Tax Liability Of An Annuity – Does It Exist?

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Tax Liability Of An Annuity

Everybody is interested in avoiding taxation legally because no one likes to pay taxes. There is generally no tax liability in case of annuities and this is what makes it so popular. After all, ‘a penny saved is a penny earned’ therefore why not invest in these since they do not require you to pay tax? The tax-deferred growth that one can enjoy from an annuity is probably one of the most attractive features about it. The government isn’t going to tax you on any of the earnings as long as the money stays inside the annuity. Thus, if you were filing for 2009 taxes then your annuity wouldn’t come under it.

However, it cannot remain like this forever since all good things should come to an end. Therefore your deferred annuity will get taxed in its later stages. To understand this, it is necessary to take a look at the two stages of a deferred annuity. The accumulation phase is the first phase and during this phase the annuity is allowed to grow and there is no tax liability on it.

In the second phase, i.e. the distribution phase, the annuity is paid out and the payment can be made in a single lump sum or it can be segregated into a series of payouts at fixed intervals over a lifetime or a pre-determined period of time. It does not matter which mode of payment is opted because the income tax will be due on each of the annuity payment which the recipient receives.

Lifetime Annuity- How it has been Helping People

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Lifetime annuity has been helping people in different ways. Investment products are deigned strategically so as to provide consumers with greater income in the future. Lifetime annuities are smart investment plans where the annuitant is entitled to receive a certain amount till he outlives. With rates of life expectancy reaching peaks, needs for lifetime annuities have been increasing. While term annuities mean that you will receive a specific amount for a specified time, lifetime annuities make sure you remain financially stable till the time you live.

Of all financial investments lifetime annuity that is fixed in nature, are considered a fruitful investment vehicle. Moreover, they are safe options for retired individuals who crave for a stable economic flow. Fixed lifetime annuities safeguard you from the risk prone fluctuating market. These investment plans promise the holder of benefits, where he is entitled to receive a steady flow of income regardless of any turmoil prevailing in the market.

While most of these investment products offer income for your life, others draw a line when it comes to offering you money. Lifetime annuities entitle you of receiving a certain sum of money either on a monthly, basis or on yearly basis depending upon your needs. Such kinds of income last for around 20 years or more. The annuitant has the right to receive the amount in lump sum. In that case he will have to inform the annuity company from beforehand.

Lifetime annuity helps avert market risks and in majority of instances the annuity provider has to bear market risks. Even if the economic conditions are poor the annuitant won’t be affected. This is why most people opt for lifetime annuity over other investment plans.

It is time you compare lifetime annuities

If you are unable to settle for the perfect investment plan you need to converse with an annuity expert. You need to seek help from a financial planner who has been in business for quite long. The expert having profound knowledge would readily offer you guidance on the same.  The expert after comparing different financial products would even go on to the extent of highlighting the merits and demerits of each product. Whether or not you will like to invest on a particular lifetime annuity investment would largely depend on his word of mouth. He is likely to show you the differences in return by using the annuity calculator and make it easier for you to select a plan.

Annuity Quotes- its day to day application

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If you are nearing retirement you might start worrying about the different pension policies and the annuities. Whatever may be the pension policies, most importantly one should focus on the lifestyle that one will carry on after one stops working. An annuity converts a huge amount of sum generally the lump sum amount of the pension into a guaranteed income after retirement that will exist for entire life you live. Retirement annuities which give the best annuity quotes include increasing annuities, guaranteed annuities, joint-life annuities and investment-linked annuities.

Annuity quotes keep on changing from one holder to the next. The main reason why rates would constantly change is due to the insurance company where the annuity is purchased. There can be up or down in the rating of the quotes because of the clauses in the contract which the insurance company applies. The companies also control the rate of quotes which is responsible for the lifestyle and health condition of the contract holder and whenever there will be a change in the lifestyle the insurance companies will have the privilege to discontinue.

The type of annuity too has an effect on the annuity quotes. As for example life annuity would have a notable effect on the quotes since such a type of payment will be based on the entire span of one’s life. This means that the holder of the contract will stop with the payment upon death. Some annuity plans also consider the dates in the contract. This involves the cancellation of the contract well before the death of the contract holder. But this is not beneficial for the plan holder since he won’t be able to claim any more money in the near future. This is why each option of the annuity must first be reviewed before taking up of any claims. Again it is the discretion of the holder of the contract if he would stick to the laws set by the insurance company or whether he would be applying for another option after the expiry of the contract.

Apart from the contract and the type of annuity, annuity quotes can always be controlled through claiming. If a contract holder would not claim his earnings in a couple of months, the insurance company will have to increase the rate of interest from about 1 to 2%. Some insurance companies increase it to about 6%. The increase in the rate of interest depends upon the bylaws of the state as well as the boundaries in the contract. Any breach of contract is entitled to immense penalty.

Whole Life Insurance for Retirement

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Most people realize that some form of life insurance is almost mandatory these days. Given the costs associated with providing for any family’s needs, the death of one spouse can leave a deficit in the family budget that simply cannot be replaced without life insurance. Whole life is one of the most popular forms of permanent life insurance for precisely that reason: because it offers guaranteed benefits and cash value upon the policyholder’s death. That does not, however, mean that it is wise to just run out and buy the first prepackaged whole life policy that you encounter. There is a right way and a wrong way to buy whole life insurance.

The Wrong Way

Too many people take the simple route to purchasing whole life insurance. They select an arbitrary number – or have an insurance agent select it for them – and settle for a policy that provides that level of coverage to their heirs. This often leads to people being either over-insured or under-insured, and both present difficulties for policyholders and their families. Being over-insured may provide for larger benefits and cash payouts when you die, but such a policy also requires you t pay significantly higher premiums than you otherwise would. Being under-insured may not present you with any immediate difficulties, but it is guaranteed to leave your family without the necessary resources to maintain a consistent lifestyle when you are gone.

Doing it Right

Obviously, purchasing whole life insurance properly entails more study and research than most people assume to be necessary. The first step is to sit down and realistically determine what your family will need when you pass away. Take into account the home mortgage, college for the kids, and any other anticipated large expenses that are likely to occur in the future. Remember, your whole life insurance policy is designed to help the family maintain a certain standard of living if you die.

The next step involves making sure that you insure the most pressing needs first. You can always add to your whole life policy as time passes and new needs arise, so concentrate on those pressing needs now with the recognition that you can modify your coverage when your situation changes. Few of us have all of the resources we would like to have to protect against any possible loss, so always begin by doing what you can do now. Always remember that the best life insurance policy is the one that you can could on no matter what.

Keeping Pace with Life

Your whole life policy should be subject to your personal review on an annual basis, so that you can keep your coverage updated as your life changes. The most important thing that you can do to help you make those updates is to partner with a life insurance company and agent that you trust. Assuming that he or she is competent, the agent will be your best resource in maintaining a whole life policy that continues to meet your needs as the years and decades pass by. Best of all, you can ensure that your policy covers everything that it needs to cover, without being excessive.

5 Tax Write-offs for Freelancers

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2010 is officially over, and you know what that means–it’s almost time to prepare your taxes (cue groaning.) Tax preparation can be a daunting task, especially if you plan to do it yourself.  And for freelancers or self-employed individuals, there may be even more confusion.  Luckily, there is a lot of information available online today to help us all through the process.  Terms likes 1099s, Schedule SE, Schedule C, Schedule C-EZ, will be words you soon become familiar with, if you aren’t already.

Below are 5 great tax write-off opportunities for freelancers and the self-employed.  It’s important to be aware … Read more at 2009 Taxes

Tax Act

2010 is officially over, and you know what that means–it’s almost time to prepare your taxes (cue groaning.) Tax preparation can be a daunting task, especially if you plan to do it yourself.  And for freelancers or self-employed individuals, there may be even more confusion.  Luckily, there is a lot of information available online today to help us all through the process.  Terms likes 1099s, Schedule SE, Schedule C, Schedule C-EZ, will be words you soon become familiar with, if you aren’t already.

Below are 5 great tax write-off opportunities for freelancers and the self-employed.  It’s important to be aware of what tax write-off options are available because, as freelancers and self-employed individuals, you’re paying much more taxes than someone employed by an employer.  Freelancers and the self-employed pay not only the employee share of Social Security and Medicare taxes, but also the employer’s share.

1.    Job Hunting Expenses and PayPal Fees: Freelancers with long-term projects are fortunate in not having to continuously search for new gigs, however, for most freelancers, we’re always on the hunt for more projects to keep the pay-flow going.  This may mean signing up with job boards where there may be a fee to join or a fee to bid on projects.  These are expenses that may be written off.  PayPal fees for accepting payment from clients for work completed may also be written off.  Just make sure you keep receipts and print off all online documentation pertaining to the expenses and fees.

2.   Health Insurance Expenses: If you are buying your own health insurance (meaning you are not part of a health plan offered by your employer or your spouse’s employer), then this is an area that is deductible. Health insurance premiums are costly so this is an area where you can see the biggest deductible from your freelance work income.

3.    Home Expenses: This particularly applies to individuals who work directly out of their home.  A portion of your utilities, cellphone (if used for business), insurance, and mortgage interest may be deducted.  The amount deductible is based on a percentage calculated from how large your office space is within your home.  You’ll need IRS Form 8829.

4.    Research and Technology Expenses: If you are working in a particular industry and have expenses related to research for that industry, such as attendance cost for a conference, a book purchase, a magazine subscription, or something else related, gather your receipts as these items that qualify for tax write-off. Technology equipment, such as the cost of a computer, a printer, and other equipment you use for work also qualify.  And don’t forget about Web site hosting fee and design and maintenance fees, these are also expenses you may write off.

5.    Travel and Transportation Expenses: Travel associated with doing business may be written-off.  Whether the expense is for airfare, hotel, car service, gas, tolls, mass transit, or car payment and insurance cost, these are all expenses you should have a tally of to determine the amount that can be written off.  Business-related travel includes any transportation required to attend a business meeting, to purchase office supplies, to attend an event, and other related-business purposes.  Business travel does not include going to and from work.

Want to know more?  Check out these 50 blogs about taxes!

Wendy Lau is a New York City-based guest blogger for Pounding the Pavement and a writer on the subject of becoming a nail technician for the Guide to Career Education.

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