You had talked to me about an annuity to help eliminate tax consequences. I want to give you example. If I have a $240,000.00 profit and I put that entire $240,000.00 in an annuity do I pay ordinary taxes on that money the year of the profit or when I take that money out of the annuity. We are an S corp.
Country/State/Province of question: Illinois
I have asked you answered
Dear Friend, Hello and welcome,
From what I gather from your question, kindly note that the tax on the withdrawals / payments of annuities would depend whether you made contributions from pre-tax or after-tax dollars.
I quote from the IRS -------
"The pension or annuity payments that you receive are fully taxable if you have no cost in the contract because any of the following situations apply: -->You did not contribute anything or are not considered to have contributed anything for the pension or annuity Your employer did not withhold contributions from your salary, or You received all of your contributions (your basis) tax free in prior years
If you contributed after-tax dollars to your pension or annuity, your pension payments are partially taxable. You will not pay tax on the part of the payment that represents a return of the after-tax amount you paid.
If you receive pension or annuity payments before age 59 1/2, you may be subject to an additional 10% tax on early distributions. The additional tax does not apply to any part of a distribution that is tax free. However there are some exceptions.
Kindly refer http://www.irs.gov/taxtopics/tc410.html
Coming to the core of your question, I believe that the contributions are from pre-tax dollars and hence the payments would be fully taxable.
Hope this helps.. You may use "CONTINUE CONVERSATION" to revert with additional queries if you have. Rate this answer ONLY IF you are done with this and if this helps and satisfies you.
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This would be an annuity that we have have in the corporation. The Corp would own the annuity.
Dear Friend,Ok.. In that case, please note that S Corp is a non-natural Person.Section 72(u)(1) provides that "if any annuity contract is held by a person who is not a natural person:(A) Such contract shall not be treated as an annuity contract for purposes of [the Internal Revenue Code] . . . (other than sub chapter L), and(B) The income on the contract for any taxable year of the policyholder shall be treated as ordinary income received or accrued by the owner during such taxable year."So, the income / profit would become taxable in a given particular taxable year.Hope this helps.. You may use "CONTINUE CONVERSATION" to revert with additional queries if you have. Rate this answer ONLY IF you are done with this and if this helps and satisfies you.Warm Regards,
Graduated in law with Emphasis on Finance and have have been working in financial sector for over 8