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Wealth Planning

Tax planning strategies for a new tax era


Tax planning should be a year-round consideration. As you meet with your tax advisors, you can discuss the following techniques as you plan for 2019 and beyond.

 

2019 planning strategies

 

Retirement contributions: Defer 2019 income tax by contributing to a retirement plan in 2020.

In many instances, self-employed individuals and small business owners can still make 2019 retirement contributions to certain retirement plans up until the due date for the business’s income tax return, typically April 15 (subject to allowable extensions). In addition, a self-employed individual or small business owner can even set up a Simplified Employee Pension (“SEP”) IRA for the business and make contributions for each employee of the business (capped at the lesser of a percentage of the employee’s salary and $56,000 for 2019) up until the due date for the business’s income tax return.

 

Non-grantor trusts: Distribute income from a non-grantor trust to trust beneficiaries in 2020 and potentially reduce the overall 2019 income tax liability.

Non-grantor trusts reach the highest income tax bracket of 37% more quickly than individuals do (that marginal rate applies to trust income over $12,750 in 2019). In some instances, distributions to a beneficiary from a non-grantor trust could shift the income tax liability from the trust to the beneficiary, and if the beneficiary is in a lower income tax bracket than the trust, this could reduce the overall tax liability. Since distributions made within the first 65 days of a calendar year can be treated as having been made in the previous calendar year, a distribution from a non-grantor trust to a beneficiary by March 5 of this year could reduce the 2019 taxes.

 

 

Planning strategies for 2020 and beyond

 

Deduction planning

Deduction planning

Consider your personal and business income tax planning over several years to maximize your deductions.

Incentive stock option management

Incentive stock option management

In order to take full advantage, make sure you exercise at the right time and understand the tax implications.

Year-round planning

Year-round planning

Avoid the year-end rush and consider making these transfers now to ensure you can take advantage of their full benefits.

These are just a few of the many ideas that you should consider as you think about your 2019 tax liability and plan ahead for 2020. Depending on your and your family’s personal and financial goals, certain techniques may be more appropriate for you than others. It is important to speak with your advisors soon so that you can understand the benefits and ramifications of each of these strategies, determine which of them make sense for you, and take action while you can.

 

New tax rates for 2020

To help you plan for the year ahead, we have updated the chart below with the new 2020 tax rates and income brackets.

 

Filing singly

Income in 20201

Your maximum federal income tax rate on wage income 32%
Your share of Medicare tax on wages 1.45%
Your maximum tax rate on long-term capital gains and dividend income 15%
Your maximum tax rate on unearned income—other than capital gains and dividends 32%
Your maximum Social Security tax on wages $8,5373

Your maximum federal income tax rate on wage income 32%
Your share of Medicare tax on wages 2.35%
Your maximum tax rate on long-term capital gains and dividend income 18.8%
(3.8% Medicare surtax)
Your maximum tax rate on unearned income—other than capital gains and dividends 35.8%
Your maximum Social Security tax on wages $8,5373

Your maximum federal income tax rate on wage income 35%
Your share of Medicare tax on wages 2.35%
Your maximum tax rate on long-term capital gains and dividend income 18.8%
(3.8% Medicare surtax)
Your maximum tax rate on unearned income—other than capital gains and dividends 35.8%
Your maximum Social Security tax on wages $8,5373

Your maximum federal income tax rate on wage income 35%
Your share of Medicare tax on wages 2.35%
Your maximum tax rate on long-term capital gains and dividend income 23.8%
(3.8% Medicare surtax)
Your maximum tax rate on unearned income—other than capital gains and dividends 35.8%
Your maximum Social Security tax on wages $8,5373

Your maximum federal income tax rate on wage income 37%
Your share of Medicare tax on wages 2.35%
Your maximum tax rate on long-term capital gains and dividend income 23.8%
(3.8% Medicare surtax)
Your maximum tax rate on unearned income—other than capital gains and dividends 40.8%
Your maximum Social Security tax on wages $8,5373

Filing jointly

Income in 20201

Your maximum federal income tax rate on wage income 24%
Your share of Medicare tax on wages 1.45%2
Your maximum tax rate on long-term capital gains and dividend income 15%
Your maximum tax rate on unearned income—other than capital gains and dividends 24%
Your maximum Social Security tax on wages $17,0753

Your maximum federal income tax rate on wage income 24%
Your share of Medicare tax on wages 2.35%
Your maximum tax rate on long-term capital gains and dividend income 18.8%
(3.8% Medicare surtax)
Your maximum tax rate on unearned income—other than capital gains and dividends 27.8%
Your maximum Social Security tax on wages $17,0753

Your maximum federal income tax rate on wage income 32%
Your share of Medicare tax on wages 2.35%
Your maximum tax rate on long-term capital gains and dividend income 18.8%
(3.8% Medicare surtax)
Your maximum tax rate on unearned income—other than capital gains and dividends 35.8%
Your maximum Social Security tax on wages $17,0753

Your maximum federal income tax rate on wage income 35%
Your share of Medicare tax on wages 2.35%
Your maximum tax rate on long-term capital gains and dividend income 18.8%
(3.8% Medicare surtax)
Your maximum tax rate on unearned income—other than capital gains and dividends 38.8%
Your maximum Social Security tax on wages $17,0753

Your maximum federal income tax rate on wage income 35%
Your share of Medicare tax on wages 2.35%
Your maximum tax rate on long-term capital gains and dividend income 23.8%
(3.8% Medicare surtax)
Your maximum tax rate on unearned income—other than capital gains and dividends 38.8%
Your maximum Social Security tax on wages $17,0753

Your maximum federal income tax rate on wage income 37%
Your share of Medicare tax on wages 2.35%
Your maximum tax rate on long-term capital gains and dividend income 23.8%
(3.8% Medicare surtax)
Your maximum tax rate on unearned income—other than capital gains and dividends 40.8%
Your maximum Social Security tax on wages $17,0753

Sources: J.P. Morgan calculations, JCT, U.S. Social Security Administration, Tax cuts and Jobs Act of 2017, Rev. Proc 2019-44.
1The income tax rate is imposed on taxable income of the amounts shown in this row; the long-term capital gains tax rate is also based on taxable income; the threshold for the 0.9% Medicare surtax is wage income; and the threshold for the 3.8% tax on net investment income is based on modified AGI.
2Note that employers will begin to withhold when an employee’s income reaches $200,000 even if the employee and his or her spouse would not reach the $250,000 threshhold; the additional tax collected can be claimed as a credit on the couple’s joint return.
3The OASDI tax is not imposed on wages above $137,700, although the tax is imposed on the wage income of each member of a couple, if applicable, so a couple could pay up to $17,075 on income of $275,400 if each of them made at least $137,700.

JPMorgan Chase & Co. and its affiliates do not provide tax advice. Accordingly, any discussion of U.S. tax matters contained herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyone unaffiliated with JPMorgan Chase & Co. of any of the matters addressed herein or for the purpose of avoiding U.S. tax-related penalties.

 

 

 

 

 

 

 

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Wealth Planning

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