the popular vote if the illegals had not voted. There are no alternative facts. Either there are no facts that do not have evidence to prove them. As far as the editorial board’s demand for Mr. Trump to release his tax returns: if he has not done anything illegal after IRS audit as a private citizen, I would bet a majority of Americans do not care about his past tax returns. A majority will care if he does not cut taxes across the board for all except the top 5%. A majority will care if he completes the repeal of Obamacare without ensuring that those insured currently under Obamacare are left without affordable and without better health insurance. Majority will care if women’s equal rights are not protected. A majority of working class will care if he does not protect their jobs and create new ones. I will not support the petition demanding Trump releasing his tax returns because I think it is a trivial pursuit and violates his right to privacy. I will continue to hold his feet to the fire on matters that affect average Americans who are trying to make a living or just surviving and making ends meet.

Doodle

Fort Myers 2 hours ago

I agree. But I also think this argument was already lost before it was even made. The petition could millions and it wouldn’t matter. Why? Because Trump won the election. My guess, Trump will take down that page soon enough.

He might not have won the popular votes. But he still had millions, yes millions of Americans who did not mind that he did not release his tax return. In fact, a friend, a highly successful, intelligent and good hearted man, accused me of being ‘judgmental’ towards him for asking to know the recipients of the millions he bragged about donating.

“It’s no business of mine!” my good friend exclaimed strongly. I was shocked and quite speechless.

Or the faithful Christians who think the sin of abortion and homosexuality is greater than the sin of deceits, greed, hatred, theft, and killing (of born children) such that they turned to Trump as their savior?

I fear that all that being said by the media about what is factual or right no longer reach the people who needed to hear it most. They are lost to us, in their conviction of being the bullied and deceived victims, by the “Leftist” and the “socialist” who want to redistribute their money.

Is there no Republicans who can see that they are mostly factually wrong, and that our great nation is heading down a path bereaved of integrity and goodness, differences of philosophy and ideology aside?

kmm

nyc 2 hours ago

I would suggest going forward that a Federal law be passed with bi-partisan support requiring all candidates running for President and Vice President of the United States to release 5 years of tax returns. The only one to have withheld tax returns since Watergate is Donald Trump not because he was under audit but because he was not legally required to do so and sadly at the peril and expense of a very naïve American public
Every candidate since Watergate and on both sides of the aisle has released tax returns as a matter of course, without hesitation and in good faith. But no, not Donald Trump because he simply does not and never has operated on good faith…that is for losers.
You may recall Donald’s excuse – he could not release his tax returns because he was under audit. Warren Buffet debunked that nonsense within days of Donald’s excuse that he,too, was under audit but released his tax returns (which this newspaper published) because there is no provision in the tax code prohibiting the release of tax returns while under audit.
Donald Trump has duped the American public into believing he is an honest, forthright, straight shooter when nothing could be further from the truth.
Installing Donald Trump as President of the United States will go down in history as the biggest political and ideological mistake of all time. We can only hope for impeachment of the least qualified person to ever hold the highest office in the world.

Mike B.

East Coast 1 hour ago

I am a bit surprised that it was not an established rule that all presidential candidates be required to submit their tax returns for public review. Congress should immediately pass that legislation and force Trump to hand over his tax returns. The fact that Trump refuses to do so is clearly indicative that he is hiding something — something that would likely reveal him to be a liar and a fraud (as if we don’t know that already). I don’t trust Trump and neither should you. His personal history should be enough for you to come to that same conclusion.

Matt

Grand Rapids, Michigan 1 hour ago

Trump won the election, but will never have “legitimacy” until he shows us his tax returns and takes steps to remove his many conflicts of interest. Left unaddressed–it will plague him every day his presidency.

John F. McBride

is a trusted commenter Seattle 14 hours ago

Trump has no event in his history on which to base speculation that he will ever share his tax return. He does not do what others tell or ask him to do if he perceives the result to call his character into question.

Given that the public apparently must resort to other leverage, I suggest that it should be an undaunted member of our House who moves to impeach this president for possible criminal, and even treasonous wrong doing, the only possible resolution of which is obfuscated by his refusal to reveal his tax returns.

Article II, Section 4 of our Constitution states that, “The President, Vice President and all civil Officers of the United States, shall be removed from Office on Impeachment for, and Conviction of, Treason, Bribery, or other High crimes and Misdemeanors.”

The more signatures on the petition, the more demands for this presidents tax returns, and the longer this president refuses, the more apparent it becomes that he has probable impeachable acts to conceal.

is a trusted commenter Rochester 12 hours ago

I predict that it’s only a matter of time before trump’s tax returns are released. Not by him, but by hacking – perhaps at the time Putin chooses to double-cross him.

Until then, there’s no harm in reporters repeating the question at every press briefing, until the briefings are shut down.

Rita

is a trusted commenter California 14 hours ago

It is a question of trust. How can we trust the President to act solely in the best interests of the country? Why should we trust him? He has shown time and again that truth is not a priority for Trump.

A President needs to do more than sign orders. He needs to lead by example. He needs to inspire trust.

Being upfront about his business relationships is a small step towards legitimacy, towards leadership. Release the tax returns!

Mike Roddy

is a trusted commenter Alameda, California 14 hours ago

I’m rooting for the Wyden/Murphy bill, but am not optimistic. There does not appear to be a single Republican Senator willing to stand up to this man. We have been told recently that two outliers who actually accept climate science, McCain and Graham, are going to vote for Rex Tillerson as Secretary of State.

McCain doesn’t even need the money, since his wife is rich. Graham spoke forcefully about the need to slow emissions just a few years ago. They have shown signs of integrity in their careers, at least by Republican standards.

Part of the problem is that Koch and Exxon money to the DNC is what is keeping a lot of Republican politicians in business. The Kochs would primary both if they don’t toe the line.

We are not headed to a fascist dictatorship, we are part of the way there already. EPA has gone dark, filthy pipelines have been approved via executive orders, and when it comes to the Cabinet, the slimier the better.

Democrats seem to have lost the knack of connecting to the people. Maybe a great media company could step up here. The Times is OK, but The Guardian US is better. And Rolling Stone. We have to depend on a music magazine to learn the truth.

Christine McM

is a trusted commenter Massachusetts 12 hours ago

If President Trump didn’t release his tax returns during a very heated and competitive campaign, he sure isn’t going to release them now. After all what does he have to gain? He already won without releasing them, so why do it now?

There is no law, it’s code of honor and nothing more. Of course he has something to hide, that much is clear as day. And of course the more he refuses, the more curious the public Grows about what’s in them.

I wonder if the FBI has managed to secure a copy pursuant to their not so secret investigation of ties between the Trump campaign and Russia. If so that would be mighty interesting.

I applaud any legislation that is going to mandate release of tax returns to get on about or to run for president. that’s the bare minimum we should demand in an era of unprecedented wealth, where only those who can afford to run do. But I am not holding my breath that it will get passed.

In barely a week, the new president has done more damage than many presidents have done throughout their term. But I think that the biggest damage he has done has been to undermine the essential trust and officeholder must build with his constituency. That is the reason why so many other administrations have demanded the highest degree of transparency.

Trump doesn’t care. Trump will do what he wants, the public be damned. and it is this cavalier dismissal of basic ethics that is so alarming and sad.

We used to be a more honorable nation. And now we aren’t.

Padman

is a trusted commenter Boston 13 hours ago

There has never in American history been a president for whom it was more important that the public see his tax returns, but not for Donald Trump, the king. In my opinion, he will never, ever release his tax returns. People do care about this issue, 74 percent of Americans, and 53 percent of Republicans do care and take it seriously. We don’t even know if he is in fact being audited. Where is the evidence? He never produced an audit letter from the IRS. What is he hiding?

Mark Hugh Miller

is a trusted commenter San Francisco, California 13 hours ago

Trump is a serial liar. So far, it’s worked well for him, duping the credulous, the hopelessly naive, the Pollyanna Christians, and the Deplorables whom he had at grab her by the _____.

His tax returns – not redacted forms but the full returns – will add hard evidence of this con man’s lies, his phony house of cards wealth, his nonexistent “charitable giving” and his foreign links and debts. As my granddad, a South Dakota politician, used to say, he’s crooked as a dog’s hind leg.

If, after the revelations come out, the Pollyanna Christians and the Deplorables close their eyes, plug their ears and yell at the top of their lungs, so they can’t hear anything negative about Il Dupe, who is going to restore their out-of-date jobs, the USA is out of luck.

David Underwood

is a trusted commenter Citrus Heights 12 hours ago

It is obvious that Trump not releasing his tax returns leads to much speculation as to what he is hiding.

Considering his known business practices the suspicion of corrupt practices is paramount. It is probable that he does not have the equity in his real estate holdings that allows his claim of wealth. Thel question is, where does his income come from, what does he owe. We do know he gets paid for use of his name. Most of the Trump hotels are not actually owned by him, his name is franchised. We also know he has investors in his businesses, and is president of them, takes a salary, but does not have his own money invested. That is what he did with the Atlantic City Casinos, leaving the investors to take the losses. How long he can get away with this charade remains to be seen. Many of us believe his tax returns will show what a fraud he is. We know he has defrauded and swindled people, paid suits by contractors while lying about it, and uses his attorneys to make suits too expensive for most small contractors to get what they are owed. They are on record.

Somewhere he will have been found to have taken bribes, and engaged in money laundering. We know from his behavior he is a sociopath, he has gotten away with it because he does have enough money to avoid being charged with offenses related to that behavior.

The pressure has to be on congress, they have to be accused of allowing corruption, of being corrupt themselves, over and over again, and people will believe it.

Vanessa Hall

is a trusted commenter Millersburg, MO12 hours ago

Right now trump is basking in his minority vote “win.” Almost every thing he has done and indicated he’s going to do are a slap in the face of the majority. And the majority is not going to sit back and shut up. It’s weird. It takes a lot to coalesce the left, but he’s doing it. The majority accepts objectively verifiable facts. The right is convinced that if they believe something hard enough that it is true. The majority will be validated. It is the cost that is the question.

Padman

is a trusted commenter Boston 13 hours ago

There has never in American history been a president for whom it was more important that the public see his tax returns, but not for Donald Trump, the king. In my opinion, he will never, ever release his tax returns. People do care about this issue, 74 percent of Americans, and 53 percent of Republicans do care and take it seriously. We don’t even know if he is in fact being audited. Where is the evidence? He never produced an audit letter from the IRS. What is he hiding?

Mark Hugh Miller

is a trusted commenter San Francisco, California 13 hours ago

Trump is a serial liar. So far, it’s worked well for him, duping the credulous, the hopelessly naive, the Pollyanna Christians, and the Deplorables whom he had at grab her by the _____.

His tax returns – not redacted forms but the full returns – will add hard evidence of this con man’s lies, his phony house of cards wealth, his nonexistent “charitable giving” and his foreign links and debts. As my granddad, a South Dakota politician, used to say, he’s crooked as a dog’s hind leg.

If, after the revelations come out, the Pollyanna Christians and the Deplorables close their eyes, plug their ears and yell at the top of their lungs, so they can’t hear anything negative about Il Dupe, who is going to restore their out-of-date jobs, the USA is out of luck.

David Underwood

is a trusted commenter Citrus Heights 12 hours ago

It is obvious that Trump not releasing his tax returns leads to much speculation as to what he is hiding.

Considering his known business practices the suspicion of corrupt practices is paramount. It is probable that he does not have the equity in his real estate holdings that allows his claim of wealth. Thel question is, where does his income come from, what does he owe. We do know he gets paid for use of his name. Most of the Trump hotels are not actually owned by him, his name is franchised. We also know he has investors in his businesses, and is president of them, takes a salary, but does not have his own money invested. That is what he did with the Atlantic City Casinos, leaving the investors to take the losses. How long he can get away with this charade remains to be seen. Many of us believe his tax returns will show what a fraud he is. We know he has defrauded and swindled people, paid suits by contractors while lying about it, and uses his attorneys to make suits too expensive for most small contractors to get what they are owed. They are on record.

Somewhere he will have been found to have taken bribes, and engaged in money laundering. We know from his behavior he is a sociopath, he has gotten away with it because he does have enough money to avoid being charged with offenses related to that behavior.

The pressure has to be on congress, they have to be accused of allowing corruption, of being corrupt themselves, over and over again, and people will believe it.

Vanessa Hall

is a trusted commenter Millersburg, MO 12 hours ago

Right now trump is basking in his minority vote “win.” Almost everything he has done and indicated he’s going to do are a slap in the face of the majority. And the majority is not going to sit back and shut up. It’s weird. It takes a lot to coalesce the left, but he’s doing it. The majority accepts objectively verifiable facts. The right is convinced that if they believe something hard enough that it is true. The majority will be validated. It is the cost that is the question.

mancuroc

is a trusted commenter Rochester 11 hours ago

Your faith is so touching, Richard. Since he keeps his finances secret, why would you trust that that he will donate anything to the treasury? And how would you ever know?

I have a Nigerian financier friend who would just love to email you an offer.

MEM

is a trusted commenter Los Angeles 11 hours ago

Your absurd comparisons indicate that you have no real argument against this point. This is a man who has settled fraud lawsuits for tens of millions of dollars. This is a man who lies about everything as easily as most people breath. Why should he be taken at his word about anything?

Christine McM

is a trusted commenter Massachusetts 12 hours ago

Richard, you know very well that those folders were merely a prop. They contained nothing given their size, came straight from Staples, and no reporters were given or allowed to take a copy.

All Donald Trump cares about is the appearance of satisfying legal requirements, not the actual production of documents to satisfy legal or honorable requirements.

Tim B

is a trusted commenter Seattle 11 hours ago

The nightmare has already begun for many who knew that president Trump and candidate Trump are one and the same person, talking out of both sides of his mouth, pretending to support the working men and women of this country, while all the while rubbing his hands together in glee, in stocking his cabinet and other appointees with a rogue’s gallery of billionaires and millionaires.

It is why his mouthpiece Kellyanne Conway uttered the now infamous words ‘alternative truths’ this weekend to Chuck Todd in undying support of her boss. Since this Orwellian double speak, sales of George Orwell’s classic novel 1984 have soared on Amazon …

‘Sales of the “centennial edition” of 1984 on Amazon.com had skyrocketed more than 5,800% as of Tuesday night. The novel that introduced the world to the all-seeing, all-knowing “Big Brother” had climbed from No. 7,397 to No. 125 on Amazon’s best-seller list, the fifth-best performance.’

Meanwhile, the Trumpeter has shut down the EPA’s media site, that part which discloses ‘Inconvenient Truths’ about global climate change and humanity’s significant contribution to it. And this is only the Don’s first week in office.

stu freeman

is a trusted commenter brooklyn 11 hours ago

Richard, didn’t you recently mention that you were going on vacation or something and wouldn’t be blogging here for a while? In any case, did you know that someone insisted for years on end that the last President of the United States was born in Kenya and was thereby knowingly committing treason? (Turns out he was lying but I suppose we should have all just moved on and gotten a life.) In hopes of ending the controversy, Pres. Obama swallowed his pride and presented his birth certificate. Should we now expect less from Obama’s accuser? Especially considering that there’s far more reason to suspect that the latter is hiding something of real significance than there was to believe that his predecessor was doing the same? BTW: This is at least the second time in the past week or so that you referenced the seductive Scarlett in comments relating to our new Kitty-Grabber-in-Chief. Just a coincidence or do you and he share the same overheated appreciation for female anatomy?

kmm

nyc 2 hours ago

I would suggest going forward that a Federal law be passed with bi-partisan support requiring all candidates running for President and Vice President of the United States to release 5 years of tax returns. The only one to have withheld tax returns since Watergate is Donald Trump not because he was under audit but because he was not legally required to do so and sadly at the peril and expense of a very naïve American public
Every candidate since Watergate and on both sides of the aisle has released tax returns as a matter of course, without hesitation and in good faith. But no, not Donald Trump because he simply does not and never has operated on good faith…that is for losers.
You may recall Donald’s excuse – he could not release his tax returns because he was under audit. Warren Buffet debunked that nonsense within days of Donald’s excuse that he,too, was under audit but released his tax returns (which this newspaper published) because there is no provision in the tax code prohibiting the release of tax returns while under audit.
Donald Trump has duped the American public into believing he is an honest, forthright, straight shooter when nothing could be further from the truth.
Installing Donald Trump as President of the United States will go down in history as the biggest political and ideological mistake of all time. We can only hope for impeachment of the least qualified person to ever hold the highest office in the world.

stu freeman

is a trusted commenter brooklyn 10 hours ago

How do we even know for a fact that The Donald’s tax returns are being audited? Can’t he at least submit the letter he would have received from the IRS notifying him that such action was being undertaken? All we’ve got is confirmation to that effect from his tax attorney. Which is sort of like having your chauffeur attest to the fact that you’re a good driver.

susan

clifton park ny 7 hours ago

Kellyanne Conway thinks the American people are fools . I have never seen a more condescending individual in my life. How she has the nerve to say the American people do not care about DT’s taxes is beyond belief. I am appalled as are a MAJORITY of American voters. To get to the truth follow the money.

Terence

San Francisco 2 hours ago

For me, this issue of Trump not releasing his tax returns becomes an issue of his patriotism. Like the majority, I hate having a chunk of my wages taken away. But, also, I realize it is a part of living in a great democracy, and paying my taxes is helping ensure that the infrastructure and institutions of this country are not going to collapse.

Because of Trump’s refusal to release his tax returns, I feel his patriotism – his love and commitment to this country – needs to be questioned.

The New York Times’ video “Trump Tax Records”, published on Oct. 1, 2016, reports how he declared a $916 million loss in 1995, which may have allowed him not to pay federal taxes for 18 years.

If this is true, I have to consider that Donald Trump is either a very bad business man or he has deliberately created losses so he could avoid paying taxes over large periods of time. If the latter is true, then Donald Trump is not a faithful, selfless patriot of the USA, but just another conniving, self-centered capitalist looking out for his own best interests.

Trump must release his tax returns. If anything, it may be the gesture that begins the healing process for this very divided and angry country.

Richard Sclove

Amherst, Massachusetts 2 hours ago

Mr. Trump has behaved in ways that establish a prima facie case that he may already be in violation of the Constitution’s emoluments clause. He also invited the Russian government to interfere in the election by hacking and releasing Hilary Clinton’s emails. In addition there have been unproven allegations – on which U.S. intelligence agencies have briefed him — that his campaign may have colluded in other ways with the Russian government to tilt the election his way.

Mr. Trump has also established a record of lying unabashedly. He did so most recently this week with false allegations that voter fraud tipped the popular vote of the election against him.

As a result of this pattern, there is no reason to believe anything that Mr. Trump has said regarding his taxes, his dealings – financial or otherwise – with Russian institutions, or his insistence that his decisions as President are not being influenced by financial conflicts of interest.

These circumstances provide sufficient grounds for Congress to initiate impeachment proceedings. This would compel Mr. Trump to provide evidence – including his tax returns – bearing on his financial circumstances and on potential conflicts of interest that may be compromising his fitness of office.

If he has nothing to hide on these scores, evidence that he provides to Congress will exonerate him. This will clear the air so that he can execute the duties of his office free of self-imposed darkening clouds of suspicion.

buttercup

cedar key 3 hours ago

It should be crystal clear by now that America has put an asymptotic anomaly into the White House. He is not even a simulacrum of a normal leader.

His election demonstrates with irrefutable evidence two truths:

1) The failure of basic education in our country has dire consequences.

2) Modern communications technology and social media might prove to be apocalyptic.

To believe that this man will do anything that could detract from his own instantaneous self gratification is futilely absurd.

To stop him, he must be pushed over the edge. Possibly massive and continuous belittling criticism could do it. A series of ten million person marches might cause him to respond with such anger and aggression that he could be impeached, hospitalized or simply ignored by all persons, organizations, agencies and countries of honor.

Citizens who love their country must grant him no purchase.

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Taxes and Retirement plans

Most tax provisions for retirement allow you to shift taxable income from your working years, when you are probably in a higher tax bracket, to post-retirement years when you may be living on less. With a Roth Individual Retirement Arrangements (IRAs), on the other hand, you may choose to pay tax now on money that you tuck away in a retirement plan, and then pay no tax at all when you withdraw the money after you retire.

What types of retirement plans can I use if I’m self-employed?


One advantage of being self-employed is that you generally have more choice over the type of retirement plan you choose to invest in. You may even be able to contribute more to a retirement plan than you could as an employee.

I choose the IUL with National Life Group as a self-employed taxpayer. It can grow up to 13% return, tax-free , with living benefits added at no cost and creates an estate to my children with a stroke of a pen.

The following retirement plans are popular with self-employed taxpayers:

Individual Retirement Arrangements (IRAs). You may be able to contribute $5,500 per year to an IRA (for 2013). If you or your spouse are covered by a retirement plan at work, however, you may not be allowed to contribute to an IRA, depending on your income level. Taxpayers age 50 or older can contribute an extra $1,000 per year.

IRAs are easy to open at a financial institution. If you have a retirement plan from an old job, you can even roll your old 401(k) or similar plan into your IRA.

The major disadvantage to an IRA is the relatively low contribution limit. It’s hard to make your account grow quickly when you can only add $5,500 to $6,500 per year.

Simplified Employee Pensions (SEPs) for self employed. A SEP is a written arrangement that provides business owners with a way to contribute to traditional IRAs for each qualifying employee. If you’re self-employed, you can make contributions to a SEP for yourself, even if you have no employees.

SEP plans are easier to establish and maintain than 401(k)-type plans.

You can generally contribute more to a SEP than to an IRA. The limit is 25% of your self-employment income, up to a maximum contribution of $51,000. That’s almost ten times the maximum contribution to an IRA for individuals under age 50.

Your self-employment income for this purpose is reduced by your deduction for self-employment taxes paid.

Savings Incentive Match Plans for Employees (SIMPLE) IRAs. A SIMPLE plan is similar to a SEP plan, except it allows for employer matching of contributions.

Should I pay off my house or buy an annuity?


You’ve reached or are close to retirement age, and you have a nest egg. You are trying to decide whether to use it to pay off your house or place it in an annuity or other income producing fund for retirement. Which should you do?

You can look at the decision in a couple of different ways. The most straightforward way is to compare the interest rate you pay on your house to the interest you will earn on an annuity.

For example, say you pay a fixed interest rate of 4% on your home mortgage. You are deciding between paying off the mortgage or investing in a five-year annuity that would pay you 2.7%. You are generally better off paying the mortgage because you can save more interest than you would earn with the annuity. (You would also have some tax differences, which you can estimate by entering different scenarios into TaxACT.)

There’s more to the decision than comparing interest rates, however. You also want to plan for financial security. Before you pay off your house, make sure you will have enough monthly income in retirement.

Paying off your home or making other investments is a very personal decision. For many people, having the house paid off gives them a sense of security. It’s also a goal that helps motivate them to save and work toward over the years. For others, it may matter less. They’d rather have the money available as an income stream.

Consider your total financial picture, your life stage, and your personal preferences and what makes you feel secure before you make a major decision such as this one.

How Much Can I Earn and Still Get My Social Security Check?


As long as you have reached your full retirement age, you can earn as much as you want and still get your full Social Security benefits. This has been true since the “Senior Citizens Freedom to Work Act of 2000” became law.

However, if you’re taking Social Security benefits before your full retirement age (66 for people born in 1943 to 1954) and you have earned income, your benefits may be reduced. In that case, your benefits are reduced by $1 for every $2 you earn over the annual limit. The limit is $15,120 in 2013.

The year you reach full retirement age, you can earn more before your benefits are reduced. In addition, your benefits aren’t reduced for every dollar you earn over the limit. Until the month you reach full retirement age, your benefits are reduced by $1 for every $3 you earn over the annual limit of $40,080 (for 2013). The month after your birthday, you can start working as much as you want without worrying about reducing your Social Security benefits.

There’s still incentive to work, even in the years that your benefits are reduced if you do so. First, your benefits are not reduced dollar for dollar by your earnings. You still get to keep one out of two, or one out of three, of your hard-earned dollars, depending on how close you are to retirement age. (Of course, you also pay tax on it.)

Another incentive to keep working if you can is that if your benefits are reduced because you earned income, your future benefits are increased to take that into account.

I forgot to take the required minimum distribution from my retirement plan. What happens now?


After you reach age 70 ½ and retire, you must take a minimum distribution from most retirement plans or face a stiff penalty from the IRS.

For traditional IRAs, you must start taking the minimum distribution by April 1 of the year after you reach age 70 ½, regardless of whether you are retired. For 401(k) plans, you must begin taking distributions by April 1 of the year following the later of the year you reach age 70 ½ or the year you retire.

Roth IRAs have no age requirements for when you must start taking distributions. Required minimum distributions begin after the death of the owner.

Unless you have the distribution set up to be sent to you automatically, it’s easy to forget to take that distribution before the end of the year, or to take less than the full amount. That can mean a steep penalty – 50% of the distribution you should have taken.

Before you pay that penalty, see if you can remedy the situation. The IRS can waive the penalty if you can show that the shortfall was due to reasonable error, and that you are taking steps to remedy the shortfall.

When you need to request a waiver, click the Federal Q&A tab, click to expand Retirement Plan Income, and click the section with your name and Request for waiver of penalty on excess accumulation in retirement plan.

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Other tax saving ways, 10 tax breaks

The goal of every taxpayer is to make sure the Internal Revenue Service gets as little as possible. For that to happen, you need to take every tax deduction, credit or other income adjustment you can.
Here are 10 tax breaks — some for itemizers only, others that any filer can claim — that often get overlooked but could save you some tax dollars.

And yes, even though you got an extension until Oct. 15 to file your 2012 tax year Form 1040, you can still claim any of these tax deductions or credits that apply to your situation.

1. Additional charitable gifts

Everyone remembers to count the monetary gifts they make to their favorite charities. But expenses incurred while doing charitable work often aren’t counted on tax returns.

You can’t deduct the value of your time spent volunteering, but if you buy supplies for a group, the cost of that material is deductible. Similarly, if you wear a uniform in doing your good deeds, for example as a hospital volunteer or youth group leader, the costs of that apparel and any cleaning bills also can be counted as charitable donations.

So can the use of your vehicle for charitable purposes, such as delivering meals to the homebound in your community or taking the Boy Scouts or Girls Scouts troop on an outing. The IRS will let you deduct that travel at 14 cents per mile.

2. Moving expenses

Most taxpayers know they can write off many moving expenses when they relocate to take another job. But what about your first job? Yes, the IRS allows this write-off then, too. A recent college graduate who gets a first job at a distance from where he or she has been living is eligible for this tax break.

3. Job hunting costs

While college students can’t deduct the costs of hunting for that new job across the country, already-employed workers can. Costs associated with looking for a new job in your present occupation, including fees for resume preparation and employment of outplacement agencies, are deductible as long as you itemize. The one downside here is that these costs, along with other miscellaneous itemized expenses, must exceed 2 percent of your adjusted gross income before they produce any tax savings. But the phone calls, employment agency fees and resume printing costs might be enough to get you over that income threshold.

4. Military reservists’ travel expenses

Members of the military reserve forces and National Guard who travel more than 100 miles and stay overnight for the training exercises can deduct related expenses. This includes the cost of lodging and half the cost of meals. If you drive to the training, be sure to track your miles. You can deduct them on your 2012 return at 55.5 cents per mile, along with any parking or toll fees for driving your own car. You get this deduction whether or not you itemize, but you will have to fill out Form 2106.

5. Child, and more, care credit

Millions of parents claim the child and dependent care credit each year to help cover the costs of after-school day care while Mom and Dad work. But some parents overlook claiming the tax credit for child care costs during the summer. This tax break also applies to summer day camp costs. The key here is that the camp is a day-only getaway that supervises the child while the parents work. You can’t claim overnight camp costs.

Remember, too, the dual nature of the credit’s name: child and dependent. If you have an adult dependent who needs care so that you can work, those expenses can be claimed under this tax credit.

6. Mortgage refinance points

When you buy a house, you get to deduct the points paid on the loan on your tax return for that year of purchase. But if you refinance your home loan, you might be able to deduct those points, too, as long as you use refinanced mortgage proceeds to improve your principal residence.

7. Many medical costs

Taxpayers who itemize deductions know how difficult it often is to reach the 7.5 percent of adjusted gross income threshold required before you can claim any medical expenses. It might be easier to clear that earnings hurdle if you look at miscellaneous medical costs. Some of these include travel expenses to and from medical treatments, insurance premiums you pay for from already-taxed income and even alcohol- or drug-abuse treatments.

These added medical expenses will be even more valuable on your 2013 tax return. Beginning this tax year, a health care reform act provision now requires you have medical expenses of more than 10 percent of your adjusted gross income before you can deduct them.

Self-employed taxpayers who are not covered by any other employer-paid plan, for example, one carried by a spouse, can deduct 100 percent of health insurance premiums as an adjustment to income in the section at the bottom of Page 1 of Form 1040.

8. Retirement tax savings

The retirement savings contribution credit was created to give moderate- and low-income taxpayers an incentive to save. When you contribute to a retirement account, either an individual retirement account (traditional or Roth) or a workplace plan, you can get a tax savings for up to 50 percent of the first $2,000 you put into such accounts. This means you get a $1,000 tax credit, which is a tax break that directly reduces dollar for dollar any tax you owe.

9. Educational expenses

The Internal Revenue Code offers many tax-saving options for individuals who want to further their education. The tuition and fees deduction can help you take up to $4,000 off your taxable income and is available without having to itemize.

The lifetime learning credit could provide some students (or their parents) up to a $2,000 credit.

Don’t forget the American opportunity tax credit, which offers a dollar-for-dollar tax break of up to $2,500. This education tax break was created as part of the 2009 stimulus package as a short-term replacement for the Hope tax credit, and was extended through tax year 2017 as part of the American Taxpayer Relief Act of 2012, also known as the “fiscal cliff” tax bill.

10. Energy-efficient home improvements

Generous tax breaks for energy-efficient home improvements expired at the end of 2010, but some homeowners still might be able to pocket a tax credit of up to $500 on their 2012 and 2013 returns, again thanks to a provision in the fiscal cliff bill, for a few common residential energy upgrades.

The bad news is that the tax credit is just a third of what was previously available. You also now must pay attention to specific spending limits, such as $150 for high-efficiency furnaces and boilers, $300 for air conditioners and heat pumps and $200 for replacement windows. And the overall $500 tax credit cap applies to anyone who received any previous energy tax credit since Jan. 1, 2005.

But if you qualify, the tax break is a tax credit, giving you a dollar-for-dollar reduction of your tax bill. And when it comes to taxes, every dollar saved helps.

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