| Income is not treated equally under the tax code. The source of your income determines your tax rates and tax liability. Taxpayers benefit from the lowest rates available when they have diverse sources of income, like real estate, stocks, bonds, mutual funds, and other sources. The income that you receive from these investments is taxed at long-term capital gains rates, which are lower than federal income tax rates, if invested for more than 1 year. A careful tax planning strategy helps you estimate your tax liability by controlling the type of income, the character of the gain, and the tax rate of your income. For example, are you going to sell or close today, August 25 to realize a gain of $50,000 that will be taxed at the maximum 37% rate, ordinary rate, or wait to sell on August 26 or after to realize the same gain of $50,000 that will be taxed at the maximum rate of 20%, capital gain rate? Should you liquidate an asset or assets with lower fair market value (FMV) to be taxed at ordinary income tax rate in lieu of liquidating an asset with a higher FMV? Timing is critical. The capital gains and dividends tax rate on long-term gains is 20% for higher income taxpayers at the end of the 37% tax bracket. For any taxpayer in the 22%, 24%, 32% and 35% tax bracket, the capital gain tax rate is 15%. The rate is zero for taxpayers in the 10% and 12% tax brackets. An additional 3.8% medicare tax must be paid on such income by singles with over $200,000 in income and marrieds filing jointly with over $250,000. There is no tax liability on the interest earned when taxpayers invest in municipal bonds. Andrea and Donald have both the same income. However, because their timing and income sources are different, and everything else being equal, they have different tax liability. The average working taxpayer must pay income tax on salary or business income at ordinary income tax rates, which can be as high as 37%. The new tax law, The Tax Cuts and Jobs Act of 2017 (TCJA), changed the top corporate tax rate from 35% to one permanent flat rate of 21%. You could reduce your tax liability by proper tax planning strategy as individual or business owner? We offer FREE initial consultation!!! |
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