While there are a seemingly endless variety of taxes that local, state and the federal government imposes on citizens, here are two taxes that are worth a quick description because these may impact you directly.
- The Alternative Minimum Tax (AMT): The AMT is mostly focused on individuals, C corporations, estates and trusts with high income to ensure that these entities don’t completely escape federal-level income tax through the adroit use of deductions, credits and exclusions they may employ. This way, these entities pay income tax through the AMT’s alternative tax system.
- Capital Gains Tax: A capital gain occurs when a capital asset such as stocks, land, buildings or equipment is sold at a higher price than the price of its original purchase. The capital gain is the difference between the two prices. If one of your assets has a capital gain when it’s sold, you have incurred a tax liability on the appreciated value. However, since the current highest tax rate for ordinary income is presently 39.6% and the current highest tax rate for capital gains is presently 20%, or almost half, it’s to your tax-savings advantage if you can precipitate more capital gains, either by selling capital assets or earning certain dividends that are taxed at capital gains’ tax rates.
Want more information on income taxes and how to reduce your income tax liability? The financial planning experts at Synergetic Finance are ready to help! Contact us and we’ll explain the ins and outs of tax planning and help you make smart choices to reduce your tax liability.