Author: Arabian Media staff

Income can be earned through investments with capital in the form of capital gains, dividends, and interest. Each year, investors pay taxes on interest income from bonds, mutual funds, certificates of deposits (CDs), and demand deposit accounts. Some types of interest are fully taxable, while others are partially taxable. Key Takeaways Interest on bonds, mutual funds, CDs, and demand deposits of $10 or more is taxable.Taxable interest is taxed just like ordinary income.Payors must file Form 1099-INT and send a copy to the recipient by January 31 each year.Interest income must be documented on Schedule B of IRS Form 1040.…

Most employees in the U.S. use the pay-as-you-earn (PAYE) approach, where estimated income tax is withheld directly from each paycheck. This withholding is calculated based on information you provide to your employer on Form W-4. Your withholding determines how much income tax is deducted from your salary throughout the year. However, as life circumstances change, you may need to update your W-4 to ensure that the right amount of tax is being withheld. Key Takeaways W-4 withholding affects the amount of federal income tax deducted from your paycheck.Life changes, such as marriage, having children, or a second job, may require…

What Is a Solo 401(k)? You might assume that you don’t have access to a 401(k) plan if you’re a freelancer or an independent contractor but that isn’t the case. You don’t have to go without a tax-advantaged retirement savings plan. You can sign up for what’s called a solo 401(k) or a self-employed 401(k). Key Takeaways You’re eligible to open a solo 401(k) if you’re self-employed and don’t employ others.A couple running a business together also qualifies.You can contribute to your solo 401(k) as both employer and employee.You can choose between a traditional plan or a Roth plan. Each…

The Internal Revenue Service (IRS) knows it has a big problem. Called the tax gap, it is the spread between what the government thinks it should be collecting and what it collects. Some cheats fail to report income, while others knowingly take write-offs they’re not entitled to. For example, the government pays out billions of dollars annually in refundable earned income tax credits due to fraudulent claims. Threats of civil and criminal penalties are not enough to deter some people from cheating, so the IRS employs several ways to find these individuals.  Key Takeaways Threats of civil and criminal penalties…

A non-qualified deferred compensation (NQDC) plan allows a service provider to earn wages, bonuses, or other compensation in one year but receive the earnings—and defer the income tax on them—in a later year. Doing this provides income in the future (often after they’ve left the workforce), and may reduce the tax payable on the income if the person is in a lower tax bracket when the deferred compensation is received. Key Takeaways Non-qualified deferred compensation is compensation that has been earned by an employee, but not yet received from their employer.Non-qualified means they aren’t regulated by the Employee Retirement Income…

Taxable Income vs. Gross Income: An Overview Gross income includes all income that you receive from any possible source. Taxable income is the portion of your gross income that’s actually subject to taxation. Allowable deductions are subtracted from gross income to arrive at your taxable income. Key Takeaways Gross income is all income from all sources that isn’t specifically tax-exempt under the Internal Revenue Code.Taxable income starts with gross income, and then certain allowable deductions are subtracted to arrive at your adjusted gross income.Adjusted gross income then can be reduced by the standard deduction or itemized deductions for the final…

The qualifying widow(er) with dependent child tax filing status offers several tax benefits for individuals with a child who have lost a spouse. The tax breaks include a lower tax rate, a higher standard deduction, and potentially beneficial tax treatment of some investments. Key Takeaways Qualifying widow(er) status is a special tax filing status available to surviving spouses for two years following the year in which their spouse died.In general, this status allows a widow(er) with a dependent child to continue receiving the same tax rates for the married filing jointly status for two years following their spouse’s death if they…

You’ve left your job. What should you do with the 401(k) plan you’ve faithfully contributed to for years? Conventional wisdom says to roll it over into an individual retirement account (IRA). In many cases, that is the best course of action. But there are times when a rollover is not your smartest option. Let’s take a look at five of those situations and the rationale for keeping your 401(k)—or, if you’re a public or nonprofit employee, your 403(b) or 457 plan—in place at your now-former employer’s plan. Key Takeaways Leaving your 401(k) account with your employer can save on fees…

You can make withdrawals from your 401(k) at various times and in various sums, but is it a good idea to do so? Usually, the answer to that is no. Tax-deferred retirement plans, such as 401(k)s, are designed to provide income during retirement and not before. So in most cases, if you make any withdrawal and are younger than 59½, you’ll pay a 10% early withdrawal penalty in addition to income taxes on the amount you withdraw. Here is what you need to consider regarding withdrawals from your 401(k) while working and once you retire. Key Takeaways You can make…

The social and economic implications of an aging population are increasingly apparent in many industrialized nations. With people in North America, Western Europe, and Japan aging more rapidly than ever before, policymakers are confronted with several interrelated issues, including a decline in the working-age population, increased healthcare costs, unsustainable pension commitments, and changing demand drivers within the economy. These issues could significantly undermine the high living standard enjoyed in many advanced economies. Key Takeaways Many industrialized nations are realizing the effects of an aging population.Declines in the working-age population are resulting in a supply shortage of qualified workers.Nations with larger…