Contact Us
Firm Overview
Why Legend Is Different
Client Types
Professional Biographies
Frequently & Rarely Asked Questions
Risk Spectrum
Investment Strategies
Second Opinion
Global Investment Pulse
Event Calendar
Press Center
Legend News
Clients Only
Career Opportunities
Directions
Newsletter Sign-up
Site Search
Site Map
Home
Tell A Friend About This Website
 
 
 
Informational Booklets   
Phone: (412) 635-9210
  (888) 236-5960
Connect With Legend:
Subscribe to me on YouTube

How To Manage Your Tax Brackets Now And Later


Do you know what tax bracket you're in?  Not knowing could stand in the way of your year-end tax planning in 2014.  In fact, you'll likely miss out on some unique tax-saving opportunities.

From a planning perspective, it's not just this year's tax bracket that counts.  It also matters what bracket you'll be in next year, the following year, and for several succeeding years.  After several recent tax law changes, the time horizon for tax planning easily can stretch from five to 15 years.

Let's start with some basic principles.  The federal tax system is based on a graduated rate structure, with seven brackets and corresponding tax rates: 10%, 15%, 25%, 28%, 33%, 35%, and a top rate of 39.6%. Once your income rises into any of these brackets, additional earnings for the year will be taxed at your top marginal rate--in other words, your tax bracket.

Consider a married couple filing jointly in 2014.  Every additional dollar of taxable income up to $18,150 is taxed at the 10% rate; between $18,151 and $73,800 at the 15% rate; between $73,801 and $148,850 at the 25% rate; and so on.  The bracket thresholds are lower for single filers, especially in the lowest brackets.  The IRS adjusts tax bracket amounts annually.

Tax bracket management involves stuffing as much taxable income as you can into the lower tax brackets. That requires projecting your annual taxable income before the end of the year.  Even a rough estimate can be a valuable guideline for year-end strategies.  Depending on the results, you might try to accelerate future taxable income into 2014 or defer some of what you earn into 2015.

For instance, if you expect to have big losses from business activities this year that could mean lower-than-normal taxable income, it might leave room for you to pull in some high-bracket income from 2015 on which you now can be taxed at a lower rate.  If you project you'll be in a higher tax bracket five to 15 years in the future--accelerating income now makes even more sense. 

One of the best tax bracket management methods is to realize capital gains from selling investments at a profit.  Under current law, the maximum tax rate on net long-term capital gain is only 15% for everyone except those in the 39.6% tax bracket--and the 20% you have to pay then is still a pretty good deal. These rates also apply to most dividends.

Even better, the tax law provides a 0% tax rate on long-term capital gains and most dividends for taxpayers in the two lowest tax brackets of 10% and 15%.  This means that the portion of your long-term capital gains and qualified dividends falling within the 10% and 15% brackets is taxed at the 0% rate. This creates a unique tax-saving opportunity for investors at year-end.

Another possibility is to convert funds in traditional IRAs to a Roth IRA in a year in which you expect to be in a low tax bracket.  This minimizes your liability on the conversion tax--the amount you convert is normally taxed as ordinary income--and sets you up for future tax-free payouts from the Roth. 

Note that such tax planning strategies can't be implemented in a vacuum.  Your plan should take into account related items such as the Pease and PEP (personal exemption phaseout) rules.  The Pease rule reduces most itemized deductions for high-income taxpayers, while the PEP rule provides similar reductions for personal exemptions.  For 2014, the thresholds for those reductions are $254,200 of adjusted gross income (AGI) for single filers and $305,050 for joint filers. 

Another complication is the 3.8% net investment income (NII) tax for investors.  The tax applies to the lesser of NII or the amount by which modified adjusted gross income (MAGI) exceeds $200,000 for single filers and $250,000 for joint filers.  The accompanying chart provides a bird's-eye view of the applicable thresholds in 2014.

Suffice to say, you have your work cut out for you as year-end approaches.  However, with professional guidance, you should be able to develop a plan accounting for the current year and your personal time horizon.  Don't let these tax-saving opportunities go by the board.



INDEX
  • Key Components Of A Post-Divorce Estate Plan
  • Lending Money? Watch Your Tax Step
  • Watch Out For ''Grandparent Scams''
  • Tune Into The Tax Break For NUA
  • How You Can Manage Risk Aversion
  • When To Disclaim An Inherited IRA
  • IRS Reveals The ''Dirty Dozen'' Tax Scams For '17
  • Timely Tax Angles To Dividends
  • 7 Financial Steps Forward In A Second Marriage
  • IRS Applies IRA Rollover Limit To Coverdell ESAs
  • Seek The Comfort Of A Pet Trust
  • Mutual Fund Sell Downs And Other Unintended Consequenses For Investors:
  • What's The Truth About Probate?
  • Britain Votes To Leave The European Union, Surprising The World
  • Five Big Tax Penalties To Avoid At All Costs
  • 5 Reasons To Amend Your Estate Plan
  • Top Court Mandates 401(k) Fee Duty
  • Turning Up The HEET For Education
  • Saving For Private Or Prep School? A Tax-Smart Way
  • Here Are 6 Common Roth IRA Mistakes To Avoid
  • IRS Zeroes In On Dirty Tax Scams In 2015
  • Combine Investment And Tax Benefits In 529 Plans
  • Want To Get Your Business Noticed By The News Media?
  • Learn The Ins And Outs Of Education Tax Breaks
  • Locked Out Of A Roth IRA? Go In Through Back Door
  • How To Manage Your Tax Brackets Now And Later
  • Fill Up Tax Brackets To The Brim
  • Why Roth IRAs Are Still Red-Hot
  • Want To Get A Copy Of Your Credit Report? It's Free!
  • 5 Tips That Can Help Get Your Kids Into College
  • Reminders On Your Beneficiary Choices
  • Enter The Five Dimensions Of Federal Income Taxes
  • How Did The Federal Government Shutdown Affect The Economy?
  • SLATs Fit Through The Cracks In Estate Plans
  • The Bypass Trust: Not Pronounced Dead Quite Yet
  • When Do You Need An Appraisal?
  • 7 Major Tax Changes In The Fiscal Cliff Law
  • What Is Safe For You To Put Into A Safe Deposit Box?
  • Dig Deep Into ''Treasure Assets''
  • It's A Question Of Proper Balance
  • Tough Talk On Hardship Withdrawals
  • Stock Option Rules After Job Loss
  • Don't Put Mid-Year Moves On Hold
  • Which Retirement Funds Should You Withdraw First?
  • Is The Federal Reserve Risking Hyperinflation?
  • A Common Error In Powers Of Attorney
  • When Is Life Insurance A Sensible Solution?
  • 5 Excellent Tax Blogs And Websites
  • Knowhow On Year-End Tax Planning
  • A Once-In-A-Lifetime Estate Tax Choice
  • Set Up Your Trust To ''Fail'' On Purpose
  • Charitable Rollovers: There's Still Time
  • 7 Reasons To Update Your Financial Plan
  • Website Matches Volunteers With Non-Profits In Need
  • Trust Protector Is Useful, But Little-Known Solution
  • Tax Tips When You Acquire Software
  • Not All ETFs Are Tax-Efficient Anymore
  • The Delicate Dynamics Of China-U.S. Economic Policy
  • U.S. Government Bailouts Have A Mixed Record
  • Planning Your Retirement Using Stock Options
  • What Historically Follows Severe Economic Crises
  • Despite The Global Crisis, The World Is Getting Better
  • Will The New Silicon Valley Transform The Economy?
  • What A Difference A Year Makes In Ten-Year Returns
  • Now's A Time To Recall Financial Planning Basics
  • The Importance Of Year-Round Tax Planning
  • Federal Estate Tax Exemption... Going Up!
  • Court Ruling Limits Fee Deductions For Trusts
  • Not All Variable Annuities Have High Fees
  • Are You Putting Too Much Money Back Into Your Business
  • Credit Crunch Places Focus On Rating Agencies
  • Find An Expert In Almost Anything On The Internet
  • Beware Of Social Security Identity Theft
  • Regulatory Guidelines Update
  • Succession Planning For Solo Businesses
  • Energy Systems Scale and Timeline
  • The Oil Patch Profit Squeeze
  • Free Credit Reports Available Online
  • Don't Forget About Roth 401(k)
  • Understanding the Importance of a Fiduciary Standard
  • Emerging Market Food Consumption Growth Equals Rising Prices
  • Emerging Market Food Consumption Growth Equals Rising Prices
  • Timber As A Liquid Investment
  • Emerging Market Food Consumption Growth Equals Rising Prices
  • Ethanol: Salvation or Panacea?
  • Timber Facts
  • Bank Loan Funds - A Primer
  • A Primer On Managed Futures
  • REITS: A Very Good Portfolio Diversifier, But Should You Invest In Them?
  • Does Investing Internationally Still Diversify Your Portfolio?
  • Another Way To View The Current Valuation Of REIT Sector
  • Understanding Risk-Preparing For The Unseen
  • What Is Shorting Expense?
  • How Dangerous Is A Dollar Crash?
  • How Volatile Can The Stock Market Be?
  • Too Many ''Phish'' In The Sea
  • GMO 7-Year Asset Class Return Forecast Is Bleak
  • The Case For Industrial Metals
  • Identity Theft In The New Year
  • Ways To Improve The Score
  • Know The Score
  • Total Credit Market Debt (All Sectors) As % Of U.S. GDP
  • To Reinvest Or Not To Reinvest
  • Why Not Alternative Fixed Income Investments?
  • Just How Expensive Is The Market?
  • Beware of Brokerage Firms' Misconduct
  • Identity Theft : Correct Those Credit Reporting Errors
  • Risk-Controlled Investing
  • Q & A With Robert Arnott
  • Identity Theft : Applying For Credit? Better Check Your Credit Report First
  • Identity Theft: Everyday Prevention
  • Identity Theft: Help Is On Its Way
  • Identity Theft: Tips to Protect Yourself
  • Identity Theft: What Documents Should You Shred or Store?
  • Identity Theft : Don't Fall For That E-Mail!
  • Identity Theft : One More Reason To Protect Your Credit
  • Identity Theft: A Note About Social Security Numbers
  • What Do Rising Interest Rates Mean For Money Market Yields?
  • Section 529 Plans Are Popular But Not The Only Way To Go
  • The Importance Of Commodities In A Portfolio
  • A Tale Of Two Hedges
  • Bank Loan Funds: A Great Fixed Income Investment As Interest Rates Rise
  • REITs: A Great Diversification Investment
  • What Is Risk?
  • How To Find A Great Financial Advisor?
  • Is It Time To Find A New Financial Advisor?
  • Year-End Tax Planning Can Help Generate High Return On Investment
  • 4 Steps To A More Secure Investment Portfolio For Your Retirement
  • Traditional Investing May Decrease Your Retirement Lifestyle
  • Understanding Deflation
  • Tax Issues To Consider When Buying A Long-Term-Care Policy
  • Investing In Times Of Uncertainty And Risk: The Importance Of Diversification
  • Evaluating The Quality Of A Company's Earnings
  • Yesterday's Great Companies
  • 2001 Tax Relief Act Changes Education Planning
  • A Retirement Plan Primer After The 2001 Tax Act
  • Beware Of Common Home Repair Scams
  • Custodial Accounts: One Way To Make Gifts To Children
  • Estate Taxes To Be Reduced Then Repealed In 2010
  • Faulty IRA Conversions Can Lead To Tax Penalties
  • Many Individuals Pay Private Mortgage Insurance Beyond When It Is Necessary
  • Rethinking Estate Planning
  • Retirement Plan Contribution Limit Changes
  • Shopping For A Bank Account That Pays The Highest Possible Rate Of Interest
  • Your Medical File Report May Need A Check-Up
  • Do It Yourself Tax Preparers Watch Out: Tax Answers From IRS Centers Oftentimes Are Incorrect And/Or Insufficient
  • Five Tips For Preventing Thefts From Your Checking Account
  • Home Office Deductions: Hoops To Jump Through
  • Income Tax Effect On Single And Married Taxpayers
  • Income Tax Planning For Investments
  • Property Tax Challenges Should Not Be Overlooked
  • The IRS Will Follow Your Wealth To The Ends Of The Earth
  • When Do You Need Life Insurance
  • Year-End Tax Defferal Planning
  • Is Your 401(k) Plan A Failure?



  • ©2017 Legend Financial Advisors, Inc.®. All rights reserved.