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Useful Income Tax and Retirement Planning Information

Useful Income Tax and Retirement Planning Information

There have been several major tax law changes over the past few years with staggered effective dates. These laws have significantly changed the way you may want to consider your financial situation, especially retirement planning. Here is some information that you find helpful:

Income Tax Rate Schedules for 2018

2018 Single Return Rate Schedule

2018 Married Filing Jointly Rate Schedule

Taxable income levels

Tax rate

Taxable income levels

Tax rate

0 to $9,525

10%

0 to $19,050

10%

$9,526 to $38,700

12%

$19,051 to $77,400

12%

$38,701 to $82,500

22%

$77,401 to $165,000

22%

$82,501 to $157,500

24%

$165,001 to $315,000

24%

$157,501 to $200,000

32%

$315,001 to $400,000

32%

$200,201 to $500,000

35%

$400,001 to $600,000

35%

Over $500,000

37%

Over $600,000

37%

 

2018 Standard Deduction
Married couples filing a joint return - $24,000
Single return filers - $12,000

 

2018 Personal Exemption Amount
$0 - Personal Exemptions were eliminated as of 1/1/18

2018 Taxation of Dividends and Long Term Capital Gains

Long term capital gains and qualifying dividends receive favorable tax treatment, based on taxable income levels.

Tax rate on long term capital gains and qualifying dividends

Taxable income levels for those filing individual returns

Taxable income levels for those filing joint returns

0%

Under $38,600

Under $77,200

15%

$38,600 to $425,800

$77,200 to $479,000

20%

Over $425,800

Over $479,000

2018 Medicare Surtaxes

As part of the health care reform enacted in 2010, additional Medicare surtaxes began in 2013 for high income wage earners and high income investors. The surtaxes apply when a single taxpayer's Modified Adjusted Gross Income (MAGI) exceeds a threshold of $200,000 or joint return filers when their MAGI exceed $250,000.

  • For wage earners, an additional 0.9% Medicare surtax applies to wages (including bonuses and self-employment income) above the threshold amounts.
  • For investors, an additional 3.8% Medicare surtax applies to net investment income (taxable interest, dividends, capital gains, etc.) in excess of the thresholds.

Other Significant Income Tax Changes Effective 1/1/18

  • Passthrough income deduction – Individuals can deduct 20% of qualified business income from partnerships, S corporations or a sole proprietorship. This rule can be complicated and you may want to consult your tax advisor.
  • Mortgage interest – Interest can be deducted on up to $750,000 of on new acquisition mortgages, down from the old limit of $1 million. Beginning in 2018, no interest on home equity loans can be deducted.
  • State and local taxes – Beginning in 2018, the limit on all state and local income, property and sales taxes is $10,000.

Estate Taxes

Year

Estate Size Where Taxation Starts

Top estate tax rate

2018
$11,200,000
40%

2019

Indexed for inflation

40%

Regular IRA and Roth IRA Contribution Limits

For tax year

IRA contribution limit

Additional contribution limits for those age 50 and over

2018

$5,500

$1,000

401(k) Retirement Plan Contribution Limits

For tax year

401(k) deferral limit

Additional contribution limits for those age 50 and over

2018
$18,500
$6,000

Coverdell Education Savings Accounts (Education IRAs)

For 2017 and 2018, the annual contribution limit is $2000 with eligibility phase out beginning at $190,000 (for married filing jointly) and $95,000 of Adjusted Gross Income (some modifications apply).

Annual Gift Tax Exclusion

For 2018, gifts of $15,000 and under are not subject to gift tax.

2018 Payroll Taxes - Social Security and Medicare

  • Employee wages subject to Social Security tax of 6.2% - $128,400.
  • Employee wages subject to Medicare tax of 1.45% on all wages and an additional 0.9% on wages above $200,000 for taxpayers filing single returns. For taxpayers filing joint returns, the additional 0.9% applies to wages above $250,000.
  • Self employment income subject to Social Security tax of 12.4% - $128,400.
  • Self employment income subject to Medicare tax of 2.9% on all self employment income and an additional 0.9% on wages above $200,000 for taxpayers filing single returns. For taxpayers filing joint returns, the additional 0.9% applies to wages above $250,000.
  • Notes - The 0.9% additional Medicare tax was part of the health care reform bill and only applies to the employee portion. Employers do not match the additional Medicare tax.

2018 Social Security Benefits

2018 Average monthly benefit for all retired workers - $1,404.

2018 Average monthly benefit for retired couples - $2,340.

2018 Maximum monthly benefit for a worker at full retirement age - $2,788.

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