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What Are Year-End Investment Decisions?
Many of our Entergy clients have questions regarding tax planning and year-end investment decisions. Year-end investment decisions may sometimes result in substantial tax savings, while tax planning may allow you to control the timing and method by which you report your income and claim your deductions and credits. The basic strategy for year-end planning that we'd like to share with our Entergy clients all comes down to timing — timing your income so that it will be taxed at a lower rate, as well as timing your deductible expenses so that they may be claimed in years when you are in a higher tax bracket. In terms of investment planning, investing in capital assets may increase your ability to time the recognition of some of your income and may help you to take advantage of potentially lower-than-ordinary income tax rates. You have the flexibility to control when you recognize the income or loss on many types of investment assets. In most cases, you determine when to sell your capital assets, but we'd still like our Entergy clients to keep in mind that in some cases, shifting potential capital gain income to other taxpayers through gifting may be an appropriate strategy.
How Do You Use The Capital Gains Tax To Lower Your Taxes?
Our Entergy clients often ask us about using capital gains to lower taxes. Capital gains and losses are accorded special tax treatment. Currently, the top long-term capital gains tax rate is 20% (for most types of assets), while the top ordinary income tax rate is 37% — that's a 17% difference. It's important for our Entergy clients to remember that as a potential consequence, by converting ordinary income to long-term capital gain income, it may be possible to reduce your federal income tax liability.
Tip: Long-term capital gains are generally taxed at special capital gains tax rates of 0%, 15%, and 20% depending on your taxable income. The actual process of calculating the tax on long-term capital gains and qualified dividends is extremely complicated and depends on the amount of your net capital gains and qualified dividends and your taxable income.
In addition, the 3.8% net investment income tax applies to some or all of your net investment income (including capital gains) if your modified adjusted gross income exceeds $200,000 for single or head of household taxpayers, $250,000 for married filing jointly, or $125,000 for married filing separately.
Timing Your Capital Gain Recognition
If our Entergy clients make sure to carefully time when they sell capital assets, this may help to reduce their federal income tax liability. For example, if it's late in the year and you want to sell a capital asset, you can wait until January to sell it so that you realize your capital gain or loss next year (assuming that you have a calendar tax year). This strategy is particularly useful for our Entergy clients who are in a higher marginal tax bracket in the current year and expect to be in a lower one in the following year. Timing can also be important because capital gain income increases your adjusted gross income (AGI). The amount and availability of certain tax benefits may depend on the amount of your AGI. For example, the itemized deduction for medical expenses is available only to the extent that medical expenses exceed 7.5% of AGI.
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Plan Your Year-End Capital Gain And Loss Status
We also recommend that our Entergy clients plan the time when they recognize capital losses. For any of our clients from Entergy who expect to recognize a capital gain this year, you should review your portfolio for possible capital losses that can be used to offset the gains. For any of our Entergy clients who have any capital loss carryforwards, you should review your portfolio for capital gain opportunities to make use of such carryforwards. In general, net capital losses are deductible dollar-for-dollar against net capital gains. Excess losses are allowed to offset up to $3,000 ($1,500 for individuals filing married filing separate tax returns) of ordinary income per year. Losses over and above the limit may be carried forward indefinitely.
The following strategies may be appropriate:
- Sell capital gain property before the end of the year if you have already realized capital losses for the year that exceed the sum of any capital gains you have realized plus $3,000 ($1,500 for individuals filing married filing separate tax returns).
- For our Entergy clients who have gains for the year that exceed their losses, sell property with built-in losses to offset the excess gains.
- If your other allowable deductions for the year exceed your income, you should, to the extent possible, avoid realizing any further capital losses for the year.
- If you've held a capital asset for close to 12 months and want to sell it, wait awhile (if possible). You can take advantage of the lower long-term capital gains rates if you hold the asset for over 12 months before selling it.
How Do You Select Investments To Control Income?
You can select investments likely to produce ordinary income such as interest, or income that is taxed at reduced rates (certain qualifying dividends or long-term capital gains). You can also select investments likely to produce ordinary or capital losses. You can control when your investment earnings are taxed, bearing in mind that income distributions are generally not taxed until you receive them (assuming that you use the cash method of accounting). By our Entergy clients knowing the tax rules, they can lower their taxes.
What about Shifting Income?
It may be possible to shift potential capital gains to other taxpayers through gifts. For our Entergy clients who are in a higher tax bracket, you might transfer appreciated assets to relatives in lower tax brackets.
How does Entergy Nuclear Operations, Inc. determine the eligibility criteria for employees participating in the pension plan, and what specific conditions must be met for an employee to qualify for benefits under Appendix G of the Plan?
Eligibility Criteria for Pension Plan: Entergy Nuclear Operations, Inc. determines pension eligibility based on Vesting Service and age. Employees generally become 100% vested after five years of service or upon reaching age 61 while employed. Special provisions may apply to employees who participated in the Vermont Yankee Plan as of July 31, 2002(Entergy_Nuclear_Operati…).
What are the specific steps and necessary documentation required for an employee of Entergy Nuclear Operations, Inc. to commence their pension benefits once they reach retirement age, and how does this process differ for those with previous employment at other participating companies?
Commencing Pension Benefits: To commence pension benefits, an employee must file an application with the Entergy Pension Resource Center (EPRC). This includes providing necessary documentation, such as proof of age and employment history. Employees who have worked for other participating companies must account for service under prior employers, which may impact the pension calculation(Entergy_Nuclear_Operati…).
In what ways does Entergy Nuclear Operations, Inc. ensure that employees understand their rights under the Employee Retirement Income Security Act (ERISA), and what resources are available for employees seeking clarification on their pension benefits?
ERISA Rights and Resources: Entergy Nuclear Operations, Inc. ensures employees understand their rights under the Employee Retirement Income Security Act (ERISA) by providing access to the plan documents and offering assistance through the Entergy Pension Resource Center. Employees can request clarification on pension benefits by contacting EPRC(Entergy_Nuclear_Operati…).
How does the non-bargaining and bargaining employee classification at Entergy Nuclear Operations, Inc. impact the pension benefits available, and what should employees consider when planning for retirement in light of these classifications?
Impact of Non-Bargaining and Bargaining Classifications: The classification between non-bargaining and bargaining employees affects pension benefits. Non-bargaining employees are covered under Appendix G of the Plan, which may provide different accrual rates and benefit options compared to bargaining employees. These classifications impact retirement planning, as different rules may apply depending on the classification(Entergy_Nuclear_Operati…).
What provisions are in place at Entergy Nuclear Operations, Inc. for beneficiaries to receive benefits upon an employee's death, and how do these benefits differ based on whether the employee had already commenced their pension?
Death Benefits for Beneficiaries: In the event of an employee's death, the Entergy pension plan provides benefits to beneficiaries. If the employee has already commenced pension payments, the form of payment selected will determine the survivor benefits. If the employee passes away before starting pension benefits, the spouse may receive pre-retirement survivor benefits(Entergy_Nuclear_Operati…).
How does Entergy Nuclear Operations, Inc. calculate the normal retirement pension, and what factors play a crucial role in determining an employee's monthly benefit under Appendix G of the Plan?
Pension Calculation Factors: The normal retirement pension at Entergy Nuclear Operations, Inc. is calculated using a formula based on Average Earnings and years of Benefit Service. The formula includes percentages of earnings, capped at certain limits, and service years to determine the monthly pension benefit under Appendix G(Entergy_Nuclear_Operati…).
What unique considerations should employees of Entergy Nuclear Operations, Inc. keep in mind regarding service credits, particularly if they have accrued time under a prior employer's defined benefit plan?
Service Credits for Prior Employers: Employees with service under a prior employer's defined benefit plan may have their service credited toward the pension plan at Entergy Nuclear Operations, Inc. This includes specific provisions for employees from companies like Vermont Yankee. Service credits from prior employers may affect both vesting and benefit calculations(Entergy_Nuclear_Operati…).
How does Entergy Nuclear Operations, Inc. handle the transition of employees who transfer from covered employment with the potential for pension benefits, and what impact does this have on their accrued service time?
Impact of Employee Transfers on Pensions: If an employee transfers from covered employment (i.e., eligible for the pension plan) to a position not covered by the plan, their Benefit Service is frozen. However, Vesting Service continues to accrue as long as the employee remains with the company, and previous service may impact final pension benefits(Entergy_Nuclear_Operati…).
What specific contact methods are available for employees of Entergy Nuclear Operations, Inc. to reach the Entergy Pension Resource Center for assistance regarding their pension benefits, and what type of inquiries can the center effectively handle?
Contacting the Entergy Pension Resource Center: Employees can contact the Entergy Pension Resource Center (EPRC) for assistance with their pension benefits via phone at 1-855-523-3772 or online at EPRC Website. Inquiries can include questions about benefits, beneficiary designations, and how to commence pension payments(Entergy_Nuclear_Operati…).
In what scenarios might an employee's pension benefits at Entergy Nuclear Operations, Inc. be suspended, and what steps can be taken to appeal or rectify such situations once they occur?
Suspension of Pension Benefits: Pension benefits may be suspended if an employee is rehired after retirement and works more than 40 hours in a month. Employees who experience benefit suspensions can have their pension recalculated upon final retirement, with offsets for any benefits previously received(Entergy_Nuclear_Operati…).
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