PROTECTING FROM HIGHER TAX RATES IN 2019
January 27, 2020 - Douglas Myser
Protecting from higher tax rates in 2019. Taking steps to defer your federal income tax bill is usually a good idea, especially if you expect to be in the same or lower tax bracket in future years. If that assumption pans out, making moves that lower your current year income will, at a minimum, put off the tax day of reckoning and leave you with more cash until the bill comes due. If your tax rate turns out to be lower in future years, deferring income into those years will cause the deferred amounts to be taxed at lower rates. The question is: Can you realistically expect the same or lower tax rates in future years ? Maybe not. The lower individual federal income tax rates ushered in the Tax Cuts and Jobs Act are already scheduled to expire at the end of 2025. Depending on the 2020 election outcome, they could be terminated much sooner. If that happens, the probable best case scenario would be a return to the pre Tax Cuts and Jobs Act deal, starting in 2021. The worst case scenario would include higher rates on ordinary income. And higher rates on dividends and long term capital gains too, which currently are taxed at )%, 15%, 18.8%, 20%, and 23.8%. Protecting from higher tax rates in 2019.
Other worst case possibilities include eliminating more write offs for individual taxpayers and subjecting all wages and self-employment income to the dreaded Social Security tax (6.2% withheld from employee paychecks 12.4% owed on self-employment income.) Under current law, the Social Security tax cuts out once 2020 wage or self employment income exceeds $137,500. The ultra worst case scenario is that most or all of these changes, and more, are imposed retroactively--starting with the 2020 tax year that will commence in just a few days. Protecting from higher tax rates in 2019.
Ceiling appreciated real estate for installment payments. Installment sales postpone the recognition of taxable gains until installment payments are actually received. Postponed gains will probably be taxed at the rates for the years they are recognized. If rates go up, installment sellers will be penalized.
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