At some point, of course, the taxman must be paid; when the exclusion ratio
has captured all of the cost basis, it ends and all remaining income is taxed.
The exclusion ratio
is determined by dividing the amount the employee previously included in income (i.
Thus, the tax advantages of annuities (tax-deferral during accumulation, exclusion ratio
applied to withdrawals, tax-free exchanges, no required distributions if nonqualified) may take on greater appeal going forward.
This strategy will also serve to avoid the exclusion ratio
calculations for an IRA account with pre--and post-tax balances.
3) The investment in the contract to compute the exclusion ratio
was F'S basis in the property transferred.
And the exclusion ratio
of a payout annuity provides a tax advantage if the premium came from a taxable account.
This ruling concluded that: (1) F realized capital gain based on the difference between F's basis in the property and the annuity's PV; (2) this gain was reported ratably over F's life expectancy; (3) the investment in the contract to compute the exclusion ratio
was F's basis in the property transferred; (4) the excess of the property's FMV over the annuity's PV was a gift from F to S; and (5) the prorated capital gain reported annually was derived from the taxable portion of each payment.
The taxpayer may elect to calculate an exclusion ratio
that is basically a weighted-average of the old and new tables.
Therefore, each SPIA payment will also have an additional 10 percent penalty tax applied each year to the taxable amount based on the exclusion ratio
When B rolls to C, Company B will report the gain of $800,000 and C will calculate and adjust the exclusion ratio
to reflect the gain.
Generally, when annuity payments begin, a taxpayer will need to calculate an exclusion ratio
Income tax consequences to Bill Newsome Step 1 The exclusion ratio