Weigh when to receive income


Form 1040 requires you to list all the income you received during the year from various sources. You can use the accompanying worksheet to estimate your 2012 income.

Weigh when to receive income

The year in which you receive income can make a difference in how much tax you'll pay on the income. If receiving income - from a bonus or sales commission, for example - would put you in a higher tax bracket, the traditional tax planning technique is to delay receiving that taxable income until after the end of the year, if it's economically feasible. By delaying income, you also defer your taxes on that income.

You might delay income by:

  • Asking your employer to postpone paying your year-end bonus or a late-year commission until after the first of the year.
  • Investing excess cash in Treasury bonds that don't mature until next year or in certificates of deposit that won't let you take out interest without penalty until 2013. In each case, all the interest earned would be reported on your 2013 return - to be filed in 2014.

But delaying income may not be the tactic to take in 2012. Unless Congress acts, the top four income tax rates in effect for 2012 - 25%, 28%, 33%, and 35% - will be replaced by the higher - 28%, 31 %, 36%, and 39.6%, respectively - rates in effect prior to 2001. The 10% bracket will disappear altogether (the lowest bracket will be 15%), and the tax brackets will return to a configuration that wii! be less favorable to many taxpayers. The bottom line is that, absent further legislation, more of your income will be taxed at higher rates In 2013. So you might want to accelerate income into 2012, rather than deferring it to 2013, even though taxes will have to be paid earlier.

Estimate Your 2012 Income
Wages, salaries, tips, etc. $
Interest and dividends $
Business income (loss) $
Farm income (loss) $
Capital gain (loss) $
Rents, royalties, partnerships, S corporations, trusts, etc. $
Unemployment compensation $
Alimony received $
Taxable Social Security benefits $
Taxable distributions from IRAs, pensions, and annuities $
Taxable refunds of state and local income taxes $
Other income $
Total Estimated Income $

In addition to higher income tax rates in 2013, higher earners are also scheduled to pay an additional 0.9% Medicare tax on wages and self-employment income exceeding $250,000 for joint filers, $125,000 for married taxpayers filing separately, and $200,000 for other individual taxpayers.

Also starting in 2013, a new 3.8% Medicare tax will be imposed on taxpayers who have any amount of net investment income and modified adjusted gross (AGI) that is greater than:

  • $200,000 (single; head of household)
  • $250,000 (married filing jointly)
  • $125,000 (married filing separately)

The 3.8% tax will apply to the lesser of net investment income or the amount of modified AGI exceeding the applicable threshold.

If you suspect your tax rate will be higher in 2013, see if you can:

Arrange to receive a bonus or commission payment in 2012 rather than in 2013.

Make a withdrawal from your traditional individual retirement account (IRA) earlier than planned, if you're over age 591/2 or qualify for another exception to the 10% early withdrawal penalty.

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