'Many Americans think less is more when it comes to income taxes. For them, owing as little as possible means they’ve beaten Uncle Sam.
But many times these filers have it backward. Instead, they should focus on when more can be less for their taxes.
Often, there’s just no way of reducing your taxes by getting into a lower tax bracket. When that’s the case, it sometimes makes sense to use the “headroom” you have in your existing top bracket.
The idea is to strategically accelerate income—if you can afford to pay some more taxes today—so you can reduce overall taxes. With tax-filing season here, now is a good time to think about such moves.
“The point is not just minimizing taxes today, but over your lifetime,” says Eric Bronnenkant, who is head of tax at Edelman Financial Engines.
o be sure, the idea of accelerating income violates the first rule of traditional tax planning, which is to defer taxes whenever possible. But there are reasons to rethink this rule now.
A major one is the growth of tax-favored retirement plans like traditional 401(k)s and IRAs as defined-benefit pensions have waned. These accounts require minimum withdrawals beginning at age 73 that start at about 4% and then rise.
When that happens, they shower recipients with taxable income they can’t avoid.
The payouts are taxed at ordinary income rates like wages, and if owners don’t drain the accounts, many heirs (other than spouses) will have to within 10 years. While surviving spouses can avoid the 10-year rule, their tax rates could rise because they’re no longer filing a joint return.'
https://archive.ph/QPogJ
https://www.boldin.com/ assists in such tax planning, and there is a spreadsheet at https://www.bogleheads.org/wiki/Retiree_Portfolio_Model.
'Many Americans think less is more when it comes to income taxes. For them, owing as little as possible means they’ve beaten Uncle Sam.
But many times these filers have it backward. Instead, they should focus on when more can be less for their taxes.
Often, there’s just no way of reducing your taxes by getting into a lower tax bracket. When that’s the case, it sometimes makes sense to use the “headroom” you have in your existing top bracket.
The idea is to strategically accelerate income—if you can afford to pay some more taxes today—so you can reduce overall taxes. With tax-filing season here, now is a good time to think about such moves.
“The point is not just minimizing taxes today, but over your lifetime,” says Eric Bronnenkant, who is head of tax at Edelman Financial Engines.
o be sure, the idea of accelerating income violates the first rule of traditional tax planning, which is to defer taxes whenever possible. But there are reasons to rethink this rule now.
A major one is the growth of tax-favored retirement plans like traditional 401(k)s and IRAs as defined-benefit pensions have waned. These accounts require minimum withdrawals beginning at age 73 that start at about 4% and then rise.
When that happens, they shower recipients with taxable income they can’t avoid.
The payouts are taxed at ordinary income rates like wages, and if owners don’t drain the accounts, many heirs (other than spouses) will have to within 10 years. While surviving spouses can avoid the 10-year rule, their tax rates could rise because they’re no longer filing a joint return.'