Dear Liz: President-elect Donald Trump’s proposed tariffs have me wondering if now is the time to purchase new kitchen appliances, something I have long delayed doing. If he follows through on his plans, I don’t know how long it would be before the new tariffs take 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 or even whether these tariffs will be imposed is still unclear.
Given the political uncertainties, it probably doesn’t make sense to proactively replace appliances or cars that are still in good working order. If you’re planning to update anyway, however, doing so sooner rather than later may save you some money.
Does this church pastor need to confess to the IRS?
Dear Liz: As a recent member of our church board, I just discovered our church hasn’t been paying Social Security or Medicare taxes for our pastor. I checked with our pastor and he hasn’t been making 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 for Wolters Kluwer Tax & Accounting. However, clergy typically must pay self-employment taxes, which include Social Security and Medicare, unless an exemption has been approved by the IRS.
Normally, employers and employees each pay 7.65% of the employee’s wages to cover Social Security and Medicare taxes. Self-employed people typically must pay both the employer and employee shares, or a total of 15.3%.
If your pastor has been filing taxes as a self-employed person, then he probably has been paying the appropriate Social Security and Medicare taxes. If he hasn’t, however, he may owe a substantial tax bill and should consider hiring a tax pro to help him amend his returns.
Which Social Security benefit? It depends
Dear Liz: I am 61 and retired. My husband recently died at age 61 and he was still working at the time of his death. He’s always made more money than I did. I’ve been told that I can start getting Social Security after I turn 62 and when I turn 67 I can apply for survivor benefits. Is this correct?
Answer: You can start survivor benefits as early as age 60 and retirement benefits as early as age 62. Most people should delay their applications for Social Security benefits, because an early start typically means a smaller lifetime payout. You’re one of the exceptions since you’re allowed to switch between survivor benefits and your own.
Because the survivor benefit is much larger than your own, you’ll want to maximize your payout by not taking it early. That means waiting to start until your full retirement age. You can start your own benefit at 62 and switch to survivor benefits at 67.
An early start means being subject to the earnings test until full retirement age. If you’re not working, though, that’s a moot point.
Social Security is complicated and the right claiming 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.
Inheriting stocks after a parent’s death resets cost basis
Dear Liz: I am a beneficiary of my father’s brokerage account. Upon his death, the brokerage company closed his account and transferred all of the equities to me in a new account. How will I know the cost basis for capital gains purposes when I sell the stocks?
Answer: You will use the value of the stocks on the day of your father’s death as the new tax basis. This is known as a “step up” in basis, since typically the fair market value at death is higher than the original basis, or what your dad paid for the stocks. Any appreciation that occurred during his lifetime won’t be taxed, but you would be subject to capital gains tax on any appreciation that occurs after that date.
Liz Weston, Certified Financial Planner, is a personal finance columnist. Questions may be sent to her at 3940 Laurel Canyon Blvd., No. 238, Studio City, CA 91604, or by using the “Contact” form at asklizweston.com.