Unveiling Commonly Overlooked Income Sources and Tax Implications

If you're anything like most people, tackling taxes can sometimes feel like diving into a maze without a map. But fear not! Today, we're going to unravel the mystery of some financial jargon and shed light on those sources of income that might be hiding in that tax return of yours.

First up, let's talk about Capital Gains.

These can be either short-term or long-term gains depending on how many days you've

held onto that particular investment. If you’ve held that investments for more than 1 year

it can be considered as a long-term gain. Why does it matter? Taxes.

Did you know there are different tax rates for long-term and short-term gains? Yup, you could fall into the 0%, 15%, or 20% tax bracket on long-term gains while a short-term gain (held less than 1 year) would be taxed at your normal income tax rate.

Pro tip: Consider selling some losses on shares to offset gains and potentially lower your tax bill! This can be a little confusing, but well worth it once you learn how!

Now, onto Interest.

Whether it's money made from Checking account, Money Markets funds, CD's,

Treasury Bills, or that trusty High Yield Savings account, interest is considered ordinary

income and gets taxed at your ordinary income tax rate. These don’t qualify for capital

gain tax treatment no matter how long you have the asset. Bummer!

Pro-Tip: It may be wise to see if stashing these type of assets in an IRA or another tax

advantaged account? It could be a savvy move to help shield them from extra taxes.

Next on our list: Dividends.

The first question to find out is if these dividends are qualified or non-qualified. The distinction matters because qualified dividends might qualify for lower tax rates like a capital gain, which is 0%, 15%, or 20%. Knowing where you stand can make a big difference come tax season. Non-qualified dividends will be taxed as ordinary income not capital gains. Knowing the difference when owning the investment asset can be valuable for tax purposes on those!

Ah, Rental Income.

A landlord's bread and butter. Consider if you are depreciating your rental properties? If so, that depreciation could be helpful again those hefty tax bills by offsetting some of that rental income. Cha-ching! Depreciation doesn’t make sense for everyone, especially in certain years, but it may be beneficial to many landlords!

Last but not least, let's talk about Annuities and Pensions.

While these payments can be a sweet addition to your income, don't forget about taxes! These will be ordinary income as well. You should evaluate if you are withholding enough taxes from these payments, or will you be in for a surprise come tax time? It's crucial to consider these payments alongside your other sources of income when planning for taxes. Many forget their Pension, annuity and Social Security income when they evaluate how much their want to take out each year from their 401(k), IRA or Roth IRA.

Looking at all of them together is important! Your tax return holds many key items to your financial plan every year. Take a look and you might just uncover extra tax planning ideas that could save you a bundle on taxes.

In the wild world of finances, understanding where your money comes from and how it'staxed is like having a trusty compass to guide you through the maze of tax season. So, if you’d like help consult with a West Michigan financial planner who puts your interests first (that's what we call a fiduciary financial planner), and navigate your finances like a seasoned explorer.

You've got this!

Disclosures:

This is not considered tax advice. Seek counsel from a professional tax preparer.

All information is believed to be from reliable sources; however LPL Financial makes no

representation as to its completeness or accuracy. AI (artificial Intelligence) sourced

articles may be prone to error, due to the vast information they assemble from the

internet. Always confirm any questions or concerns you may have with an experienced

professional. Content in this material is for general information only and not intended to

provide specific advice or recommendations for any individual