When asked how he was running the country, a U.S. President famously answered, “I’m the decider”.
When it comes to how you’re handling your federal tax obligation, you are the decider, and November is the time to start making those decisions. April 15 may seem a long way off but now is the perfect time to estimate what your 2020 tax return will look like.
By now, your pay stub shows much of the income you will be reporting on your IRS Form W-2. The remaining pay periods can be easily estimated.
In addition to your employment income, other income such as interest, dividends, gains, and losses may also be estimated based on ten full months of actual amounts.
These “projections” tell us whether you are likely to receive a refund from or owe money to the IRS, and very importantly, help us to assess where you are in your tax bracket.
For the tax year 2020, a married taxpayer may have an income of approximately $104,000 and still be in the 12% tax bracket.
If your income is not estimated to fully use that $104,000 threshold, there are strategies whereby you can voluntarily report more income to have it taxed at 12%.
Adding income to be taxed may seem strange, but the reality is that 12% is a historically low rate; there is no way to know how long it will be in place after this election cycle. Voluntarily withdrawing money from your retirement funds to include them in the 12% bracket may well be a strategy to consider.
Alternatively, if your projection shows you will be beyond the $104,000 income limit, you may have the ability to defer payments and/or income from 2020, or accelerate your deductions for the remainder of 2020, to maintain your income within the 12% bracket.
Take control of your 2020 taxes. Now is the time for deciding…
Tax Laws and Regulations are complex and subject to change, which can materially impact investment results.
One Financial Services and LPL Financial do not provide tax advice or services. Please consult your tax advisor regarding your specific situation.
Content in this material is for general information only and not intended to provide specific advice or recommendation for any individual.