[VIDEO] The Basics of 1031 Exchanges for Real Estate Investors
If you own investment property, you need to know how the IRS Section 1031, commonly referred to as a 1031 exchange, can work for you. A 1031 exchange is a strategy that allows an investor to defer capital gain taxes by selling a property and then reinvesting the proceeds into a new, like-kind property.
Here are the basic rules of the 1031 exchange: First, the taxpayer who sells must be the same taxpayer who buys. Second, you must identify the new property within 45 calendar days after closing on the first property. Third, you must purchase the replacement property within 180 calendar days after closing. Fourth, the replacement property price must be equal to or greater than the old property.
If the new property price is less than the old one, the difference may be taxed. A 1031 exchange can be a powerful tax-deferment strategy offering many opportunities to investors.
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[VIDEO] When Does a Roth Conversion Make Sense?
With a traditional IRA, you may qualify for a tax deduction when you invest your money. But later, when you take the money out in retirement, all those distributions are taxed. The Roth IRA is the opposite. It has no deduction when you put the money in, but later, all distributions are tax-free when you take the money out during retirement.
By converting from a traditional IRA to a Roth IRA, future gains become tax-free. But when you convert funds from a traditional IRA to a Roth IRA, you must pay taxes on the converted amount that year. You can choose to convert all or just part of a traditional IRA to a Roth IRA.
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Changing Jobs? You May Want to Take Your 401(k) With You
If you recently changed jobs or are currently considering an offer for a new one, you have probably thought about your new salary and benefits package, the commute, and perhaps even how you will reward yourself for a job well done. However, there is a good chance you may not have given much thought to what you will do with the money accumulated in your former company’s 401(k) plan.
Having a plan for that money will better ensure that you preserve your savings and that they continue to grow pending your eventual retirement. Any time you leave a company where you have contributed to the 401(k) plan, you have three options regarding what to do with the money you have saved.
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Just Inherited a House from a Relative? Here’s What You Should Know
When a loved one passes away, the grieving process can be difficult enough without factoring in any of the financial responsibilities that an inheritance can create. And when that inheritance includes a house, there are several decisions to make — many of which will need to be made in a timely manner. Coupled with the emotion of grief, the sense of urgency and new responsibilities can make it more difficult to make the best decision with regards to the inherited property.
Inheriting a house becomes more complicated when the property has multiple beneficiaries. And assuming each heir has equal ownership rights, if any or all of them has a conflicting opinion on the best use of the property, the situation gets even more complicated.
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Own Company Stock Inside Your 401(k)? Here’s Something to Be Aware Of
These days, companies must get creative about the ways in which they both compensate and motivate their workforce. One of the most popular practices is to offer employees opportunities to own company stock, essentially helping them take ownership of their work performance, whether good or bad. And one of the more popular ways companies support employee ownership of that stock is by allowing them to purchase shares through their 401(k) plan.
In some instances, employees are able to accumulate a sizeable sum of those shares and defer taxes on any growth in the process. But what happens to those shares when it is time to part ways?
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Here's How to Keep Your State from Taking Your Money
Hidden within the layers of bureaucracy of every state government lies the office of unclaimed property. This office serves at the pleasure of both the state treasurer and chief financial officer and is responsible for carrying out the process of escheatment. Escheatment refers to an archaic process whereby the title of financial assets such as bank deposits, retirement accounts, security deposits, pension checks, tax refunds, uncashed paychecks, insurance policies, and orphaned safe deposit boxes that have been dormant for some time are transferred to a state authority.
When pressed on this issue, state officials often explain that the escheatment process keeps corporations from turning one’s forgetfulness into their profit. It can be argued, however, that states are guilty of the same.
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How to Save for Retirement as a One Income Household
When a couple makes the decision to live exclusively on the salary of one spouse or partner, they may take the time to review their monthly cash flow and cut out any unnecessary expenses prior to making it official. However, a topic that is likely to be put on the back burner is the issue of retirement – specifically, how to save for two on the income of one.
Planning and saving for retirement as a one-income household presents its own unique challenges. Thankfully, there are a few planning tools available that are specifically designed with this group in mind.
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Here's How to Access the Value of Your Concentrated Stock Position Without Creating a Big Tax Bill
As a senior manager or executive of a publicly traded company, you are likely paid a significant portion of your total compensation in the form of company stock, making it easy to build up a concentrated position in that stock over time. And should you need access to a large amount of cash, it is equally as easy to sell some or all of those stock shares and transfer the proceeds to your bank account following settlement. However, turning those stock certificates into actual dollars will almost always create a taxable event.
There is an option available through most major brokerage firms called a Securities-Backed Line of Credit (SBLOC), which allows you to borrow against a stock portfolio the same way a mortgage company allows homeowners to borrow against the equity in their house using a home equity line of credit (HELOC). Using this strategy allows you to maintain your stock position(s), participate in any long-term growth of the shares, and avoid adding to your tax bill all at once, thereby allowing you to have your cake and eat it too.
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Here’s How to Know Whether to Self-Prepare Your Taxes or Hire a Professional
Every year, somewhere between January 1st and April 15th, millions of Americans work their way through the five stages of grief as they prepare and file federal and state tax returns with the Internal Revenue Service (IRS). And although, for a very small few, this time of year can bring about feelings of elation, for most, it is an unwelcomed source of stress and anxiety. This variance of emotions exists because during this season, the government determines whether you have either under or overpaid your annual tax bill.
In general, there are two options available to help taxpayers complete and submit their annual tax return. On one hand, there is the option to self-prepare your return. And on the other, you might choose to hire a professional to do the heavy lifting for you.
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Considering an Early Retirement Offer from Your Employer? Here's What to Consider First
Right now, a growing number of employers are offering more tenured workers large, lump sum payments to turn in their key cards and credentials and retire early. In times of economic uncertainty, companies will immediately begin to reassess payroll costs and make decisions on how and where to reduce overhead to lower their fixed expenses. An early retirement offer typically includes a few months’ salary, extended health insurance coverage, and accelerated vesting on any 401(k), stock, or pension-related payouts owed.
These offers can sometimes be customized for individual employees. But in many cases, buyout offers are uniform and extend to an entire organization, a particular department, or to any employee who has fulfilled a minimum length of service. Early retirement packages often target people with seniority, a group that tends to earn higher salaries and have increased healthcare costs.
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Ways to Make Your Charitable Giving Count Come Tax Time
When it comes to financial planning, charitable giving is a well-established tool often used to assist individuals and small businesses with year-end tax planning. With strategic and well-timed donations, you can minimize your tax liability while executing a broader philanthropic strategy and supporting the causes you hold dear. Traditionally, people think of charitable giving as simply writing a check to a few nonprofits near the end of the year and claiming a deduction on that year’s tax return. While that approach can certainly be valuable, it is a bit limited in its ability to maximize philanthropic impact as well as tax minimization.
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Time to Negotiate Your Next Pay Increase? Ask for Stock Instead of More Cash
If you are fortunate enough, there comes a point where you are making enough money and the next dollar in salary you are able to command will not be very additive to your overall net worth. Though it may sound counterintuitive, once you reach a certain income threshold, every next dollar earned has a diminishing return. That does not mean that it should not be welcomed with open arms, but that by delaying the receipt of that dollar, you are able to unlock more of its value. Ultimately, your concern should be less about how much you make and more about how much you get to keep.
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Life Insurance Is Not a Financial Plan
These days, life insurance is often improperly sold as a complete financial plan. Life insurance salespeople are generally concerned with the amount of insurance a person has the capacity to pay for rather than the amount of coverage they actually need. As a result, the sales conversation often focuses on the death benefit of the policy and its ability to build up cash value instead of what it's designed to do - provide the insured’s beneficiaries with some level of financial security upon their death.
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If You Own Property in More Than One State, You Need a Trust
In the world of personal finance, rarely is it possible to find advice that is cut-and-dry and delivers a definitive yes or no. However, in this case, the rule of thumb applies almost uniformly. Any person who owns real, fixed assets (houses, land, buildings, etc.) in multiple states can save their loved ones months of extra paperwork and unnecessary fees by utilizing a living trust.
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Your Employer Just Granted You Stock Options. Now What?
Stock options are no longer just for the few executives at the very top of the org chart. Many publicly traded companies now make them available to non-executive staff. And while splitting annual compensation between cash and stock has some real benefits, it can certainly be confusing. Be sure to remain aware of your choices, the term of your options, and the tax consequences of your exercise decisions. Although plans and grants from various companies may resemble each other in many ways, no standard stock option plan exists.
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You Just Turned 50 and You're Behind on Your Retirement Savings. Here's How to Catch Up
When it comes to saving for retirement, it is never too early to start, but the last decade or so before you reach retirement age can be especially critical. By then, you will probably have a pretty good idea of when (or if) you want to retire, and, more importantly, still have some time to make any necessary adjustments. With the proper planning and a willingness to save and invest, the odds of catching up are not insurmountable.
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The TCJA Blessed the Backdoor Roth IRA. Why Aren’t More People Using It?
Buried in the text of the 2017 Tax Cuts and Jobs Act (TCJA) lies a statement that Congress approved, blessing the so-called “back-door” Roth IRA. The back-door Roth IRA conversion strategy allows high-income taxpayers to take advantage of the fact that while there is a limitation on who can contribute to a Roth IRA directly, there is neither an income limit on contributing to a traditional IRA nor income restrictions on converting an existing traditional IRA to a Roth IRA. So, by utilizing the back-door approach, your contributions will still make their way into the Roth IRA eventually..
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How Much is Too Much When It Comes to Owning Stock in the Company You Work For?
For many executives and senior level managers, compensation comes in the form of a set salary, a cash bonus (or two), and some form of equity ownership in the company. For those leaders of publicly traded companies, equity ownership typically comes in the form of company stock. And while one’s natural instinct is to accumulate as much stock in the company, while still an employee, as possible, is that always the best choice?
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Roth IRAs Are Not for Everyone. Here’s Who They Are For
The key advantage to utilizing a Roth Individual Retirement Account (IRA) is that when done properly, your withdrawals in retirement are not taxed. For that reason, it has become the most coveted retirement vehicle there is. Roth IRAs prompt many savers to wonder whether they should either begin contributing to or converting a portion or all of their taxable retirement funds into one.
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