of Two Couples
always, savvy planning in the last quarter
of the year can pay off in lower taxes
next year when you file your return. Some
tax planning is fundamental: most people
will benefit by accelerating tax deductions
into 2014, while deferring income into
2015. Yet, there is now a distinct divide
between taxpayers reporting high income
and all other Americans. Generally speaking,
as a result of recent legislation, if
your annual income is over $200,000 you
must cope with far more tax complexity
than other taxpayers face.
1: Wendy and Victor Taylor have $120,000
of income this year, before any deductions.
They are in the 25% federal income tax
bracket, so tax deductions will save them
25 cents on the dollar and they'll owe
25 cents per dollar on any additional
income they'll report, up to the top of
the 25% tax bracket. The Taylors will
owe 15% tax on qualified dividends (most
dividends are qualified) from stocks and
stock funds as well as 15% on long-term
2: Sharon and Rick Palmer have combined
taxable income that runs over $600,000
per year, which puts them into the top
39.6% tax bracket this year. (That rate
applies to married couples with taxable
income over $457,600 in 2014.) As top
bracket taxpayers, the Palmers owe 20%
on qualified dividends and long-term gains.
Palmers also may owe a 3.8% net investment
income tax (NUT), sometimes called a Medicare
surtax, because their modified adjusted
gross income (MAGI) is over $250,000 on
a joint tax return. This couple also will
lose some tax benefits from their exemptions
and itemized deductions because their
AGI is over $305,050 this year. Moreover,
the Palmers will owe an extra 0.9% in
payroll tax on earned income over $250,000.
income thresholds will vary for single
filers and for those who choose another
filing status but the principle is constant.
High-income taxpayers have to deal with
more tax code provisions and larger tax
payments. All taxpayers can benefit from
year-end planning, but those who fall
into any of the "high-income"
categories in today's tax law have the
most to gain from timely actions.
2014, many high income taxpayers were
flabbergasted to see how much they owed
in tax on their 2013 returns, versus their
2012 tax obligation. The new wrinkles
that have been added to the tax code have
made a huge difference for many people.
Forethought and planning could have saved
substantial amounts. It's too late now
to save on your 2013 tax bill but you
still havetime.until December 31, to take
actions that will reduce the tax you'll
owe for 2014.
Source: November 2014 AICPA Client