Taxes can impact a wide swath of your finances — from your retirement accounts to your estate planning. In addition to your personal income taxes, there are other areas where taxes come into play.
Take a look at these common tax questions and answers.
Will I still pay taxes in retirement?
Taxes don't stop when your paycheck ends. When you begin tapping into your pension, retirement accounts and Social Security, you may have to pay both state and federal taxes.
You can play a significant role in controlling the impact taxes will have on your retirement income by working with an advisor who can help you create a taxsmart strategy. A handful of financial adjustments might help you reduce your tax liabilities when it comes time to tap into your nest egg.
Is life insurance taxable?
Generally, according to the Internal Revenue Service (IRS), named beneficiaries do not pay taxes on the proceeds from a life insurance claim. However, there are a few exceptions — such as if a death benefit is paid out in installments, which can earn interest. Any interest above the amount of the death benefit will be taxable.
When it comes to your estate planning, realize that any death benefits paid to a spouse are generally not subject to estate tax. For large estates, typically those of $11.7 million or more, life insurance proceeds may be subject to estate tax.
Will a divorce impact my taxes?
The first tax deadline after your divorce is often stressful. It's likely you've been used to filing taxes with your spouse and you might have some questions about how you should file moving forward.
Something else to keep in mind is if any agreements from your divorce impact your finances, including alimony, child support, health and life insurance, and/or assets, all of which can have additional tax implications. Plus, there are different tax rules for custodial parents and noncustodial parents.
It's a good idea to chat with a tax advisor about your particular situation and how you should approach your taxes after a divorce.
What types of retirement savings accounts offer tax deferred growth?
Accounts considered tax-deferred typically include traditional Individual Retirement Accounts (IRA) and Roth IRAs, as well as a variety of 401(k) plans, including those for people who are self-employed.
There are also many insurance-related vehicles, such as tax-deferred annuities and permanent life insurance policies that may also provide tax deferral benefits.
Do HSAs have tax implications?
A health savings account (HSA) is another savings account for your pre-tax dollars. As with a traditional IRA, your HSA contributions make your taxable income smaller. As long as you use the money for health-related expenses, you don't have to pay taxes on it.
You might want to consider creating an HSA if you have an insurance plan with a high deductible and you want to put aside money for healthcare down the road.
There are always important things to think about when it comes to taxes, especially in preparing for your retirement and estate planning. Consider working with a tax professional to find the best strategy for your long-term needs.
Do gig workers need to file a tax return?
- A sole proprietor or an independent contractor
- A member of a partnership that carries on business
- Someone who owns a business (including a part-time business)