Although new tax proposals have not yet been introduced under the new administration, Jim and I believe taxes are likely to go up for most taxpayers in 2022 or 2023. Higher taxes may call for planning differently than we did in past years. So that you are best prepared if we do see higher taxes in the near future, consider what your 2021 taxable income might look like.
Below are the federal income tax rates for 2021:
Notice marginal tax rates are based on a range of different taxable incomes. Your highest marginal tax rate is what you want to identify with as your “most highly taxed income zone”. Typically, you want to lower taxable income in that high marginal tax bracket, however that is often not the case in an environment in which taxes are heading higher.
Determining your 2021 marginal tax rate will help you consider potential actions you might take this year if tax legislation is passed, increasing taxes in 2022 or 2023.
As we move forward this year, we will keep you posted on our thoughts as we learn more about tax changes that may take place. Topics that we will touch on will be whether you should take capital gains and pay the respective taxes this year, and/or convert portions of your IRA to a Roth IRA.
As always, we wish you well and are happy to answer any questions you may have for us.