Annuity transactions that cause tax-paying headaches: Tax Strategy Scan
January 1, 2020 by Andrew Shilling
Financial Planning’s weekly roundup of tax-related investment strategies and news your clients may be thinking about.
The ‘gotchas’ in annuity taxation
While income from an annuity is tax deferred, taxation on this financial product can be more complicated than what most clients think, writes a Forbes contributor. Among the misconceptions: companies sometimes assume they will be treated like individual taxpayers when buying an annuity to fund executive payouts; wealthy widows often purchase non-qualified variable annuities instead of mutual funds to defer income taxes on future investment gains; and business owners often spread out their capital gains tax by selling their business with an installment contract ahead of making a sale to a competitor. “Taxation depends on how the annuity is owned, and how distributions are made from the product,” he writes. “And if these details are ignored, there are hidden gotchas that can result in radically different tax outcomes,” according to the article.