Federal and State tax laws are a double edged sword! While they’re the number one business and individual expenses, they also create room for incentives, making it a win-win situation for governments, businesses, and individuals.
Miami is one of the best cities in the United States to live and do business in. Compared to other cities, it’s got one of the best tax environments for businesses and individuals. In this guide, we cover taxation in Miami in detail.
If you’re looking to venturing into real estate or stock markets while living in Miami, you’ll find this guide pretty helpful. So, let’s get to it!
Do investors have to file taxes?
Do investors have to file taxes, you ask? According to IRS guidelines, all income should be reported for the particular tax year. Income tax includes several sources of income, and investment income is one of them.
Examples of types of investments in the IRS’ list include mutual funds, bonds, stocks, bonds, and real estate. The basis for buying investments is to hold and sell in the future for capital gain. You can also buy them because of passive income.
Whatever your reason, IRS requires you to report this income when you file your tax returns. But, most importantly, IRS requires you to pay taxes from the investment proceeds—your profits from selling an investment or the passive income generated from it.
Often, investors dispose of their investments through brokers for quick sales and better deals. If you’re already an investor in any capacity, you’ll agree with us. In the United States, the law requires you to report the sale on a special form—form 1099-B, which you get from the broker.
This form is applicable when reporting sales income for any financial instrument in your possession. You should fill in the particulars of the sale, such as the quantity, type of investment, and sale value.
In addition, if you’ve sold different investment properties, e.g., different types of stocks, you should report each sale independently on separate forms 1099-B. Filling form 1099-B is the initial step before filing your tax returns.
The good thing is, IRS is flexible on how it allows reporting of income from forms 1099-B. So, when the time for tax filing comes, you can report each form 1099-B on your income tax return or sum them up.
How much do stock investors pay in taxes?
How much do stock investors pay in taxes? You could be asking. According to IRS, stock investors should pay a percentage of the capital gain from selling a stock or dividends. Proceeds from the stock sale are known as capital gains, while dividends are issued out of profits made by a company.
The usual capital gain tax rate is 0%, 15%, and 20% according to taxable income amount. However, the stocks’ capital gain tax rate can sometimes exceed the 20% rate to reach 25% and 28%. This depends on whether the stock is a section 1202 qualified small business stock or when the sale involves collectibles like coins and art.
That being said, an investor should pay 0% if the taxable income is less than $80,000, 15% if the taxable income is $80,000 or more but less than $441,450 for single, $496,600 for married filing jointly or qualifying widow (er), $469,050 for the head of household, or $248,300 for married filing separately.
According to the guidelines set by IRS, the 20% rate applies if your taxable income exceeds the limits set for a 15% capital gain rate. In addition, the taxable rate depends on how long you hold the stock, which brings us to the different types of capital gain taxes.
- Short-term capital gains tax: applies when the stocks are sold after a year or less.
- Long-term capital gains tax: applies when the stocks are sold after more than a year.
Normally, the tax rates are lower when you hold the stock for the long term. To that end, tax experts recommend buying and having stocks for more than a year to increase the gains and reduce the tax rate.
Like capital gains, dividends are also taxed using the same rates of 0%, 15%, and 20%. However, these rates apply to qualified dividends only and the amount of taxable income.
Are taxes high in Miami?
Miami offers one of the most favorable tax structures compared to other US cities. For example, the 2021 minimum combined sales tax rate is 7% for the State, County, and the City. Broken down, this is 0% Miami sales tax rate, 1% County sales tax rate, and 6% State sales tax rate.
Apart from sales and use taxes, other major taxes collected in Miami are intangible and corporate income taxes. According to the State laws, all corporations operating in Miami, Florida, are obligated to pay corporate tax. However, some corporations are usually exempted.
That being said, let’s break down the different types of taxes in Miami.
- Income Tax: Miami residents have no income tax obligation, explaining why the City has one of the lowest tax burdens in the United States. Nonetheless, residents have the federal income tax obligation.
- Estate Tax: Residents aren’t obligated to pay estate and inheritance taxes to the City or State authorities, helping lower the tax burden further.
- Property Taxes: The local government charges high investors taxes on property in Miami, making it among the highest in the United States. The good news is that there are a few exemptions like widows, widower senior citizens, and persons with disabilities.
- Corporate Taxes: Corporations registered in Miami are obligated to pay a corporate tax of 5.5%, whether operating in the City or elsewhere. This rule doesn’t apply to S corporations, sole proprietorships, and testamentary Trusts.
Taxation in Miami | Wrapping Up
This is only the sneak peek view of taxation in Miami. There’s still so much to know. However, what we’ve covered here suffices to get you started in investing in Miami. If you’re looking to invest in real estate or the stock markets, feel free to contact us.
