50+ Lifestyles

Taxes,Taxes,Taxes – what’s a tax payer to do?

By Richard J. Schillig, CLU, ChFC, LUTCF
Independent Insurance and Financial Advisor

It is 2013 – another New Year, and the Fiscal Cliff is upon us. For the past several months, the media has inundated us with threats and promises of this impending doom. Media hype has focused the Fiscal Cliff, with tax increases for the wealthy, defined as married couples filing joint tax returns with adjusted gross incomes of $250,000 and single tax filers with adjusted gross incomes of $200,000. I’d like to share with you these increases, and how they impact all – not just those ‘higher incomes.’ Let’s look at the increases:

Increase number 1 – Federal income tax rates return to 2001 levels with 5 rates starting at 15 percent and increasing to 39.6 percent.

Increase number 2 – Medicare tax rates will increase for higher income folks to an additional .09 percent.

Increase number 3 – Effect of increase number 1 and 2 on Social Security Income tax.

Now keep in mind, readers, I am not a tax preparer. I am an insurance agent and financial professional with lots of years’ experience. Over the years, I’ve learned to develop strategies for our clients with the creative use of annuities that have always been designed to minimize or eliminate tax. I use only fixed and fixed index Annuities. I am not licensed to provide variable annuities and do not recommend a variable annuity due to market fluctuation. But, variable annuities do enjoy some income tax benefit.

Both qualified and non-qualified annuities enjoy the benefit of income tax deferral. In today’s very low interest environment, earnings are not subject to tax. Interest earnings on fixed and fixed index annuities remain income tax deferred. We do not receive a 1099 for income tax returns as we do with many other plans. Income tax deferral is a huge asset with today’s higher rates of tax. A quick review of the income section of your 1040 form will help determine the tax deferred benefit of fixed and fixed index annuities. Over a period of years, this benefit becomes more significant. Even more significant, the income from an immediate annuity (non-qualified) is subject to that wonderful annuity tax-exclusion ratio. The Internal Revenue Service states that the portion of an annuity payment that represents return of principal is not subject to income tax. The portion of an annuity payment that represents gain is subject to income tax. The result of this calculation is the ‘exclusion ratio’ – the portion of an annuity payment not subject to income tax. Boy, in today’s Fiscal Cliff world, what an opportunity to help reduce the tax and tax increases. Taxes everywhere – what’s a taxpayer to do?

Today’s taxpayer can look at the creative use of annuity portfolios. I cannot overemphasize these strategies enough. Annuities continue to offer not only traditional income tax deferral. Annuities properly arranged may allow you to also take advantage of the exclusion ratio option for non-qualified annuities to help minimize tax exposure. It is legal. It is allowable. It is available. It is like driving your car and electing to take an alternate route to avoid a road toll or bridge toll. It’s perfectly legal and allowable, so why not make use of this strategy? Beginning this month – Tuesday, January 29 at 10 a.m. and Thursday, January 31, 2013 at 5:30 p.m., we will focus on
providing information about the appropriateness of this strategy for you.

Also during the year, we will continue our monthly Community Meeting for persons aging into Medicare. Join us at our meeting on January 18. Look for our mailing promoting this meeting every month.