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2/16 Taxes Case Study

We had our very first case study of the semester this past Thursday as we focused on our new semester topic: taxes. We welcomed Mr. Kenneth Price from Per Stirling back to campus as we tackled three different scenarios with confusing tax implications. Read below for a full recap of the event along with a copy of the case studies we looked at.



Paying Taxes Across States

  • Texas has no state income tax, so June would not need to file a tax return for Texas

  • The amount of Wisconsin’s state tax depends on whether you are a resident, part-resident, or non-resident

    • If you are a resident, you fill out Form 1

    • Non-residents and part-residents fill out Form 1-NR

    • June would be considered a part-resident

  • In Texas, a car is not taxed as property

    • Only real property (ex. House, land) are taxed as property

    • June would not have to worry about paying property taxes on her car

  • Athletes, and presumably traveling musicians as well, have to pay taxes in every state they compete/perform in

RSU Compensation

  • Caleb does not own any stock until it vests

    • The vesting only occurs if Caleb is still employed at the company

  • Once the stock vests, the value of Caleb’s equity will be taxed as ordinary income (he will need to report on W-2)

    • If Caleb sells the stock in the future, then depending on when he sells, he will owe taxes on any gains (either at the short term or long term capital gains rate)

  • Caleb is free to sell the stock at any time after vesting

    • Most advisors would recommend diversification, which can involve selling shares

Dividend Reinvestment

  • In 401(k), you don’t get taxed on dividends

    • You pay all taxes when you withdraw at ordinary income rates

  • By the same principle, Roth IRA dividends are never taxed

  • In a brokerage account, ‘qualified dividends’ are taxed at the capital gains rate

    • ‘Ordinary dividends’ are taxed at the ordinary income rate

  • With dividends and automatic reinvestment, you cannot have the taxable amount withheld

    • You will have to budget to have the correct amount in taxes available come tax time



 
 
 

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