If you’re not entirely familiar with the term, it’s the process by which you make moves NOW (before year-end) that can pay off in significant savings by the time we actually fill out your tax returns for you in the winter or spring.
Believe it or not, you can do many (MANY) things to help — and they have to be addressed before December 31st.
So, to get your wheels cranking (and now that we’re past the October 15th extension deadline), I wanted to give you some information.
But before I get there, I also want to address those of you who did NOT have us prepare your taxes this past year — or those who may have good friends who did not.
Whether through neglect, not keeping up with tax code changes, or simple caffeine deprivation, your 2013 tax returns may not have been everything you would have hoped. If that’s the case, let us fix them, even now.
And THEN, we can take a look at this …
Lillian Turner -Bowman Discloses The Starting Point For Tax Planning
“Worry often gives a small thing a big shadow.” – Swedish Proverb
As a trusted New York/New Jersey metro tax firm, the very first thing we would do with any client who wants to get ahead of their tax bill is to first figure out what their tax bill would actually be, if all things remain the same.
While there are a lot of variables that come into play, we can get a good grasp of things by looking at the tax brackets. We’re still waiting for Congress to finalize many 2014 tax laws (an annual exercise this time of year), but the seven ordinary income tax rates are the same, starting at 10 percent and topping out at 39.6 percent.
And the IRS inflation adjustments last fall told us what income ranges will be taxed at those various rates. And, so you don’t have to go searching, here they are in the table below.
|Tax Rate||Single||Head of Household||Married Filing Jointly
or Surviving Spouse
|Married Filing Separately|
|10%||Up to $9,075||Up to $12,950||Up to $18,150||Up to $9,075|
|39.6%||$406,751 or more||$432,201 or more||$457,601 or more||$228,801 or more|
Keep this handy, as it WILL be useful in the process of planning ahead.
Remember, even if your annual salary falls in the 39.6 percent bracket, that doesn’t actually mean that you pay that rate on every dollar you earn.
This is because the U.S. tax system is what is known as “progressive”. This means that you pay the top rate, or whatever bracket your income tops out at, on the “last” dollar you earn. The rest of your money is taxed at the lesser rates leading up to your top tax bracket.
So every federal taxpayer pays 10 percent on the first $9,075 of taxable income that he or she receives. That’s $907.50. Then we pay the 15 percent rate on our earnings that fall into that tax bracket and so on, until all our money is taxed at the proper rate.
These tax calculations mean that while your income may be in the 39.6 bracket, your “effective tax rate” will be less.
All of these considerations go into what moves we make, and when we make them, when we create a tax plan for clients.
And it’s no surprise that wealthier taxpayers also have to worry about some added taxes.
There’s the 3.8 percent Net Investment Income Tax, or NIIT, as well as the additional 0.9 percent Medicare payroll tax on top of the 1.45 percent all of us already have withheld from our paychecks.
These added taxes are applied if you make more than $200,000 as a single filer or $250,000 as a married couple filing jointly.
All these considerations are why it’s better to start thinking about your 2014 taxes now, instead of next April.
Which is why, it’s a very good idea to send me an email or give us a call: (718) 953-6455
Let’s get started on getting your 2014 taxes as low as legally and ethically possible, shall we?
To more of what’s yours, in your pocket…
Lillian Turner -Bowman
Lillian’s Professional Services