Identifying Types of Insurance Proceeds

Insurance proceeds are the funds or payments resulting from a covered claim or event. These include various scenarios, including life insurance benefits, health insurance reimbursements, casualty claims, and property settlements. Each scenario can take different forms. For example, you may receive proceeds from a property insurance claim for repairs or to replace a severely damaged property. Proceeds from various types of insurance settlements may include:

• Life insurance proceeds: Life insurance gives beneficiaries a death benefit to cover income gaps after losing a loved one.
• Disability insurance proceeds: The settlement from disability insurance serves as income replacement.
• Health insurance proceeds: These proceeds cover your medical expenses, which include surgeries, hospital stays, and prescription medication.
• Property insurance proceeds: Property insurance helps cover property damage or loss and includes homeowners or renters insurance.
• Business insurance proceeds: Much of this insurance type aims to cover a temporary loss of profit.

Life Insurance Proceeds

Both term and permanent life insurance proceeds are not classified as gross income, so beneficiaries are not obligated to report them. However, if the policyholder receives their death benefits while they are alive, like with a settlement, they may be liable to pay taxes. The interest you receive from these proceeds is also taxable, and how you will report this depends on the type of income document you receive.

Large estates may trigger federal or state estate taxes. For estate tax purposes, the life insurance proceeds often form part of the deceased person’s estate in these cases. This may change the nature of the payment and can trigger taxation.

Disability Insurance Proceeds

The proceeds from your disability insurance replace a portion of your income if you cannot fulfill employment obligations. Taxation depends on whether you paid premiums using your pre-tax or after-tax dollars. Regardless, you must report all proceeds from disability insurance as income. If your employer pays you when you are ill or injured, this forms part of your income.

Health Insurance Proceeds

Health insurance proceeds are not taxable unless you deduct medical expenses on your tax return. Receiving an insurance reimbursement for these expenses can invoke tax implications, whether you are on private or employer-sponsored health plans. The benefits you receive from long-term care insurance policies may be subject to certain conditions and limitations, but they are not taxable. Keeping records of all your insurance reimbursements and medical expenses for tax purposes may support your case to avoid taxation.

Property Insurance Proceeds

The Internal Revenue Service (IRS) excludes settlements for property loss or value from taxable incomes. The result is that insurance proceeds for property damage are not taxable unless the settlement includes compensation for punitive damages or emotional distress. You must report these as “other income” on Schedule 1, line 8z on Form 1040, under “Additional Income and Adjustments.”

Another exception is if the settlement you get exceeds the restoration cost, which classifies the proceeds as capital gains, opening it up to taxation. If you get a Form 1099 for your insurance proceeds, review the form to establish if it is accurate. Contact the issuer to correct any errors or discrepancies.

Business Insurance Proceeds

Your business insurance shields you against personal injury lawsuits and business losses like property damage. As long as the reimbursement you get from filing an insurance claim does not surpass the value of the loss, insurance proceeds are not taxable to a business. Casualty loss insurance proceeds for business property damage are not taxable either. If your insurance fails to cover the loss, you can likely deduct the loss against your business income.

Here are some other types of business insurance proceeds and whether you can claim them tax-free:

• Business interruption insurance: This insurance compensates for lost income and is often considered taxable income.
• Key person life insurance: When your business is the beneficiary of a key person life insurance policy, the proceeds are tax-free. However, the policy structure or other circumstances may change the nature of this settlement to see it as an income.
• Liability insurance: If the proceeds of your liability insurance compensate for a loss, it is often deductible as a business expense. As a result, those proceeds may be taxable.
• Employee benefits: In many cases, the insurance benefits for your employees are tax-deductible, and the employees receive these benefits tax-free.

How to Tell if Your Insurance Proceeds Are Taxable

Several general principles influence the potential taxation of your insurance proceeds. Keep all documents from your insurance company for your records, even if the proceeds are not taxable. Consult a professional to clarify whether you must file insurance proceeds with your income taxes.

• Capital vs. income: Generally, you can distinguish taxation based on capital versus income replacement. Insurance proceeds that replace lost income may be subject to income tax. Proceeds resulting from the capital loss, like property insurance payouts for damage, may not be subject to taxation.
• Deductibility and premiums: The premiums you pay for personal insurance, like disability, health, or life insurance, with your after-tax dollars will usually be tax-free. However, those you pay for with after-tax dollars, like employer-sponsored plans, may result in taxation.
• Legal judgment: If you receive proceeds resulting from legal judgments or settlements, these may also be liable for taxation. Factors that may impact this include the nature of your claim and whether it involves emotional distress or personal injury.

Manage Your Insurance Proceeds With Fort Pitt Capital Group

You can optimize your financial outcomes by understanding how your payout fits the relevant tax laws. You will also need to follow some specific accounting procedures, including the total amount of the proceeds and loss. Getting advice from a knowledgeable financial advisor and investment strategist on allocating your insurance proceeds ensures you prioritize your wealth preservation.

The knowledgeable team at Fort Pitt Capital Group can help. Our financial services include wealth management, insurance advisory, investment consulting, and more. For more information about our financial planning and portfolio management services, contact us online today, or call us at 1-800-471-5827.

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Written by: Mike Blehar | Founding Partner & Chief Growth Officer

At Fort Pitt Capital Group, we believe it’s never too early to start thinking of ways to save money on next year’s taxes. Beginning the process early can help you find strategies that will reduce the amount you pay. Then, you can implement your tax-saving strategy in 2022 and beyond.

What Is a Tax-Saving Strategy?

Taxes are a part of life for all adults, especially if you invest. But what if you could limit the amount you have to pay in taxes each year while still following a successful investment plan? That’s where tax-saving strategies come in.

A tax-saving strategy is any tactic that helps you reduce the amount of your income or investment return that is taxable. Various tax-saving methods help people like yourself get more from their money. A few of the most common tax-saving strategies include:

• Maintaining a diverse range of account types that each treat taxes differently.
• Investing in assets that carry tax benefits, like municipal bonds and mutual funds.
• Fueling your tax-efficient investments with funds from tax-efficient accounts.
• Avoiding frequent withdrawals on investments that yield taxable returns.
• Filing investment losses to count against taxable capital gains.

A Tax-Saving Strategy for Investors

Fort Pitt Capital Group has found a strategy to help you save if you have mutual funds. Click the video below to watch Fort Pitt Capital Group’s Mike Blehar explain a portfolio management strategy that can help you save taxes in the future. After viewing the video, read on to learn more about mutual fund taxes.

Understanding Mutual Fund Taxes

Each year, mutual funds must distribute all of their dividends and capital gains by December 31, regardless of whether the mutual fund makes money or not. It can be frustrating to receive a large tax bill when you earn little on the fund.

Regular income is taxed at a higher rate than capital gains and qualified dividends. Your tax rate depends on what type of distribution you receive. You may choose long- or short-term capital gains or different types of qualified dividends.

You have to pay taxes on mutual funds no matter how you take the distribution, whether in cash or by reinvesting in more shares. The fund sends a 1099-DIV to the Internal Revenue Service (IRS) at the end of the year. If the fund sells securities, you may also have to pay taxes on those transactions.

Even if you purchase fund shares right before the distribution, you still need to pay taxes on any gains made during the rest of the year before you bought the shares. Depending on the fund’s turnover rate, you may also get higher capital gains than if you waited until after distribution.

Tax-Saving Strategy Implementation

Fort Pitt Capital Group did a study earlier this year and discovered that mutual fund portfolios distributed nearly twice the capital gain distributions over ten years compared to a portfolio of individual securities. If you are utilizing mutual funds in a taxable account, you know how frustrating it can be some years to get a large tax bill even though the mutual funds returned very little. However, there is a way to remedy this! At Fort Pitt Capital Group, we can save our clients money by using individual securities in taxable accounts.

You can trust our team to find tax-saving strategies that work for you. Our taxes and portfolio management experience offers us insight into ways we can assist you with saving money in the long run on taxes. We can walk you through our approach, so you’ll understand why we recommend this action.

Ensure You Utilize Tax-Efficient Accounts

Using tax-efficient accounts for your investments is crucial to any effective tax-saving strategy. A tax-efficient account is any account that benefits from either tax deferral or complete tax exemption. When you use a tax-efficient account for investments, you’ll be able to deduct any investment contributions that come through the account. The deduction or deferral will reduce the taxes you pay when withdrawing from your investment.

Two of the most common tax-efficient accounts for investors are individual retirement accounts (IRAs) and 401(k)s. Any IRA contribution is tax-deductible, although federal regulations limit your investment amount. As for 401(k)s, your contribution occurs before taxes are taken from your paycheck, reducing your taxable income. Similar contribution limits apply to 401(k) accounts.

IRAs and 401(k)s are ripe with opportunities to practice and understand tax efficiency. They encourage tax-efficient practices before retirement. You’ll funnel money toward these accounts paycheck after paycheck, only withdrawing when you retire. The result is a prolonged window for tax-free or low-tax investing. Later in life, the money you invest now will become a consistent income source during retirement. With frequent transactions taking place, it’s wise to choose a tax-efficient account like an IRA or 401(k).

Why Choose Fort Pitt Capital Group?

Fort Pitt Capital Group has over 20 years of experience assisting people with their financial planning. We handle taxes, investing, and various other concerns. Our team of in-house financial advisors help with everything from private wealth management to individual financial advisory. We can also aid you with portfolio management and taxes.

When you select our services, you receive many benefits, including:

• Exceptional client service: We prioritize our clients. Keeping you informed remains our principal focus, and we always have time to talk with you.
• Thoughtful investment strategies: We use our knowledge and experience to tailor strategies to fit your needs. Everyone has different goals, and we help you achieve yours through smart strategizing.
• Enhanced transparency: You stay informed throughout the investment and planning process. We offer suggestions but won’t make changes without your approval. Everything we do is 100% transparent.
• Key internal knowledge: Everyone on our team fits together to offer you knowledgeable guidance across the board. We can handle portfolio management, tax-saving strategy, financial planning, and more. Our team relies on years of success to learn and apply lessons learned to your account.

Talk With an Advisor

Interested in receiving further guidance? Fort Pitt Capital Group can start you on the path toward greater tax efficiency. Read about our individual services and how we can help you. If you’d like to learn more about how this tax-saving strategy works, please contact our firm. We can do a complete analysis of your portfolio and let you know how to help save you taxes.

About the Author:

Mike Blehar
Founding Partner & Chief Growth Officer
Fort Pitt Capital Group, LLC
680 Andersen Drive, Pittsburgh, PA 15220
(412) 921-1822 | mblehar@orchid-ibex-388317.hostingersite.com

The post Tax-Saving Strategy for Investors appeared first on Fort Pitt Capital Group.

Follow these steps:

1. The first step to get the money back into the 529 Plan is to contact the plan provider and find out what their requirements are to recontribute funds back into the account. Each state and 529 Plan is different, so be sure to contact yours first.
2. Draft a letter of instruction to the 529 plan provider. This letter should include:
   • The account number and the name of the beneficiary
   • The amount you want to recontribute
   • A note that you want the payment to be characterized as a recontribution of a previously qualified withdrawal
   • Include the name of the institution and the date the refund was issued
   • Add the statement, “this recontribution is being made within 60 days of receiving the refund”
   • State the date and amount of the originally qualified withdrawal from this account and if the recontribution is covering a full or partial withdrawal
   • Include a copy of the refund statement that you received
3. Keep records of the date and the amount of the refund and remember you can only recontribute the amount of the refund
4. Send the check with the letter of instruction. This check should be sent by the actual account owner.  Also, yes, it should be a check and not an electronic transfer from your bank account.  By sending a check with the memo line stating “529 plan recontribution of 2020 refund” you will have a paper trail if needed.
5. Lastly, be sure to make a copy of everything you are sending for your records. You need to be sure that you meet the 60-day window, so you may want to send it certified mail or registered mail.  Also, be sure to follow up to make sure it was recontributed properly.

Failure to get these funds recontributed could result in taxes and penalties. If you have questions, you should consult your financial advisor.

The post How to Avoid Tax Penalties on Your 529 Refund appeared first on Fort Pitt Capital Group.

After a year of impressive returns in a strengthening bull market, we know that our clients are eager to file their 2019 tax returns. Like past years, custodians including Charles Schwab, Fidelity, TD Ameritrade, and U.S. Bancorp will mail individuals who haven’t enrolled in paperless delivery their important tax documents. But, before you file with Uncle Sam, we want to make sure that you know where your 1099 is and understand all the documents you should be receiving.

When can I access my 1099 and other important tax documents online?

Custodians will make client’s 1099s available for digital download from their online profiles in mid-February. This is typically faster than waiting for your paper copy to arrive in the mail, and it allows you to save the electronic copy in your records. If you haven’t established a profile with your custodian, please follow your custodian’s respective link below:

Charles Schwab: http://www.schwab.com/public/schwab/nn/pl_help/online_enrollment_help.html

Fidelity: https://www.fidelity.com/customer-service/faqs-managing-your-profile

TD Ameritrade:  https://www.tdameritrade.com/logon-help.page

When will I receive a hard copy of my 1099 in the mail?

Similar to online accessibility, your custodian will begin mailing out 1099s mid-February. If you’ve recently made a change to your mailing address, now is a good time to let your advisor know to ensure that your tax documents arrive at the proper destination.

What is a 1099-Q or 1099-R? In what situations do they apply to me?

If you contributed to or withdrew funds from a qualified education savings plan, such as a 529 or Coverdell, in 2019 you should be receiving a 1099-Q. A 1099-R will be generated if you withdrew funds from a retirement account (i.e., IRA, Pension, Annuity). Furthermore – if you chose to withhold taxes on your retirement distributions, this information will be reported on these documents as well.

What should I do if I receive a revised 1099?

If you receive a revised 1099, we urge you to consult with your tax professional and determine if you should file an amended tax return.  Custodians will issue revised 1099s beginning in late-February thru early-April. Because of this, we suggest waiting as long as possible to file your taxes to avoid a second filing.

Just be sure to have everything processed by the tax deadline, Wednesday, April 15th!

If you have any questions or concerns, please do not hesitate to reach out to your advisor or tax professional well before the deadline. Take care and happy filing!

Kaitlyn Haney, CFP®
Financial Advisor
Fort Pitt Capital Group, LLC
680 Andersen Drive, Pittsburgh, PA 15220
(412) 921-1822 | khaney@orchid-ibex-388317.hostingersite.com

Fort Pitt does not provide tax advice. We encourage you to contact your tax professional with any questions.

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