If you are a Canadian and a non-resident of the United States and you gamble at U.S. based casinos, chances are you have paid, or will eventually pay the Internal Service's dreaded casino gambling tax. Like almost all other taxes, the gambling tax is levied on income. In the case of the casino gambling tax, the taxable income stems from United States based gambling wins.
This message of taxes deferral has never changed. Yet after the Tax Simplification Act of 1986 the top tax brackets were less than one half of the 1974 rate. With the lower tax brackets, 85% of taxpayers fall in the 15% tax bracket or lower. This means that taxpayers contributed significant portions of funds now in retirement plans while they were in or below the 15% tax bracket. What are the odds that their tax rate will be less than 15% in retirement? Much has changed in the tax code since 1974. A "provisional income test" now determines the portion of what once was tax-free social security benefits that are now subject to income taxes. Because of this test, income sources such as an IRA distribution could increase the taxable portion of social security in addition to the tax due to the IRA distribution by up to 85%. In other words, with no other change to income or deductions, a $10,000 IRA distribution could increase taxable income by $18,500. A retired taxpayer could pay federal taxes on IRA distributions in excess of 27% even when remaining in the 15% bracket; the rate could be even more for taxpayers in the 25% tax bracket. State income taxes only exacerbate the tax rate. To say the least, the provisional income test makes estimating income taxes on IRA distributions quite complicated.
As noted earlier, Canadians are legally entitled to obtain a U.S. casino tax rebate. The right to obtain a tax refund for U.S. taxes paid is explicitly stated in the U.S. Canada tax treaty. Most Canadian gamblers are unaware of this fact, and simply accept the gambling tax levied at the casino.
Of the Canadian gamblers who are aware of their U.S. Canada treaty rights, many of these eventually give up their attempt to obtain a casino tax rebate, as the bureaucracy of the Internal Service does a very good job of dissuading Canadians and other foreigners from successfully obtaining their legally entitled tax refunds.
Accountants for contractors are specifically available to cater to the special needs. They can show them different paths they can take before their move in the direction of freelancing. If they start working normally, then they come into the category of a sole trader. However, they would be missing out on the attributes that the other options that are available to them.
The rules of thumb and strategies we learned while accumulating are not effective or can even be harmful when retirement plan distributions begin. The scenario described above is just one of many potential scenarios regarding IRA distributions. Paying for a mortgage with IRA distributions may increase your taxes. Your charitable gifts may fatten the US Treasury rather than reduce your taxes. Expect to see your medical insurance and expenses and long-term care insurance deductions diminish once distributions are a part of retirement income. Today's retirees need to find a way to get funds out of an IRA without paying excessive taxes. There is not a one size fits all solution for all taxpayers. A qualified fee-only advisor should review the cash flow, income taxes, assets, liabilities, and other personal circumstances of prospective clients. This is not as easy as it might seem. Most advisors use packaged financial planning products primarily designed to sell products. It took the author an enormous effort to develop a program that will determine both the tax on distributions and to compare the current and future cost or benefit of various strategies. At the risk of sounding self-serving, our clients as well as other advisors tell us they have not found a program that quantifies the value of financial advice in such a clear and concise way.
This message of taxes deferral has never changed. Yet after the Tax Simplification Act of 1986 the top tax brackets were less than one half of the 1974 rate. With the lower tax brackets, 85% of taxpayers fall in the 15% tax bracket or lower. This means that taxpayers contributed significant portions of funds now in retirement plans while they were in or below the 15% tax bracket. What are the odds that their tax rate will be less than 15% in retirement? Much has changed in the tax code since 1974. A "provisional income test" now determines the portion of what once was tax-free social security benefits that are now subject to income taxes. Because of this test, income sources such as an IRA distribution could increase the taxable portion of social security in addition to the tax due to the IRA distribution by up to 85%. In other words, with no other change to income or deductions, a $10,000 IRA distribution could increase taxable income by $18,500. A retired taxpayer could pay federal taxes on IRA distributions in excess of 27% even when remaining in the 15% bracket; the rate could be even more for taxpayers in the 25% tax bracket. State income taxes only exacerbate the tax rate. To say the least, the provisional income test makes estimating income taxes on IRA distributions quite complicated.
As noted earlier, Canadians are legally entitled to obtain a U.S. casino tax rebate. The right to obtain a tax refund for U.S. taxes paid is explicitly stated in the U.S. Canada tax treaty. Most Canadian gamblers are unaware of this fact, and simply accept the gambling tax levied at the casino.
Of the Canadian gamblers who are aware of their U.S. Canada treaty rights, many of these eventually give up their attempt to obtain a casino tax rebate, as the bureaucracy of the Internal Service does a very good job of dissuading Canadians and other foreigners from successfully obtaining their legally entitled tax refunds.
Accountants for contractors are specifically available to cater to the special needs. They can show them different paths they can take before their move in the direction of freelancing. If they start working normally, then they come into the category of a sole trader. However, they would be missing out on the attributes that the other options that are available to them.
The rules of thumb and strategies we learned while accumulating are not effective or can even be harmful when retirement plan distributions begin. The scenario described above is just one of many potential scenarios regarding IRA distributions. Paying for a mortgage with IRA distributions may increase your taxes. Your charitable gifts may fatten the US Treasury rather than reduce your taxes. Expect to see your medical insurance and expenses and long-term care insurance deductions diminish once distributions are a part of retirement income. Today's retirees need to find a way to get funds out of an IRA without paying excessive taxes. There is not a one size fits all solution for all taxpayers. A qualified fee-only advisor should review the cash flow, income taxes, assets, liabilities, and other personal circumstances of prospective clients. This is not as easy as it might seem. Most advisors use packaged financial planning products primarily designed to sell products. It took the author an enormous effort to develop a program that will determine both the tax on distributions and to compare the current and future cost or benefit of various strategies. At the risk of sounding self-serving, our clients as well as other advisors tell us they have not found a program that quantifies the value of financial advice in such a clear and concise way.
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Frank Miller has a Debt Consolidation Blog & Finance, these are some of the articles: No Credit Consideration Loans In Three Steps You have full permission to reprint this article provided this box is kept unchanged.