Tax Bracket

My father-in-law is coming into a lot of money from selling stocks and would like to put it away for his grandchildren for educational purposes. He would like to receive a tax benefit, too. What are some strategies he should consider?You have several options for socking away education funds for grandchildren, says Glenn Woody of Financial Consultants Inc. The subject is far too involved and technical to treat exhaustively in this column, but Woody offers a few ideas to get you started:Uniform Gift To Minors Act Account: You can make a gift of any amount to such an account, which is established in the name of a minor with an adult as custodian.

WASHINGTON -- Congressional Republicans scrambled yesterday to ensure speedy approval in the House and Senate -- perhaps as soon as today -- of their $792 billion tax plan. At the same time, President Clinton reiterated his vow to veto it.In the final version of the compromise crafted by Republican House and Senate negotiators, the timing of the income tax-rate cuts was adjusted to give the earliest breaks to those at the bottom of the income scale.Taxpayers in the lowest tax bracket -- 15 percent -- would see a cut to 14.5 percent in 2001 and to 14 percent in 2003.

If only you didn't make so much money.Your mortgage rate would be lower. Your kids could get college grants instead of college loans. The tax man wouldn't dig so deep into your pockets.There are plenty of government breaks out there that can help you cut expenses, but it seems they all evaporate as soon as your annual income establishes a firm footing in the middle class.Well, financial advisers have some advice: Get over it.No matter how much you wish you could take advantage of the government perks for the less endowed, you're better off if you don't qualify.

Members of the Maryland Association of Certified Public Accountants are answering readers' tax questions through April 15.Q. I'm recently married and will be filing for the 1997 tax year with my husband for the first time. Is one compelled to file jointly and what are the advantages of doing so?A.You are not compelled to file jointly with your spouse. You may file separate returns. If you do so, your status would be married filing separately, not single.A married couple is usually better off filing a joint return.

As the fourth quarter begins, where should you invest your money? It's a no-brainer, really. Your best bet -- even if means tightening your belt some -- is to maximize contributions to a 401 (k) plan where you work.A recent survey revealed shocking results: 40 percent of eligible PTC working men and women do not have a 401(k).Who can have such a plan? What are its benefits?Employees who are 21 with over one year of service are eligible. Once your plan is established, you may defer up to 15 percent of your compensation to a maximum of $9,500.

WITH the Dow Jones industrial average blasting above 6,300 yesterday, to 64.6 percent above its Jan. 1, 1995, level -- but bond yields at eight-month lows -- should you buy bonds now?Despite their high prices and low yields, bonds remain a great hedge for your financial portfolio in the event of a stock market meltdown, or sharp correction, from this extraordinarily high level.The BCA Interest Rate Forecast is positive: "Bond market risk has fallen in the past couple of months. The sell-off we projected has been scaled back by weaker demand growth in the U.S. and setbacks in European and Japanese economic recoveries."

You often mention tax brackets in your columns. Can you please explain what they are? My gross income last year was $41,500, and my taxable income was $27,118.How do I figure out my tax bracket, and what are the practical implications of knowing my tax bracket?A tax bracket is another name for a tax rate. The federal government charges progressively higher tax rates on income. As your taxable income increases, so does the tax rate you pay on top dollars of earnings.Here's how it works: For the 1995 tax returns, there are five tax brackets: 15 percent, 28 percent, 31 percent, 36 percent and 39.6 percent.

Q: My husband and I are divorcing after 24 years of marriage. Our home is up for sale, and when it is sold, we will be dividing the proceeds.The balance owing on our land contract added to back taxes for the past two years comes to approximately $8,000. When these expenses are paid, I hope to be receiving approximately $50,000 as my share of the proceeds.I have talked to my bank trust officer, and he indicated that at the time I receive the proceeds, he will be willing to advise me on investments.

The buying panic continued on Wall Street yesterday as the Dow Jones industrial average surged 33.89 points and closed at a record 4,303.98. But as one local broker put it, "Let's not get carried away; we're just playing 'catch-up ball' after last year's miserable showing."In less than four months since New Year's Day, the Dow has climbed 469 points, or 12 percent, above its Jan. 1 level of 3,834.44.PICKING WINNERS: "Small-capitalization stocks rise at a rate consistently faster than other types of investment," says Marcus Robbins, president, Red Chip Review, a research service that analyzes 300 "small-cap" companies.

Plunging in the final hour, the Dow Jones industrial average sank 45.75 points yesterday, closing at 3,769.51.Checking back, I found that on Thanksgiving Day five years ago the Dow indicator stood at 2,675.55, and 10 years ago on "turkey day," the thick Sun and Evening Sun showed the blue-chip index at 1,220.30, about 2,550 points below yesterday's close.TURKEY & GRAVY: "One way to raise your workplace energy is by having five ounces of protein (fish, meat) at lunch to complement a carbohydrate (spaghetti, beans, potatoes, whole-grain bread)

Q. When investing in municipal bonds, how and why do you calculate the tax-equivalent yield? - H.E., via the Internet A. A municipal bond is a debt security issued by a state, municipality or county to finance its capital expenditures. It is exempt from federal taxes and from most state and local taxes. The tax-equivalent yield is the pretax yield that a taxable bond needs for its yield to equal to that of a tax-free municipal bond. "Munis usually make sense for investors in the 25 percent or higher tax brackets," said Mark Balasa, certified financial planner.

My wife and I are both retired, collecting approximately $35,000 a year on Social Security and one small pension. We have money in an IRA at the bank that we would like to start withdrawing. How much per year can we withdraw without paying an excessive amount of income tax? Do we have to pay federal income tax at the bank when withdrawing, or do we pay at the end of the year? Is there any way of not paying the tax by withdrawing smaller amounts? Do I pay the same amount of tax taking out a small amount as I do a large amount?

It's quite an exclusive club, Maryland's new millionaires' tax bracket. A little more than 6,000 households statewide qualify for the distinction - more than 40 percent of whom reside in Montgomery County. It's a group that includes a Fortune 500 executive in Potomac, an energy company CEO in Roland Park and wealthy retirees with bayside estates in St. Michaels. Throw in some developers in Howard County, a growing corps of black entrepreneurs in Prince George's County and certain small businesses statewide.

Legislators took a first step yesterday toward repealing Maryland's new computer services tax and replacing it with an income tax surcharge on millionaires, the most significant victory yet for business groups warning that the levy could destroy the state's high-tech economy. The Senate Budget and Taxation Committee voted 10-5 for the repeal plan, which also calls for cuts to transportation funding and to other state programs. Senate President Thomas V. Mike Miller praised the committee members for a "courageous vote" but predicted a "much more" contentious hearing before the tax-weary lawmakers in the full Senate.

A chance remark on a column about year-round tax savings has prompted a few skeptical, if not downright cynical, responses. I mentioned that my wife, Georgina, and I are in the 15 percent tax bracket, the second-lowest (brackets range from 10 percent to 35 percent). Many readers wanted to know how that could be, thinking we are resorting to tax trickery. "Hmm, let's see," began one e-mail. "You and your wife stash away lots in your pension plan and write off many expenses since you are self-employed.

Last month, I sold all the shares of a couple of stock mutual funds in my traditional individual retirement account and used the money to buy bonds for the IRA. That same day, I used some of my cash reserves to buy the exact number of shares of the same stock funds in a taxable account outside the IRA. While there are no tax consequences now, I figured the switch could save me quite a bit in taxes in the long run. I have since read a paper from a...

My daughter, Veronica, a director of curriculum development, is excited about a major freelance project that she will do in addition to her regular job. It will mean more money but, she also realizes, more taxes, including possibly having to make quarterly estimated payments. Ultimately, that might be the biggest long-range financial benefit of her additional work, the incentive for careful tax planning all year. It is something few Americans do, although it could save them hundreds if not thousands of dollars with little effort.

More employers are offering workers the option to save for retirement using a Roth 401(k), a hybrid between a regular 401(k) plan and a Roth IRA. Made permanent by Congress in 2006, the Roth 401(k) allows employees to make contributions with after-tax dollars. There's no tax deduction upfront, but the account grows tax-free. The payoff comes when it's time to use the money: The employee can make withdrawals during retirement tax-free, as long as he or she is 59 1/2 and has held the account for five years or more.

I read your article on the elimination of long-term capital-gains taxes for lower-bracket taxpayers from 2008 through 2010. My plan is to make withdrawals from my deductible IRA those three years to take advantage of this law. Do you agree? Sorry, but withdrawals from IRAs do not qualify for this tax break. Such withdrawals are considered ordinary income and not capital gains, even if the account has gains from the sale of securities such as stocks, bonds or mutual funds. The money withdrawn would be taxed at your tax bracket, the same as other ordinary income such as pay from work, plus generally a 10 percent penalty if you are under 59 1/2 . Likewise, withdrawals from other tax-deferred accounts such as 401(k)

There's never a convenient time for taxes. But for twentysomethings who are saving for retirement, paying tax on contributions now, rather than later, may be the best alternative. In August, President Bush signed the Pension Protection Act, which made permanent the option for employers to offer a Roth 401(k) or Roth 403(b). Like the Roth individual retirement account, around since 1997, contributions to a Roth 401(k) are made after taxes are taken out. Earnings and withdrawals in retirement are tax-free.