Capital Gains Tax

Capital is a unique term when it comes to taxes. If it gains value, you pay a capital gains tax. If it loses it, you can write at least some of the loss off.

Capital Gains Tax

Practically everything you own is a capital asset. This is true whether you use it for business purposes or personal use. The internet revenue service is very interested in your capital assets. Why? The IRS likes to tax the full gains while only giving you a small break on any lost value. Specifically, you have to report and pay taxes on gains in value of your capital assets when you sell them. Unfortunately, you only get to claim a loss on capital assets if it is an investment property such as stocks. Doesn’t seem fair, but that is how the cookie crumbles these days!
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Here are some capital gains tax highlights:

1. Generally, you report capital gains and losses on assets by subtracting the price you purchased it for from the price you sold it for. This calculation is reported to the IRS on Schedule D, which should be attached to your 1040 tax return. Lucky you!

2. Capital gains and losses are classified as long-term or short-term. The classification breaks down on…tad a, how long you’ve owned the capital asset in question before selling it to someone else. If it has been less than a year, it is a short-term gain or loss. Hold on to it for more than a year and you are looking at a long-term gain or loss when reporting taxes. Each classification requires different tax calculations and you will ultimately pay different amounts of tax.

3. In a bit of good news, you are generally going to pay less capital gains tax versus income tax rates. For the 2009 year, most of us will pay at a rate of 15 percent, but some will get nailed with up to a 28 percent rate.

4. While the IRS is happy to tax all of your capital gains, it has different views towards losses. You can deduct losses, but only up to $3,000 each year. 

We all have capital assets, even if we don’t realize it. Unfortunately, the IRS is aware of this, so make sure to report and pay your capital gains tax.

States With No Income Tax

If you are considering relocating to a new state, taxes should be something you consider. Specifically, there are a number of states with no income tax.
States With No Income Tax
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As you well know, paying taxes is a grind. Paying federal taxes is the biggest burden, but state income tax can quickly add up as well. There are, however, some states with no income tax. Depending on your earnings, this can save you hundreds or thousands of dollars a year when tax time rolls around.

There are seven glorious states with no income tax. In no particular order, they are:

• Alaska
• Florida
• Nevada
• South Dakota
• Texas
• Washington
• Wyoming

There are two other states that technically collect income tax, but do not for all practical purposes. They are Tennessee and New Hampshire. These two do not collect a tax on your earnings, but they do collect tax if you receive dividends. Under tax law, dividends are technically considered to be income, thus neither Tennessee nor New Hampshire are technically states with no income tax.

At first glance, a lack of income tax may seem like a great thing. Generally, this is true, but you need to watch out. Many of these states make up the difference by collecting taxes in other ways. They may crank up their sales tax or property taxes for example. The particular approach varies from state to state, but they generally do something. The exceptions to this rule are Alaska and Nevada. Alaska derives most of its money from the oil companies. As you can probably guess, Nevada makes up the difference from the casinos.
If you are considering moving to another state, taxes are something you should definitely take into consideration. While a factor, they should probably not be the overriding one in your decision.

Do You Pay Tax on Inheritance Money

Individuals work hard all their life to accumulate wealth. This raises the question of do you pay tax on inheritance money?
Do You Pay Tax on Inheritance Money
As with anything tax related, the answer to do you pay tax on inheritance money is a muddled one. Simply put, the answer is no and yes. Before we get to that, however, it is worth noting here that estate taxes are different from inheritance taxes. Inheritance taxes are a state tax issue, while estate taxes are a federal issue. 

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Back to our question of whether you pay or not. No, you do not have to pay inheritance tax if the deceased person is your spouse. There is no inheritance involved if you are inheriting your spouse’s property. Yes, you have to pay inheritance tax if you are a direct descendant of the deceased person. If you are child or grandchild of the deceased person then you will have to pay a very small inheritance tax with large exemptions. If you are a brother, sister, brother-in-law or sister-in-law then you need to pay five to 10 percent inheritance tax. If you the inheritor are more distantly related then inheritance tax goes up from 10 to 20 percent. 
Undoubtedly, you have noticed the above percentages are not exact. This is because each state has different rates. Whether or not you will pay inheritance tax for the property inherited also depends on the state you live in. Connecticut, Delaware, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Michigan, Montana, Nebraska, New Hampshire, New Jersey, North Carolina, Oklahoma, Pennsylvania, South Dakota and Tennessee are the states that do not charge inheritance taxes.

To avoid paying inheritance taxes you can plan gifting your children in installments while you are still alive. Gifts have to be less than $10,000 per year to escape a gift levy by the IRS. Inheritance tax is considered similar to a double indemnity. Joe Schmoe pays income tax all his life for his hard earned money. Fine, he doesn’t complain. But when he dies his property is again taxed. Many who support abolishing inheritance and estate taxes raise this argument. Those who have experienced the death of a dear one had to bear two pains. The first being the departure of a loved one and the second is the paying of tax.