Strategies fr Year-End Incme Tax Planning December 2015 Tax Rates and Brackets Unchanged The changes brught abut by the American Taxpayer Relief Act f 2012 ( ATRA ) cntinue t apply fr 2015 and 2016. Fr 2015 and 2016, the tp marginal incme tax rate remains 39.6% n taxable incme abve the threshlds listed in the belw chart based n filing status. The tp rate fr lng-term capital gains and qualified dividends remains at 20%. Tax rates 2015 & 2016 Ordinary incme 39.6% fr incme ver threshld levels 1 Alternative minimum tax 2 26% / 28% Interest Ordinary incme rates 20% fr incme ver threshld levels 1,3 Lng-term capital gains and qualifying dividends 15% 3 0% 3 Persnal exemptin phaseut (PEP) 4 Limitatins n deductins 4 Health care refrm increases Reinstated Reinstated 3.8% n investment incme 5 0.9% n earned incme 1. Fr taxpayers whse incme exceeds $464,850 fr married filing jintly, $439,000 fr head f husehld, $413,200 fr single filers and $232,425 fr married filing separately in 2015. ($466,950; $441,000; $415,050; $233,475, respectively, in 2016). 2. ATRA permanently extended AMT relief, retractively increasing the AMT exemptin amunts and prviding that the exemptin amunts will be indexed fr inflatin. 3. Fr taxpayers in the 10% r 15% marginal incme tax bracket, special 0% rate generally applies. Taxpayers in the 25%, 28% 33% r 35% tax brackets, a 15% maximum rate will generally apply. Taxpayers in the 39.6% tax bracket will be subject t a maximum rate f 20%. 4. Fr taxpayers whse incme exceeds $309,900 fr married filing jintly, $284,050 fr head f husehld, $258,250 fr single filers and $154,950 fr married filing separately in 2015. ($311,300; $285,350; $259,400; $155,650, respectively, in 2016). 5. 3.8% n unearned incme f taxpayers with incme abve $250,000 fr married filing jintly and $200,000 fr single filers. Surce: American Taxpayer Relief Act f 2012; Rev. Prc. 2014-61; Rev. Prc. 2015-53
The net investment incme tax ( NIIT ) als remains in effect fr 2015 and 2016. NIIT f 3.8%, effective fr years beginning after December 31, 2012, was put in place thrugh the cllabratin f the Health Care and Educatin Recnciliatin Act f 2010 and the Patient Prtectin and Affrdable Care Act. NIIT applies t the net investment incme f individuals with mdified AGI that exceeds $200,000 fr single filers and $250,000 fr married filing jintly. The chart belw summarizes incme subject t and exempt frm the NIIT. Incme subject t NIIT Dividends Taxable interest Gain frm sale f investments Annuity incme Passive ryalty incme Rents Other passive incme Incme exempt frm NIIT Wages Self-emplyment incme Active business incme Gain frm sale f active business Tax exempt interest Active ryalty Retirement plan distributins The limitatin n itemized deductins (ften referred t as phaseut f itemized deductins ) was reinstated by ATRA and remains in effect fr 2015 and 2016. Fr taxpayers subject t the phaseut, the ttal f their itemized deductins is reduced by the smaller f 3% f the amunt by which their adjusted grss incme ( AGI ) exceeds the threshld amunt r 80% f ttal itemized deductins. The persnal exemptin phaseut was als reinstated by ATRA and remains in effect fr 2015 and 2016. Under this phaseut, the ttal amunt f exemptins that can be claimed is reduced by 2% fr each $2,500 by which AGI exceeds the applicable threshld. The persnal exemptin amunt is $4,000 in 2015 and $4,050 in 2016. The net impact f these phaseuts is an increase f apprximately 1% in the effective marginal tax rates fr taxpayers in the upper brackets. Planning Opprtunities In light f the abve nted landscape, in rder t minimize yur tax bill fr 2015 and t plan fr future liabilities, cnsider the fllwing strategies: Cnsider deferring r accelerating incme and deductins depending n yur 2015 versus 2016 tax brackets. Certain deductins, like state taxes and real estate taxes (fr thse taxpayers nt subject t alternative minimum tax ( AMT )), can be paid and deducted in the current year even if they are due next year. Utilize yur tax lsses efficiently by ffsetting them against capital gains where apprpriate at year end. Where yur capital lsses exceed capital gains, they can ffset up t $3,000 f ther incme.
Maximize cntributins t qualified retirement plans t reduce expsure t bth regular tax and NIIT. Cnsider investments in annuities and life insurance t defer r even eliminate bth regular tax and NIIT. Cnsider the tax advantages f investing in municipal bnds versus crprate bnds. Alternative minimum tax planning: If yu anticipate being subject t AMT in 2015 but perhaps nt in 2016, cnsider whether yu might accelerate rdinary incme int 2015 that equalizes yur regular tax t yur AMT tax. Als cnsider deferring deductins (prperty taxes, state incme taxes) that wuld nt prvide any tax benefit in the current year but might result in a tax benefit next year. If yu d nt anticipate being subject t AMT in 2015, cnsider whether yu shuld accelerate the types f incme that rdinarily have negative AMT cnsequences such as incentive stck ptins. Als cnsider accelerating deductins (such as real estate tax payment r state tax payments) that wuld nt prvide the same benefit in a year where yu wuld be subject t AMT. Plan in 2015 t ptentially reduce 2016 expsure. Did yu have capital gains in 2015 fr which a large state tax liability wuld be paid in 2016 causing yu t be in r deeper in AMT? Cnsider prepaying all r a prtin f the state tax in 2015 t minimize AMT expsure. Cnsider transferring incme prducing assets t family members in a lwer incme tax bracket. Cnsider charitable planning at year-end. A higher tax envirnment ftentimes leads t lwer ut-f-pcket csts fr gifts t charity because f the higher tax savings. Cnsider utright gifts, a dnr advised fund, a private fundatin and/r charitable trusts. Als, cnsider dnatin f appreciated stck versus cash. Use f appreciated stck may help yu avid tax n the built-in gain in the stck while at the same time maximizing yur charitable deductin.
Advantages f Dnating Appreciated Stck vs. Cash Dnating appreciated stck t charity Dnating cash t charity Defer capital gain N capital gain benefit Charitable Remainder Trust Charitable Lead Trust N capital gain Directly t charitable institutin Dnr advised fund Private fundatin Example: $1 millin gift f stck with zer basis Example: $1 millin gift f cash Charitable gift $1,000,000 $1,000,000 Embedded capital gains tax liability (23.8%) (238,000) (0) Incme tax benefit (335,333) (335,333) Out-f-pcket cst f charitable gift $426,667* $664,667* * Assumes AGI f $5 millin. Analysis als includes impact f itemized deductin phaseut reinstated in 2013. Surce: CTC mycfo, LLC
Disclsure CTC mycfo is the brand name delivering investment advisry services thrugh CTC mycfo, LLC, an investment adviser registered with the U.S. Securities and Exchange Cmmissin, and a Cmmdity Trading Adviser registered with the Cmmdity Futures Trading Cmmissin ("CFTC"), and a member f the Natinal Futures Assciatin ("NFA"); trust, depsit and lan prducts and services thrugh BMO Harris Bank N.A., a natinal bank with trust pwers; and trust services thrugh BMO Delaware Trust Cmpany, a Delaware limited purpse trust cmpany. BMO Delaware Trust Cmpany ffers trust services nly, des nt ffer depsitry, financing r ther banking prducts, and is nt FDIC insured. Nt all prducts and services are available in every state and/r lcatin. Family Office Services are nt fiduciary services and are nt subject t the Investment Advisrs Act f 1940 r the rules prmulgated thereunder. Investment prducts and services: ARE NOT A DEPOSIT NOT INSURED BY THE FDIC OR ANY FEDERAL GOVERNMENT AGENCY NOT GUARANTEED BY ANY BANK MAY LOSE VALUE. This presentatin is fr infrmatinal purpses nly. The infrmatin prvided is fr the client s use and nt t be cnsidered as recmmendatins. Any discussins f specific securities r strategies are fr infrmatin purpses nly and shuld nt be cnsidered investment advice. Infrmatin has been btained frm surces we cnsider t be reliable, but we cannt guarantee the accuracy. This presentatin des nt cnstitute an ffer t sell r a slicitatin t buy any security r investment prduct. Any ffer t sell r slicitatin t buy an interest in any private security, investment prduct r fund may nly be made by receiving a cnfidential private ffering memrandum, prspectus, investment advisry agreement r similar dcument frm the investment manager, which describes the material terms and varius cnsideratins and risks relating t such security, investment prduct r fund. These materials are cnfidential and prprietary t CTC mycfo, LLC and prvided slely fr the use and benefit f the client r prspective client f CTC mycfo, LLC. This infrmatin cannt be used by any taxpayer fr the purpse f aviding tax penalties that may be impsed n the taxpayer. This infrmatin is being used t supprt the prmtin r marketing f the planning strategies discussed herein. CTC mycfo and its affiliates d nt prvide legal advice t clients. Yu shuld review yur particular circumstances with yur independent legal and tax advisrs.