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It’s almost 2016. Do you know what your tax rate is?

October 19, 2015 / 2 min read

If we asked 100 Americans to tell us what federal income tax rate they paid last year, we could easily get 100 different answers. Perhaps the best answer is, instead, a question: “Which one?”

As discussed in our individual tax section, taxpayers are subject to regular tax, alternative minimum tax, capital gains tax, surtaxes, and phaseouts. Knowing your true tax rate is difficult due to the number of different rates that may apply and is more complicated than knowing your “tax bracket.”

Your total tax as a percentage of all income is your effective tax rate. The incremental tax as a percentage of the next dollar of income is your marginal tax rate. While both the effective and marginal rates are important, the marginal tax rate is the basis for tax planning.

Understanding your balance sheet — and the types of investments on it — is an important tool in determining not only your marginal tax rate but also your overall tax efficiency.

To help understand how asset types affect your marginal tax rate, consider these asset types and the factors that affect the taxation of the income they generate:

What you owe should never be a surprise

Good income tax planning means you should never be surprised by how much you owe or when you owe it. A tax advisor’s understanding of your balance sheet helps them understand the assets you own and the tax implications of the assets’ income and related tax deductions.

As we near the end of the year, it’s important to review your current wealth management strategies to ensure you’re getting maximum returns on investments and that tax strategies are properly implemented. Understanding your balance sheet is the cornerstone of effective wealth management and tax planning.

If you’d like a preliminary, complimentary review of your balance sheet, email bulletproof@plantemoran.com >>


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