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Daniel R. Cuddy, CPA, CFP®

Personal Financial Representative

 

Cuddy Financial Services

7 William Street

Auburn, NY 13021

 

Phone:  315-252-3600

Fax:      315-252-3625

 

Email: dcuddy@cuddyfinancial.com

2024 Tax Planning Guide

Other Taxes on Income

Other Taxes on Income

Income tax isn’t the only tax affecting your spendable income. Make a note of these taxes as well.


Alternative Minimum Tax
By limiting allowable deductions for some higher-income taxpayers, the alternative minimum tax (AMT) places a floor on the percentage of taxes an individual must pay, no matter how many deductions or credits the they may claim. An exemption applies before the AMT is imposed. As the table below shows, this exemption has increased for 2024.


AMT Exemption Increases


An Increased Social Security Tax Wage Base
Beginning in 2024, the maximum earnings subject to Social Security tax will rise to $168,600 from $160,200 in 2023. Currently, the employer and employee each pay half of the 12.4% Social Security tax due. Workers also pay a Medicare tax of 1.45% each year, plus an extra 0.9% on wages earned over $200,000. Self-employed workers must pay the full 12.4% Social Security tax.


Tax on Social Security Benefits
*The provisional income threshold is zero for married persons filing separately who do not live apart.


Capital Gains Tax
You pay capital gains taxes on long-term investments, those you hold for longer than one year, and ordinary income tax on realized short-term gains from investments held for less than a year.


Even though the U.S. stock market had a good year in 2023, you may still have a security or two on which you’ve realized a capital loss. A capital gain or loss is the difference between your basis, typically the cost of buying an asset or investment adjusted by certain previous deductions for depreciation and depletion, and what you get for selling it.


If your investments have a net capital loss, you can deduct up to $3,000 of the loss against your income annually if filing jointly ($1,500 married when filing separately). If your losses exceed the annual limit, you may carry losses forward to future years, deducting up to $3,000 per year against your income until your capital losses are exhausted.


Capital Gains Tax Bracket


But keep the wash sale rules in mind. These rules prevent you from taking a loss on a security if you buy a substantially identical security within 30 days before or after the sale. You can avoid triggering the wash sale rules while maintaining the same portfolio allocations by selling the security and waiting at least 31 days before repurchasing it or selling the security and buying shares in a mutual fund that holds similar securities.


Consider gifting appreciated stock or mutual funds to relatives in lower tax brackets. They’ll pay less or no tax on the long-term gain when the shares are later sold, potentially reducing overall family taxes.


Qualified dividends are eligible for more favorable capital gains tax rates, while unqualified dividends are taxed as ordinary income. Generally, dividends from real estate investment trusts (REITs) are unqualified, as are those from credit unions and mutual savings banks.


Additional Income-Triggered Taxes
If your modified adjusted gross income (MAGI) includes investment gains and exceeds certain levels, you may owe a 3.8% net investment income tax above and beyond any capital gains tax paid. Taxpayers who are married and file jointly and widowed spouses pay the tax if their MAGI exceeds $250,000. Single individuals and heads of household owe the tax after $200,000 in MAGI, while the threshold for married taxpayers filing separately is $125,000.


You will also owe an extra 0.9% for the Additional Medicare Tax if you earned more than $200,000 in a calendar year, regardless of filing status. Employers are typically responsible for withholding the extra tax.


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