Dear Liz: President-elect Donald Trump’s proposed tariffs have me wondering if now is the time to purchase new kitchen appliances, something I’ve been putting off for a long time. If he goes through with his plans, I don’t know how long it will be before the new rates come into effect.
Answer: Tariffs of up to 100% on imported products could dramatically increase the cost of many consumer goods, including appliances and cars. But how, when and even if these tariffs will be imposed is still unclear.
Given the political uncertainties, it probably doesn’t make sense to proactively replace equipment or cars that are still in good condition. If you do plan to update, doing it sooner rather than later may save you some money.
Should this church pastor make a confession to the tax authorities?
Dear Liz: As a recent member of our church council, I just discovered that our church has not paid Social Security or Medicare taxes for our pastor. I checked with our pastor and he has not made any payments either. This has been going on for six years. How do we recover?
Answer: Clergy are generally exempt from having Social Security and Medicare taxes withheld from their wages, notes Mark Luscombe, principal analyst at Wolters Kluwer Tax & Accounting. However, clergy generally must pay self-employment taxes, including Social Security and Medicare, unless an exemption is approved by the IRS.
Typically, employers and employees each pay 7.65% of the employee’s wages to cover Social Security and Medicare taxes. Self-employed people typically have to pay both employer and employee shares, or a total of 15.3%.
If your pastor filed taxes as a self-employed person, he likely paid the applicable Social Security and Medicare taxes. However, if he hasn’t done so, he may owe a significant tax bill and should consider hiring a tax professional to help him amend his returns.
Which social security benefit? It depends
Dear Liz: I am 61 and retired. My husband recently passed away at the age of 61 and was still working at the time of his death. He’s always made more money than me. I was told that I can get Social Security after I turn 62 and that I can apply for survivor benefits at 67. Is this correct?
Answer: You can start receiving survivor benefits at age 60 and pension benefits as early as age 62. Most people should delay filing for Social Security benefits because an early start usually means a smaller lifetime payout. You are one of the exceptions, as you are allowed to switch between survivor benefits and your own benefit.
Because the survivor’s benefit is much larger than yours, you want to maximize your payout by not taking it early. This means that you must wait until you reach full retirement age to start. You can start your own benefit at the age of 62 and switch to a survivor’s benefit at the age of 67.
Starting early means you are subject to the income test until full retirement age. But if you’re not working, that’s a moot point.
Social Security is complicated, and the right claims strategy depends on the details of an individual’s situation. Consider using one of the paid Social Security claiming strategy sites, such as Maximize My Social Security or Social Security Solutions, to find the best approach.
If you inherit shares after the death of a parent, the cost basis resets
Dear Liz: I am the beneficiary of my father’s securities account. After his death, the brokerage firm closed his account and transferred all the shares to me into a new account. How do I know what the cost basis is for capital gains purposes if I sell the stock?
Answer: You use the value of the shares on the day of your father’s death as the new tax base. This is known as a “step up” in basis, because typically the fair market value at death is higher than the original basis, or what your father paid for the shares. Any increase in value that occurs during its lifetime will not be taxed, but you will be subject to capital gains tax on any increase in value that occurs after that date.
Liz Weston, Certified Financial Planner, is a personal finance columnist. Questions can be sent to her at 3940 Laurel Canyon Blvd., #238, Studio City, CA 91604, or by using the “Contact Us” form at asklizweston.com.