Tax Issues for Higher-Income Individuals

November 7th, 2016

We know that you have worked hard for your money and would like to reap the benefits to the greatest extent possible. Your ultimate goal is to sustain a successful wealth-building strategy while avoiding unnecessary and expensive tax consequences. We are interested in helping you achieve these objectives.

For the last few years, there has been talk of major tax reform that would place an increased tax burden on higher income individuals. Some budget proposals include revenue raisers with increased taxes on high-income individuals and new taxes on foreign earnings of U.S. multinational firms. The so-called “Buffet Rule,” which would impose a minimum tax rate of 30 percent on adjusted gross income (AGI) over $1 million, is again being touted as an option, along with another increase in the top effective capital gains and dividends rate.

Although it is uncertain when or if tax reform will be enacted, it is wise to weigh your options carefully with higher tax rates looming on the horizon. Higher income individuals like you must carefully structure your financial transactions in order to minimize your tax burden.

Some of the issues that may impact your tax planning strategy for 2015 include:

  • your marginal tax rate;
  • personal exemption and itemized deduction phaseouts;
  • additional 0.9 percent Medicare tax on wages and self-employment income over threshold amounts;
  • net investment income tax of 3.8 percent for taxpayers with modified AGI exceeding threshold amounts;
  • the capital gain rate of 20 percent for taxpayers in the highest tax bracket;
  • a decreased gain exclusion (from 100 percent to 50 percent) for small business stock acquired in 2015 or later and held for more than 5 years;
  • foreign account disclosure and reporting requirements and related enforcement penalties;
  • in-service rollovers to designated Roth accounts without the imposition of a 10-percent additional tax on early distributions;
  • unless retroactively extended by Congress, the exclusion from income of  IRA distributions to charity of up to $100,000 is not available for 2015;
  • strict rules about deducting passive activity losses (PALs); and
  • alternative minimum tax (AMT).

As you can see, the more complex issues faced by higher-income individuals create a challenging planning environment for the 2016 tax filing season. We would like to meet with you to discuss the options that are best suited to meet your personal financial goals while minimizing your tax liability.

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