Sunday, May 17, 2015

Seniors Need to Use Care in Deferring Income Into 2016

Tax Planning 101 says to defer income into the next year if you can, since it is better to pay a tax later than sooner. You get to keep the money in your account and can earn interest (good luck with that with today’s nonexistent interest rates – thank you Federal Reserve) or invest it for other gains and appreciation. An exception to that rule is if tax rates are going up – in that case, you might be better paying the tax in an earlier year at a lower rate.

Medicare surcharges are going up in 2018. Those surcharges are based on income earned in 2016. The higher rates will impact single seniors with incomes between $133,500 to $214,000, and married couples between $267,000 to $428,000. The rate increases will likely be as high as $1,000 for singles or $2,000 for joint filers.

Thus, senior taxpayers who are in or around those brackets should use care at the end of 2015 in trying to defer tax into 2016 – e.g., deciding whether to sell shares for a gain.To decide what works best, they will need to put pencil to paper to see what year yields the best overall result.

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