Your Money: Q&A

By Guest Contributor June 15, 2008 11:47

By Richard Carty, CPA

Did you know that 10,000 “Baby Boomers” in this country are becoming eligible for Social Security every single day?  We could all use more information on money and tax issues, but perhaps no one more than new retirees who face the challenge of making a limited pool of money last for an unknown number of years.

My goal in writing this new quarterly column is to help you keep more of your money, save for the future, and make smart tax decisions. Topics will include Social Security, personal income taxes, and how making minor adjustments can increase your savings and thus your quality of life.

I’ll start by answering some of the questions I’m most commonly asked.

Social Security

Is Social Security income taxable?

Depending on how much income you have from other sources, you may have to report up to 85 percent of your benefits on Federal Tax Form 1040 and pay the resulting federal income tax.

How much would I receive at age 62 compared to age 66 or 70?

For baby boomers turning age 62 next year, they would receive 75 percent of what they would receive if they waited till they were age 66. For each year after reaching 66, if they choose not to collect Social Security yet, they would increase the eventual payout benefit by 8 percent per year up to a four-year maximum of 132 percent of their full retirement-age payout.

If I am still working at age 62, does that affect when I can begin drawing Social Security?

No, whether you are working or not has no affect on when you can begin drawing Social Security. However, if you are under the normal (or full) retirement age, you are limited to a maximum of $13,560 in earnings for 2008. If you are earn more than that amount, Social Security will deduct $1 in benefits for every $2 you earn above the annual limit. If you are self-employed and under your full retirement age, you are required to report your earnings to the Social Security Administration each year. If you work for an employer, your employer will report your earnings.


What are long-term capital gains?

If you bought an investment (e.g. stocks, land, real property) and held onto it for a year and a day, and then sold it, it is considered a long-term sale. If there is a profit on the sale, it is a long-term gain.

What is the tax rate on long-term capital gains?

For your 2007 Federal Tax Return, the tax rate is 5 percent if you are in the 10 percent or 15 percent tax bracket; the tax rate is 15 percent if you are in the 25 percent or higher tax bracket. There is no distinction on your California return. You will be taxed on L/T Cap Gains at the same tax rate as all other ordinary income. The tax rate would be whatever your California marginal tax rate is – up to a maximum of 9.3 percent.

Are qualified dividends better than ordinary dividends?

Yes, qualified dividends are taxed the same as long-term capital gains. Non-qualified dividends are considered ordinary income, and taxed at your marginal tax rate.

Are reinvested dividends taxable?

Yes, the fact that you reinvest your dividend income does not prevent it from still being considered taxable income.

How much of my stock loss is deductible?

After netting stock gains with stock losses, you are allowed to deduct up to $3,000 on your Federal Income Tax Form, if you are filing as Married Filing Jointly. Anything over $3,000 is carried forward to the next year.

How much can I give away without having to file a Gift Tax Return?

In 2008, any one individual can gift any other individual up to $12,000 without having to file a Gift Tax Return. A couple could gift any one individual $24,000, or a couple could gift any other couple $48,000 without having to file a Gift Tax Return. For example, if a couple gifts their son and his wife $100,000, $52,000 would exceed the allowable amount. In this situation, the couple would be required to file a Gift Tax Return.

Myth or Fact?

It is safer to pay my bills online than through the mail.

Fact: Most financial fraud occurs when checks, credit cards, and account statements are stolen from mailboxes.

It is faster and cheaper to pay bills online.

Fact:  Paying all your bills at once at your bank’s bill-pay service is much quicker than the old conventional way. You save money by not buying stamps, and by drawing interest on your money – your account is debited on the same day your payment is credited. Electronic bill-paying also avoids the monthly fee many companies are starting to charge to mail out a paper statement.

An employer can legally refuse to hire you based on your credit score.

Fact: This may seem unbelievable, but it is true.

A low credit score can result in higher premiums on car insurance.

Fact:  Insurance companies are legally allowed to increase premiums on clients with low credit scores, and they do.

Getting your credit score is a free service.

Myth: You can get a copy of your credit report free every year, but you have to pay a small charge to get your credit score.


What is the best way to raise my credit score?

Pay your bills on time, keep the balances on credit cards below 25 percent of your available credit, and apply for new credit sparingly.

Richard Carty is a Sonora CPA.

© 2008, Friends and  Neighbors Magazine

By Guest Contributor June 15, 2008 11:47
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