News and Commentary

Avoiding Tax Traps in Your Financial Plan By Robert Mark Weiss, CFA

The income you earn can come from various sources, including employment wages, business income, investment returns, and even the lottery, if you are so lucky. As you receive money, it is important to recognize what you are required to report to the IRS and the amounts that are subject to federal taxes (and sometimes state and local taxes as well.) Understanding these concepts can help you plan for tax efficiency throughout your life and enable you to pass those savings onto your heirs after you are gone.

Earnings you receive as an employee, an independent contractor or a business owner are subject to federal taxes at rates as high as 37 percent, based on your filing status and your modified adjusted gross income (MAGI). What you may be surprised to learn is that unemployment compensation you receive when you are out of work and looking for a new job generally is also considered taxable income. In addition, you will be subject to tax on any amount of debt cancelled for less than the amount you owe, perhaps because you negotiated a payment plan on an outstanding credit card balance or medical bills. Finally, those lottery winnings you were lucky to collect are treated like gambling proceeds and are treated as taxable income.

For many people, income tax on earnings is levied at both the federal and state levels. However, if you live in one of nine states without a state income tax, you can keep more of the money you earn. Those states include Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming.

Property you receive as a gift or inheritance is not subject to tax on the federal level. However, you are required to pay federal tax on income and/or dividends generated by the property gifted to you (i.e. rental real estate or stock), as well as the gains you recognize when you sell that property. Moreover, if you receive the gift of an inherited IRA from anyone other than your spouse, you will be required to withdraw and pay taxes on all the savings from that account within 10 years of the original owner’s death.

When you make a gift to another individual, a gift tax return may be required when the gifted asset’s value is higher than the annual gift tax exclusion, which is $17,000 per recipient in 2023 (or $34,000 per recipient for gifts made by married couples filing joint tax returns.) Gifts made between spouses are not taxable, regardless of the gift’s value.

Also exempt from taxes are life insurance proceeds paid to a beneficiary after the policy holder’s death as well as disability benefits you receive from a policy you own and for which you paid the premiums. Additionally, federal law provides an tax exemption for a portion of the capital gain you realize from the sale of a primary residence you lived in for at least two of the past five years. The exemption is limited to $250,000 for single taxpayers, or $500,000 for married couples filing joint tax returns.

It is important to regularly review your financial circumstances and your exposure to federal and state taxes to avoid any surprise liabilities you may owe to the government. Doing so will allow you the time to implement tax-efficient strategies before the federal tax filing deadline.

About the Author: Robert Mark Weiss, CFA, is a regional director and financial planner with Provenance Wealth Advisors, an Independent Registered Investment Advisor affiliated with Berkowitz Pollack Brant Advisors + CPAs, and a registered representative with Raymond James Financial Services. For more information, call (941) 308-1126 or email

Provenance Wealth Advisors (PWA), 515 E. Las Olas Blvd., Ft. Lauderdale, FL 33301 (954) 712-8888.

Securities offered through Raymond James Financial Services, Inc., Member FINRA/SIPC. Raymond James is not affiliated with and does not endorse the opinions or services of Berkowitz Pollack Brant Advisors + CPAs. PWA is not a registered broker/dealer and is independent of Raymond James Financial Services. Investment Advisory and Financial Planning Services are offered through Raymond James Financial Services Advisors, Inc., and Provenance Wealth Advisors, a Registered Investment Advisor.

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of the advisors of PWA and not necessarily those of Raymond James. The information contained in this report does not purport to be a complete description of the developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Investments mentioned may not be suitable for all investors.

You should discuss any tax or legal matters with the appropriate professional. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Please note that changes in tax laws may occur at any time and may have a substantial impact on each person’s situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters.

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Updated on April 6, 2023