WKB Accounting LLC

03/23/2023

Understanding Annuities -

Whether you're about to retire or have many more years to save up money, your current nest egg might not be large enough if you want to have a comfortable life during retirement. Of the numerous investments you can make to build your income, one solution that you might be interested in is an annuity. This guide covers everything you need to know about annuities and the advantages they offer.

What are Annuities?

An annuity is a type of contract between an insurance company and the contract holder. The insurance company promises to pay out a certain sum of money for a set amount of time. These funds are distributed periodically based on the contributions the contract holder provides. It's common for investors to purchase annuities to obtain a stream of income during retirement.

The majority of annuities provide tax benefits. Until you withdraw on the income, earnings from the investment will be tax-free. The contributions you make can be tax-deferred for many years while the value of the annuity compounds.

While most annuity holders wait until retirement to start making withdrawals, investors can make withdrawals for specific purposes without incurring penalties. While every annuity contract differs, some contracts include provisions that allow withdrawals of 10-15% in a year without extra fees.

How Does an Annuity Work?

There are two primary categories of annuities, which include immediate and deferred annuities. If you purchase an immediate annuity, you will begin to receive payments immediately after you give the insurance provider a lump sum of cash. The payments you receive can be variable or fixed.

Investors might select an immediate annuity if they have recently been given a one-time windfall, which can be an inheritance. Buying an immediate annuity allows you to supplement the income you obtain from Social Security during retirement.

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01/27/2023

All You Need To Know About Gift Taxes

If you want to give money to your children or someone you know during the year, it's possible that doing so would trigger gift taxes, which usually means filling out some extra paperwork but could require the recipient to pay a higher tax bill. However, gift taxes don't occur unless you gift a large sum of money. Here's everything you need to know about gift taxes and when they should be paid.

What Does a Gift Tax Refer To?

The gift tax is a type of federal tax that's used on transfers of property or money to someone else while you get nothing in return. Hardly anyone ends up owing gift taxes to the IRS. For the 2023 tax year, taxes aren't owed unless you provide monetary or property gifts that amount to more than $17,000 during the year.

If you obtain money as an inheritance or gift, it usually isn't taxable as income. However, if your assets eventually produce income via dividends or interest, the income you earn could be taxed. The gift tax rate is anywhere from 18-40% based on the size of your gift.

Understanding the Annual Gift Tax Exclusion

To understand how much you can give to your children during the year or how much you and your spouse can give to the same person, you need to understand the annual and lifetime gift tax exclusions. The annual exclusion for 2023 is $17,000, which means that the beneficiary of the gifts you provide won't need to pay taxes on these funds if they amount to less than $17,000. Keep in mind that the limit for 2022 was $16,000.

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12/22/2022

Should I Be Paying Estimated Taxes?

Many taxpayers assume that they only need to worry about taxes once a year, but some are required to pay estimated quarterly taxes. If you fall into this category, and you fail to pay them, you could face stiff penalties. It is a good idea to see if you are required to pay quarterly taxes and how to do it.

Who Needs to Pay Quarterly Taxes?

Workers who receive a W-2 pay a portion of each paycheck to Federal Taxes. The IRS requires regular payments throughout the year for wage earners. Many who are self-employed or have other income, such as alimony, dividends, capital gains, prizes, or awards are also expected to make regular quarterly payments to the IRS. If you fall into this category and you do not make the required payments, then you could face penalties or interest.

Those who are sole proprietors, partners, or shareholders in an S corporation typically expect to owe more than $1,000 when the return is filed. If you recently started a self-employed business, then it is a good idea to see if you are required to file quarterly taxes.

Exclusions and Exemptions

Even if you fall into a category where you would be required to file quarterly estimated taxes, the IRS has a few exclusions to this rule. To be excluded, you must meet all three of the criteria to avoid filing quarterly taxes.

You owed no taxes in the previous year.
You were a U.S. resident or citizen the entire year.
Last year's taxes covered all 12 months of the year.

What Are Underpayment Penalties?

You are expected to pay at least 90% of next year's taxes or 100% of the previous year's bill. If your adjusted gross income is over $150,000, you will need to pay 110%. If you are not caught up by April, then you could face a larger tax bill and underpayment penalties.

When Are Estimated Taxes Due?

Estimated taxes are due four times a year, April 15, June 15, September 15, and January 15. On each filing date, you pay taxes for the previous quarter's earnings. For instance, on April 15, you pay for any earnings for the first quarter of the year. June 15, you pay any taxes for the second quarter of the year, etc.

Some taxpayers might benefit from paying their final quarter's taxes before December 31 of the previous year. If the 15th is on a weekend or federal holiday, the deadline is moved to the next business day.

Estimation and Penalties

You can estimate the quarterly taxes you owe by using and submitting IRS form 1040-ES. This form asks you to estimate your expected income for the quarter. If you underestimate the amount, you could own penalties and interest. The IRS will return the difference of any overestimate to you when you fill out your yearly tax return on April 15.

If you owe penalties or have underpaid your taxes, the IRS will send you a notice. Those who owe less than $1,000 will not have to file estimated taxes or pay a penalty. If you pay at least 90% of your estimated taxes by the deadline, you will not owe a penalty if you make under $150,000.

Special Situations

If you have seasonal income, you will not have to file or pay estimated taxes until you have earned income. You can pay either the entire amount owed by September 15, or you can split it into two payments. Farmers and fishermen only have to file once a year. They must file by March 1.

If you pay all the taxes you owe at that time, you will not face a penalty. Paying less than the amount owed could result in a penalty for the entire tax year. For this rule to apply, you must earn at least two-thirds of your income through these means.

The gig economy means that many are finding self-employment opportunities, either as a main source of income or in addition to their W-2 job. This means more people now have to file quarterly estimated taxes than in the past. If you have recently entered the gig economy, then it is important to find out if you must file quarterly taxes. When in doubt, it is a good idea to find a qualified tax professional who can help.

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11/17/2022

CD Ladder Saving Strategy -

Whether you want to save for retirement or a major purchase, there are many effective saving strategies you can implement to increase your savings and build your wealth over time. One such strategy is the CD ladder saving strategy, which gives you the opportunity to invest in certificates of deposit that offer relatively high interest rates over a lengthy period of time. This guide tells you all you need to know about the CD ladder saving strategy and how it can be applied to your portfolio.

What Is a Certificate of Deposit?

A certificate of deposit is a kind of savings product that comes with higher interest rates when compared to standard savings accounts. These products also have fixed maturity dates. The majority of CDs have been insured by the FDIC, which means that your money will be protected.

The main issue with this solution is that your funds will be locked in for a specific period of time. In most cases, the funds are unable to be withdrawn before the maturity date. If you remove funds from the account before it matures, you'll need to pay a sizable penalty.

What Is a CD Ladder?

A CD ladder is an effective savings strategy that involves spreading a lump sum of your money throughout multiple certificates of deposit that have differing maturity dates. The goal of this strategy is to obtain and lock in relatively high APYs in multiple CDs as opposed to doing so in a single CD. Since the certificates of maturity will reach their maturity dates at different times, your cash will be freed up. You can then use this cash or place it into new CD accounts.

Benefits of a CD Ladder

In the event that you place all of your funds into one CD, this money will be locked in the account until the CD matures. The only way to get around this issue is by paying an early withdrawal penalty. CD laddering is designed to mitigate this issue by spreading your funds across numerous CDs for added flexibility. Whenever one of your CDs matures, you'll receive funds that you can now use for practically anything.

This saving strategy is also effective because of how CD rates fluctuate. Even though CD accounts come with fixed rates, using the laddering strategy allows you to take any rate shifts into account. Another benefit of this strategy is that you can take advantage of the higher rates that typically come with long-term CDs without needing to place all of your money into that specific CD.

How to Build a CD Ladder Saving Strategy

Begin this strategy by identifying the amount of money you'd like to save in certificates of deposit. Make sure that you're comfortable with how much money will be put away. While you'll eventually gain access to these funds, you shouldn't put yourself in financial strain by saving too much.

Identify how often you want your CD accounts to mature and the number of CD's you'd like to open. There are a few ways that a CD ladder can be structured. For instance, you can create a ladder with five CDs that mature annually but at different dates. If you want your CD accounts to mature more frequently, additional CDs will be needed. This ladder can be designed in any way you see fit.

Now it's time to build the CD ladder. After you've identified how much money you'd like to save and the number of CDs you wish to open, you can begin to open these accounts. Make sure that the CD terms are staggered on a rolling basis.

From here, you can continue laddering if this strategy pays off. After your initial CD matures, the funds you gain can be used with a CD that has a lengthier term, which means that it will be placed at the very top of your ladder. In the event that you need some cash, these funds can be withdrawn directly to your bank account following the maturity date.

CD laddering allows you to develop a consist investment return while also helping you earn higher returns than you would receive with just one short-term CD. This type of saving strategy is best used to reach short-term savings goals.

09/15/2022

Understanding The Dependent Care Credit

If there's someone in your household who currently depends on you to provide them with financial support, you may be eligible for the dependent care credit, which can be claimed when filing your annual tax return. This credit is designed to provide you with a portion of the funds that you spent on care during the year. If applied properly to your tax return, you may be able to lower the amount of tax you owe by hundreds or thousands of dollars.

What Is the Dependent Care Credit?

The dependent care credit is part of the Child and Dependent Care Tax Credit. This credit can be calculated by using your income as well as a percentage of the expenses you paid when caring for the qualified individual.

For the 2021 tax year, the dependent care credit grew substantially and is possibly refundable. As long as you currently meet all of the other requirements, you may be able to claim this credit even if you don't owe any taxes for the year. Keep in mind that any taxpayer who has earned more than $438,000 for the year isn't eligible for the dependent care credit.

How to Determine Eligibility

You may be eligible for the dependent care credit if you:

Paid for a certain amount of care during 2021 for a qualifying dependent who was unable to care for themselves and lived directly with you or your family for at least half a year.
Spent less money on dependent care in 2021 than your entire annual income. In the event that you're filing a joint tax return with your spouse, the money you spent on care for the year needs to be less than the total income for the spouse who has the lowest earnings.
Needed the dependent care in order to work or search for work. For a two-parent family, it's essential that both spouses need dependent care to work or search for work unless one of the spouses was unable to care for themselves or was a full-time student.

All three of these requirements must be met for you to qualify. Keep in mind that any dependent care can qualify, which included family day care, vacation day camps, care provided by another relative, or care at a center. If you also qualify for the CTC and EITC, you can still seek the dependent care credit.

Identifying How Much You Can Claim

The amount of credit you receive largely depends on your annual income as well as the amount of money you spend on dependent care for the year. Any money you receive from an employer for child or dependent care expenses should be subtracted from the total amount of care expenses that qualify for this credit.

You should then compare the claimed expenses with your total earned income. The smallest of these amounts can be claimed as allowable expenses. The credit you qualify for is a percentage of these expenses. If your income is high, your percentage will be smaller, which means that your credit will be lower.

The American Rescue Plan has changed how much tax credits are able to be claimed for the 2021 tax year. As mentioned previously, these credits are fully refundable. For the 2021 tax year, this tax credit involves:

The qualifying expenses for this credit have risen from $3,000 to $8,000 for one qualifying dependent and from $6,000 to $16,000 for at least two qualifying dependents
The total percentage of expenses that this credit can be applied to has increased to 50% from 35%
This credit can't be obtained by anyone who has more than $438,000 in 2021 adjusted gross income

The max amount that you can contribute to a flexible spending account for dependent care has risen from $5,000 to $10,500.

The dependent care credit gives you the opportunity to reduce your tax bill or obtain a refund based on the amount of dependent care expenses you paid throughout the 2021 tax year. This credit is available to you even if you have applied for the Child Tax Credit and Earned Income Tax Credit.

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08/18/2022

Here is The Summary Of The Inflation Protection Act 👉

This guide offers an in-depth summary of the Inflation Protection Act and what it means for you.

07/18/2022

Check out our New blog to know more about What is The Child Tax Credit 👉 https://wkbaccounting.com/what-is-the-child-tax-credit/

If you raise one or more children, you likely understand just how expensive it can be to do so. It’s estimated that the total cost of raising a child to the age of 18 is right around $267,000. You can effectively reduce these costs by claiming the Child Tax Credit, which is designed to lower…

06/18/2022

Check out our new article to know more about "Section 179 Depreciation" 👉 https://wkbaccounting.com/what-is-section-179-depreciation/