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Friday, October 25, 2013

Taxes on Monthly income from Life Insurance Policy

I am planning on starting to draw a monthly income from a Life Insurance Policy that my father set up many years ago. It is an interesting first policy, so I will have to pay tax on the monthly amount. I can either have them take the tax amount out monthly from the amount as you would for payroll, or I can get the entire amount monthly, but will have to pay the tax when I file income taxes at the end of year
What would be my best option?

Answer :

I guess if I were in your shoes, then I’d pay the tax when I file income taxes at end of year.It’d be MUCH better offas long as your taxable income/taxable liability gets bigger. If you have them take the tax amount out monthly from the amount as you would for payroll, then this means , you’d pay tax on monthly income in advance and you’d lose cumulative interest income on each monthly tax payments paid in advance( you need to apply time value of money rule to estimate present value of monthly interest income accumulated on each monthly tax liability that yu pay in advance form Jan through November)On the contrary, if you get the entire amount monthly, but pay the tax when you file income taxes at end of year, then, this means you’d earn at least the cumulative interest income that yu’d lose as you pay tax in advance.

Visit Asktaxguru for Online tax help 

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