Bill Cass

Too big a tax bite in 2013? Review strategies to help your clients in 2014.

Bill Cass, 4/24/2014


If clients are stinging from this year's tax bill, it's time to consider strategies that may improve the situation for next year.

The 2013 tax year is the first that some taxpayers saw the difference in their bills due to higher marginal income tax rates and new taxes resulting from the health-care reform law, including a 3.8% Medicare surtax on investment income.

High earners, particularly taxpayers with annual income higher than $500,000, saw a substantial increase because of health-care reform taxes and provisions, as well as higher rates and limits on itemized deductions, according to the Tax Policy Center.

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Source: Tax Policy Center, 2013.

Now that most taxpayers have completed their filings, they may have questions about this year's bill and future strategies.

Some tax-advantaged investment strategies to consider include:

1. Tax-exempt municipal bond funds. Municipal bonds can be more attractive on a relative tax basis for taxpayers who are subject to the 3.8% investment income surtax and who may also be subject to the highest marginal rate.

2. Optimizing retirement plans. Contributing to a retirement plan can reduce adjusted gross income (AGI).

3. Additional tax-smart strategies. Funding a flexible spending account, contributing to a health savings account, or deferring compensation income also can reduce AGI. Maximizing the use of tax deductions, such as charitable contributions or mortgage interest, can offset income as well.

For a review of the current tax landscape and strategies for 2014, consider "Ten income and estate planning strategies for 2014."

Also, "Planning for the 3.8% Medicare investment income surtax" details the advantages of additional tax-smart strategies.

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