The Good Tax Guide » Tax Payment

Tax on Life Insurance death benefit

Tax Guide — Sun, 01 Feb 2009 08:49:10 +0000

Under normal condition one does not have to pay any tax on life insurance death benefit. But it can be taxable if the amount paid exceeds a particular limit as mentioned in the rules. The amount will be included in the gross taxable income if the amount paid by the life insurance company is more than what they agree to pay at the time of death of the person. This can be explained in a better way with the help of an example. Suppose if the life insurance death benefit is $60,000 and if the company paid you $60,500 at the time of payment. Then the additional $500 paid will be taken as the taxable amount and should be included in the tax return form while filing it. If the amount paid is equal or less than the amount agreed then it will not be included in the taxable amount. Certain companies pay the life instalment benefits on instalment basis. So, if the money is received in the form of installments then you can remove that amount from the taxable part. But proper proof should be given. Also by dividing the amount received into payment in different years one can free it from tax.

Tax on Sick Pay

Tax Guide — Thu, 08 Jan 2009 08:46:12 +0000

Sick pay is a type of wage received by the employee. So as per the rules all salaries and wages are taxable. Hence sick pay is taxable. So a person getting the sick pay must include this amount in the tax return before filing. It should not be left out. If left out then penalties would be charged as the pay will be reported in the tax return of the person who pays you the sick pay. It is a taxable income. It is the money received by a person in case if he faces any injuries or accidents. All companies will allot some amount of money for their employer’s sick pay. It is given as the health insurance allowance. The taxable amount should be submitted in a Form W-4S to the insurance company. This is to be done to withhold the IRS tax. If the premium for the health insurance is made through cafeteria plan then the premium will be taken as the one paid by your employer and benefits can be reaped by you on the tax returns if the money paid as premium was not included as taxable income to you. In case of long term care insurance it will be exempted from tax in most of the time.

Properties for which you can take depreciation tax deduction on one’s tax return

Tax Guide — Tue, 07 Oct 2008 17:51:44 +0000

There is a list of properties for which a depreciation tax deduction can be made. The properties that they mention in the list include those properties which are used in trade or business or other income generating activity. No depreciation in tax return can be obtained if the property is used by the person for his own interest. An example of it is the personal residence. The properties include equipment, machinery, vehicles, furniture and buildings. But tax depreciation is a difficult task. There is a system which generates the depreciation percentage tax deduction. It is called as the Accelerated Cost Recovery System. It will show the percentage and the eligibility criterion for obtaining the depreciated tax reduction. There are some items listed for which you cannot get the depreciation on tax. The things for which depreciated tax return is applicable include land and farmlands. Also property and other inventory which are made for sale are not eligible for obtaining the depreciated tax deduction. So, all properties are not eligible for depreciated tax return. So before applying for the depreciation tax deduction on tax return one has to make sure that he is eligible for that. The depreciation percentage should be found out. The Good Tax Guide.

Tax deduction on alimony paid to former spouse

Tax Guide — Wed, 24 Sep 2008 06:29:30 +0000

The money paid to a spouse or person as per certain agreement is called alimony. The agreement can be a separation agreement or divorce agreement. These agreements are usually made with those people from whom you separate from rest of your life. It does not involve any kind of property settlement amounts. The alimony must be included in the gross taxable income. It is applicable for you as well as for your spouse also. The rules regarding the taxation in the alimony category changes at different times.

Also in case any voluntary payment is made, no tax benefits will be given. In case of alimony, the payment should be made under an agreement. But one has to check for the payment limits that favours the tax deduction benefits. After this agreement you and your former spouse must not live in the same apartment. The payment liability to the spouse must be terminated on the death of the spouse. Also, if the former spouse received any taxable alimony from you then, he/she should report it. Also while making the agreement between you and your spouse make sure that you mention about the alimony which is not tax deductible for you and also for the spouse.

Do I have to pay tax on academic scholarships?

Tax Guide — Wed, 24 Sep 2008 03:59:58 +0000

One can remove the academic scholarship from taxes if they meet some criteria. These criteria are put forward by the responsible tax authorities. Day by day the cost of living is going on increasing. As it increases the college costs also increases. So, more amount of money is required for this purpose. So if a child is getting scholarship it can help a lot.

Also the benefit of scholarship can be improved more if proper steps are taken to avoid it from taxes. In case if the child is attending a private college rather than a government college then the cost will be double. So it would be difficult for the parents to pay the money even with the available scholarships if taxes are deducted from that. So, proper measures must be taken to make sure that such academic scholarships get free from taxes.

If the academic scholarship is used for other purposes like paying room rent and travel expenditures then it should be shown in the tax form. In that case it will become taxable as the scholarship is meant only to be used for paying tuition fees and for buying the necessary books. The scholarship will be free from tax if and only if the person is a candidate for a degree in some educational institution. The scholarship money should not be used for other purposes. If you use it for any other purpose then you will have to pay the tax on that amount.

Is Tax payment on accelerated death benefits and viatical settlements necessary?

Tax Guide — Wed, 24 Sep 2008 03:54:18 +0000

Everyone knows that day by the cost of living as well as medical expenses are increasing. So, more money is required if a person gets admitted in the hospital. As the cost of medical care is very high, most of the insurance companies are having insurance policies with the accelerated death benefit feature. The cost paid by the insurance company on the insurance policy to the terminally ill for surrendering his/her policy is known as accelerated death benefit.

Another option is to sell the policy to a viatical settlement company. These companies buy this policy mainly for their investors. Some companies also buy the policies for themselves. Both, accelerated death benefit and viatical settlement are tax free. But if the benefits are used for a long term care, then the excess mount is taxable and should be shown when filing the tax returns. This is applicable if and only if it exceeds IRS per diem limit. So make sure that you show the proper amount when filing the tax forms. Make sure that you get the tax reduction by placing the accelerated death benefit or viatical settlement below the limit mentioned by them. So choose appropriate measures to keep it away from the tax zone.