When will you receive your refund? The answer depends on how you filed your return. The IRS should issue your refund check within six to eight weeks of filing a paper return.
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How is your retirement and Investment income Taxed?
Social Security-The tax free for everyone fairy-tale ended in 1983. For many Social Security recipients, the benefits will still be tax free. For others who aren’t so lucky, having to pay federal tax on up-to 85% of their benefits, depending on the income level. To determine if you are under the taxable guidelines, you will have to add half of your social security benefits and all other taxable income plus tax exempt interest.
If the income level is less than $25,000 (32,000 for married couples filing joint a return) your social security benefits are tax free.
If your income level is between $25,000 and $34,000 ($32,000-$44,000 for joint filers) you can will be taxed up to 50% of your benefits.
Pensions-Most pensions are funded with pretax income, which means the full amount of your pension income would be taxable when you receive funds while retirement. Payments from private and government institutions are usually taxed the same, at the ordinary tax rate assuming no after tax contributions were made into the plan.
CDs, Saving accounts and Money Market Accounts - Ordinary income tax rates apply to interest payments on certificates of deposit(CD), savings accounts and money market accounts.
Stocks, Bonds and Mutual Funds - if you sell stocks, bonds or mutual funds that are held for less than a year, you will be taxed at your ordinary tax rate. The Rates starts at 10% and max out at 37%. Meanwhile, if you hold your stocks, bonds, or mutual funds for more than a year there are more favorable rate for investors. If you are single with taxable income under $40,000 your long term capital gain rate is 0% ( for Married couple under $80,000).
Annuities - If you purchased an annuity that will provide you income during retirement, there's a good chance it’s going to be taxable. For example, if you purchase and annuity for $75,000 and then after 10 years it’s worth $120,000, you will pay tax on the $45,000 as taxable interest income. The insurance company who sells you the contract will tell you what the taxable interest is.
Different rules apply if you bought the annuity with pretax funds from an IRA, in that case 100% of the payments will be taxable as ordinary income.
Dividends - Retirees who own stock directly or through mutual funds. Dividends paid by the companies to their stockholders are treated for tax purposes as qualified or non-qualified . Qualified dividends are taxed at long term capital gain rates . A non-qualified dividends are tax at ordinary tax rates the similar to wage income.
Savings Bonds - US savings bonds is generally taxed at ordinary tax year, in the year of bond maturity. HH bond holders must pay tax on interest earned annually. Interest on US savings bonds are exempted from rate and local taxes.
Traditional IRAs and 401(k)s - Are attractive to savers because of its benefit to reduce their tax bill in the current year with deferred tax on promise future profits.
Roth IRAs - Roth IRAs comes with a huge long term tax advantage. Contributions to Roth IRAs are not tax deductible but withdrawals on future profits are tax free.
Two important rules you must remember. Profits must be held in your account for at least five years before you can make tax free withdrawals. Although contributions can be withdraw tax free, you must wait a minimum of five years before you can withdraw any gains without facing a 10% early withdrawal penalty, if you are under the of age 59 1/2
Municipal Bonds - are exempt from federal income tax, however you can be subject to capital gains if you sell municipal bonds.
Tim Lewis, EA | 02/21/2020