If you have graduated into a six figure income or higher, you have probably realized that a significant portion of your hard earned income goes to the government in the form of federal, state, and other payroll taxes. Many individuals, like yourself, who are in this income range struggle to find ways to decrease their tax liability. The constant changes in tax laws can make this a difficult task to accomplish without the guidance of a tax professional who has expert knowledge in the tax regulations and how to apply them on a case by case basis.
The following is a list of 5 tax laws that make tax planning complex and challenging for high income earners. Becoming familiar with this list of items and understanding how they may impact you and the overall amount of taxes you will pay, is the first step in creating a customized tax strategy that will work best for you and your family.
1. Personal Exemption Phase-out
Most taxpayers are allowed an exemption for themselves and additonal exemptions for each dependent claimed. The exemption amount for 2016 is $4,050. However, this exemption gets phase out once your income exceeds certain dollar amounts depending upon your filing status. Click here to see the phase out limits.
2. Limitation on Itemized Deductions
Taxpayers can elect to itemize deductions (write off their mortgage interest, real estate taxes, state income taxes, charitable contributions, etc.), however, you could be subject to a 3% reduction in your claimed deductions if your adjusted gross income exceeds specified amounts. Find out more information by clicking here.
3. Additional Hospital Insurance on high income earners
The employee portion of hospital insurance has increased by an additional 0.09% for taxpayers whose income exceeds certain thresholds. This tax is withheld once you exceed $200K in wages from your employer. Click here for more information.
4. Alternative Minimum Tax
5. Education tax credits may not be available to you.
There are two education tax credits aimed at offsetting the cost of higher education - American Tax Credit and the Lifetime Learning Credit. As of 2015, the American Tax Credit can be as high as $2,500.00 of a reduction of your tax liability, per student. The Lifetime Learning Credit is up to $2,000 per tax return. Both of these tax credits are phased out to zero based on certain income limits. Click here to see the income limits.
In summary, tax planning for high income taxpayers is critically important if you plan to have enough to save and to meet other financial demands. The tax rules discussed above are just a few of complexities you can face when trying to lower your tax liabilities, which makes it necessary to work with a Tax Advisor who can truly help you customize a tax strategy that works for you. Find out some questions you should ask a tax professional by clicking the button below:
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