Planning that will minimize your taxes is an important part of your overall financial plan. Tax strategies work best as a part of ongoing portfolio monitoring that leads to a reduced tax bill in April every year. Astute investors don't leave this for a few hurried weeks at the end of the year.
Keys to knowledgeable tax planning include knowing your different types of income and how each is taxed. Harvesting tax losses by selling underperforming investments, investing in tax-exempt securities, maximizing tax-advantaged retirement savings plans and making the right choices for your charitable donations can also be important factors.
This section on tax and financial planning is a very handy reference guide both during the tax season and when you're planning for it. The guide contains tax brackets, updated Social Security information, tax equivalent yields, historical returns of various investment classes and much more.
Year-End Considerations
While year-round tax planning is important, you may find extra benefits by gathering all your tax-related facts as the year ends. You may, for example, have a clearer picture of your capital gains and losses, as many mutual fund companies issue distribution estimates by mid-December. The end of the year is a fine time to:
Examine your portfolio's asset allocation
Rebalance your portfolio, if warranted
Assess holdings (Are they performing as expected?)
Add up tax-loss harvesting possibilities
Max out contributions to 401(k)s or other tax-advantaged retirement accounts
Make last-minute charitable donations
Pay deductible taxes for 2010 early, if it helps reduce adjusted gross income
If the alternative minimum tax applies to you, take AMT-appropriate actions
Investors should consult a tax professional about their specific situation.
Income Tax Rates
Taxable income is income after all deductions, including either itemized deductions or the standard deduction, and exemptions.
Note: For 2009 and 2010, the Making Work Pay provision of the American Recovery and Reinvestment Act will provide a refundable tax credit of up to $400 for working individuals and $800 for married taxpayers filing joint returns. This tax credit will be calculated at a rate of 6.2% of earned income and will phase out for taxpayers with adjusted gross incomes in excess of $75,000 or $150,000 for married couples filing jointly.
Married Taxpayer Joint/Surviving Spouse
Taxable Income
Pay
Percentage of Excess
Of Amount Above
Less than $16,700
N/A
10%
$0
16,700 – 67,900
$1,670
15
16,700
67,900 – 137,050
9,350
25
67,900
137,050 – 208,850
26,637.50
28
137,050
208,850 – 372,950
46,741.50
33
208,850
More than 372,250
100,894.50
35
372,950
Single Taxpayer
Taxable Income
Pay
Percentage of Excess
Of Amount Above
Less than $8,350
N/A
10%
$0
8,350 – 33,950
$835
15
8,350
33,950 – 82,250
4,675
25
33,950
82,250 – 171,550
16,750
28
82,250
171,550 – 372,950
41,754
33
171,550
More than 372,950
108,216
35
372,950
Head of Household
Taxable Income
Pay
Percentage of Excess
Of Amount Above
Less than $11,950
N/A
10%
0
11,950 – 45,500
1195
15
11,950
45,500 – 117,450
6,227.50
25
45,500
117,450 – 190,200
24,215
28
117,450
190,200 – 372,950
44,585
33
190,200
More than 372,950
104,892
35
372,950
Personal and Dependency Exemptions
Exemptions per person:
$3,650
Standard Deductions*
Single Head of Household Joint *Extra Deduction if Blind or over 65 Single Head of Household
$5,700 8,350 11,400
1,400 1,100
Personal Exemption Phase-Out
Single
$166,800 – 289,300
Head of Household
208,500 – 331,000
Joint
250,200 – 372,700
Child Tax Credit: $1,000 Per Eligible Child This exemption is phased out for individuals with income in excess of $75,000, married couples with income in excess of $110,000 and married individuals filing separately with income in excess of $55,000.
Kiddie Tax Rules The Kiddie Tax rules require the unearned income of a child or young adult be taxed at the greater of the child's or parents' marginal tax bracket once the unearned income exceeds $1,900. Under the Kiddie Tax rules, the first $950 in unearned income is not subject to tax. The next $950 of unearned income is taxed at the child's rate (typically 10%). Then, any unearned income of more than $1,900 is taxed at the parents' marginal rate. The Kiddie Tax rules apply to unearned income of the following:
A child under age 18,
An 18-year-old whose unearned income does not exceed one-half of his or her support, and
A 19- to 23-year-old full-time student whose income does not exceed one-half of his or her support.
Income Tax Rates: Corporations
Taxable Income
Pay
Percentage of Excess
Of Amount Above
Less than $50,000
$0
15%
$0
50,001 – 75,000
7,500
25
50,000
75,001 – 100,000
13,750.00
34
75,000
100,001 – 335,000
22,250
39
100,000
335,001 – 10,000,000
113,900
34
335,000
10,000,001 – 15,000,000
3,400,000
35
10,000,000
15,000,001 – 18,333,333
5,150,000
38
15,000,000
More than 18,333,333
0
35
0
Corporate Dividend Exclusion Corporations are eligible for a 70% dividend exclusion on dividends received from domestic corporations whose stock was held for more than 45 days.
Individual Dividend Rates
Maximum Rate
Rate for Qualified Dividends*
Taxpayers Above the 15% Bracket
35%
15%
Taxpayers in the 15% Bracket and Below
15%
0%
*"Qualified dividends" generally means dividends received during 2009 from domestic corporations and qualified foreign corporations. The investor must own the stock for more than 60 days during the 120-day period beginning 60 days before the ex-dividend date. These periods are doubled for preferred securities.
Description of Capital Gains Tax Rates
Holding Period
Maximum Rate
Rate for Qualified Capital Gains**
Assets Helf One Year or Less
35%
35%
Assets Held More than One Year and Sold by Individuals in the 25% Tax Bracket or Above
15%
15%
Assets Held More than One Year and Sold by Individuals in the 15% Tax Bracket or Below
5%
0%
*"Qualified capital gains" refers to gains realized after May 5, 2003. **The maximum rate on qualified five-year gains has effectively been eliminated for capital gains realized after May 5, 2003.
Individual Retirement Accounts
Traditional IRA: Deductability of Contributions
Status
Adjusted Gross Income
Deduction
Married Filing Jointly
$0 – 89,000 89,001 – 109,000 More than 109,000
$5,000 Maximum Partial None
Single
$0 – 55,000 55,001 – 65,000 More than 65,000
$5,000 Maximum Partial None
For Noncovered Spouse*
$0 – 166,000 166,001 – 176,000 More than 176,000
$5,000 Maximum Partial None
*Applies to individuals whose spouses are covered by a workplace plan but are not covered themselves.
Roth IRA: Eligibility of Contributions Contributions made to a Roth IRA are not deductible, unlike contributions made to a traditional IRA, and there is no age restriction on making contributions. An individual may contribute up to $5,000 to the Roth IRA, subject to income phase-out limits.
Status
Adjusted Gross Income
Deduction
Married
$0 – 166,000 $166,001 – 176,000 More than 176,000
$5,000 Maximum Partial None
Single
$0 – 105,000 105,001 – 120,000 More than 120,000
$5,000 Maximum Partial None
Roth IRA Rollover
Status
Adjusted Gross Income
Deduction
Married
$0 – 100,000 More than 100,000
Eligible Not Eligible
Single
$0 – 100,000 More than 100,000
Eligible Not Eligible
A traditional IRA may be rolled over (or simply converted) into a Roth IRA if adjusted gross income is not more than $100,000. (This applies to both single and joint filers.) In 2010, there will be no income limit for conversions.
Catch-Up Contributions If you have either a traditional or a Roth IRA and attain age 50 or older during the tax year, an additional $1,000 may be contributed.
Social Security, Medicare and Self-Employment Taxes
For 2009, you will pay Social Security and/or self-employment tax on your wages up to $106,800. For wages more than $106,800, you will pay only the Medicare portion of the tax. Self-employed individuals are allowed an income tax deduction for 50% of the self-employment tax.
Social Security
OASDI
Medicare
Total
Employees
6.20%
1.45%
7.65%
Self-Employed
12.40%
2.90%
15.30%
Social Security Earnings Test
Worker Age
62–before FRA
Attain FRA in 2009*
Full Retirement Age
Limit
$14,160
$37,680
No Limit
*Period before the month you attain FRA.
Income above the $14,160 limit is lost at the rate of $1 for every $2 earned. $1 is lost for every $3 above the $37,680 limit.
Monthly Social Security Benefits at Full Retirement Age To receive an estimate of your Social Security benefits, contact the Social Security Administration at 800-772-1213.
Your Age in 2009
Who Receives Benefits
Your Earnings of $50,000
Your Earnings of $106,800 and Up
66*
You Spouse
$1,653 826
$2,323 1,161
65
You Spouse
1,661 830
2,346 1,173
64
You Spouse
1,667 833
2,336 1,183
63
You Spouse
1,700 850
2,426 1,213
62
You Spouse
1,675 837
2,403 1,201
61
You Spouse
1,677 838
2,417 1,208
55
You Spouse
1,685 847
2,456 1,228
50
You Spouse
1,170 855
2,477 1,238
*For people born in 1942, the FRA is 65 and 10 months.
Trust and Estate Income Tax Rates
Taxable Income
Pay
Percentage of Excess
Of Amount Above
Not more than $2,300
N/A
15%
$0
2,300 – 5,350
$345
25
2,300
5,350 – 8,200
1,107.50
28
5,350
8,200 – 11,150
1,905.50
33
8,200
More than 11,150
2,879
35
11,150
Estate Tax Schedule: Taxable Estate and Tax before Credit
More Than
But Not More Than
Pay
Plus %
On Excess More Than
$0
$10,000
$0
18%
$0
10,000
20,000
1,800
20
10,000
20,000
40,000
3,800
22
20,000
40,000
60,000
8,200
24
40,000
60,000
80,000
13,000
26
60,000
80,000
100,000
18,200
28
80,000
100,000
150,000
23,800
30
100,000
150,000
250,000
38,800
32
150,000
250,000
500,000
70,800
34
250,000
500,000
750,000
155,800
37
500,000
750,000
1,000,000
248,300
39
750,000
1,000,000
1,250,000
345,800
41
1,000,000
1,250,000
1,500,000
488,300
43
1,250,000
1,500,000
2,000,000
555,800
45
1,500,000
2,000,000
–
780,800
45
2,000,000
Estate Tax Credit In 2002, the applicable credit amount began to gradually increase and will continue until estate taxes are totally repealed in 2010. In 2009, the applicable exclusion amount is $3,500,000.
Tax Credit
$1,455,800
Equivalent Estate
$3,500,000
Lifetime Gift Tax Credit
2009 and Later
$1,000,000 (Not Indexed)
Annual Exclusion for Gifts
2009
$13,000
Financial Planning Tables
Uniform Lifetime Table For the majority of IRA participants, the following table is used for determining a participant's required minimum distributions (RMDs). There is an exception when a spousal beneficiary is more than 10 years younger than the participant and is the sole beneficiary on January 1. In this case, a different table is used. To calculate your RMD, first find the age you will turn in 2009 and the corresponding applicable divisor. Then divide the prior year-end balance of your IRA account by the divisor. The resulting number is the dollar figure you will need to remove from your IRA to meet your RMD for the current year.
For example, if you are now 82, your applicable divisor is 17.1. If the balance in your IRA as of December 31 of last year was $235,000, divide that amount by 17.1. The result is $13,742.69. This is the amount of your RMD for the current year.
Note: RMDs have been suspended for the tax year 2009 for participants and beneficiaries.
Age
Applicable Divisor
Age
Applicable Divisor
Age
Applicable Divisor
70
27.4
86
14.1
102
5.5
71
27.4
87
13.4
103
5.2
72
25.6
88
12.7
104
4.9
73
24.7
89
12
105
4.5
74
23.8
90
11.4
106
4.2
75
22.9
91
10.8
107
3.9
76
22
92
10.2
108
3.7
77
21.2
93
9.6
109
3.4
78
20.3
94
9.1
110
3.1
79
19.5
95
8.6
111
2.9
80
18.7
96
8.1
112
2.6
81
17.9
97
7.6
113
2.4
82
17.1
98
7.1
114
2.1
83
16.3
99
6.7
115+
1.9
84
15.5
100
6.3
85
14.8
101
5.9
Taxable Yield Equivalents
Tax-Exempt Yields
15%
25%
28%
33%
35%
4.00%
4.71%
5.33%
5.56%
5.97%
6.15%
4.5
5.29
6.00
6.25
6.72
6.92
5.0
5.88
6.67
6.94
7.46
7.69
5.5
6.47
7.33
7.64
8.21
8.46
6.0
7.06
8.00
8.33
8.96
9.23
6.5
7.65
8.67
9.03
9.70
10.00
7.0
8.24
9.33
9.72
10.45
10.77
7.5
8.82
10.00
10.42
11.19
11.54
8.0
9.41
10.67
11.11
11.94
12.31
Present Value of a Lump Sum What if you know you will need $10,000 accumulated 10 years from now? How much money do you need to invest today at an average interest rate of 8% to obtain your goal? Looking at the table below, go to 10 years and then across to 8%. You see that $0.463 invested today at 8% should yield $1 in 10 years. Since you want $10,000, multiply $0.463 by $10,000 to arrive at $4,630.
Years
5%
6%
8%
10%
12%
10
0.614
0.558
0.463
0.386
0.322
20
0.377
0.312
0.215
0.149
0.104
30
0.231
0.174
0.099
0.057
0.033
40
0.142
0.097
0.046
0.022
0.011
Future Value of a Lump Sum If you invest $10,000 at an interest rate of 8%, how much will your investment be worth in 10 years? By referring to the table, you find that $1 invested today at 8% would grow to $2.159 in 10 years. Since you invested $10,000, multiply $2.159 by $10,000, giving you $21,590.
Years
5%
6%
8%
10%
12%
10
12.578
13.181
14.487
15.937
17.549
20
33.066
36.786
45.762
57.275
72.052
30
66.439
79.058
113.283
164.494
241.333
40
120.8
154.762
259.057
442.593
767.091
The information provided in these web pages is based on internal and external sources believed reliable; however, the accuracy and completeness of the information is not guaranteed and the figures may have changed since the time of printing. Examples are hypothetical illustrations and not intended to reflect the actual performance of any particular security. Please consult your tax advisor for questions relating to your individual situation.
Raymond James financial advisors may only conduct business with residents of the states and/or jurisdictions for which they are properly registered. Therefore, a response to a request for information may be delayed. Please note that not all of the investments and services mentioned are available in every state. Investors outside of the United States are subject to securities and tax regulations within their applicable jurisdictions that are not addressed on this site. Contact your local Raymond James office for information and availability.
