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Your
Initial Financial Plan:
Looking
For a CPA,
Lawyer or
Financial Advisor who has
worked with lots of other newlyweds and is familiar with the issues that
affect you?
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If
you're a high income taxpayer, you're well aware that you pay a heck
of a lot of taxes each year. The top federal tax bracket is currently
39.1%. The next highest tax bracket is 35.5%.
But
did you know that if you are a high income taxpayer, you actually
pay taxes at rates higher than those listed above? The 39.1% tax rate
and the 35.5% tax rate are the two top stated tax rates. Actual tax
rates exceed these stated tax rates for high income taxpayers due to
some sneaky rules, known as the stealth tax, passed into law by
congress a few years back.
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Itemized
Deductions:
Most high income taxpayers itemize their deductions. If your income
exceeds $132,950 (in 2001) , you're required to "phase out"
your itemized deductions by 3% of the excess. For example, if your
adjusted gross income is $232,950, you would be required to reduce
your itemized deductions by $3,000 [(232,950 - 132,950) * 3%].
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Personal
Exemptions:
For 2001, taxpayers are entitled to claim a personal exemption of
$2,900 for themselves, their spouses, and their dependents. Married
couples whose income exceeds $199,450 will need to phase out their
personal exemptions. And once their income exceeds $321,950, they'll
no longer receive any tax benefit for themselves, their spouse, or
their dependents.
So
What Can You Do?
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Take
full advantage of all retirement savings opportunities since
amounts contributed to retirement plans will generally reduce your
taxable income and will grow tax deferred.
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Own
where you live
since mortgage interest and real estate taxes are tax deductible and,
when you sell your home, up to $500,000 of the gain won't be taxed.
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Buy
and hold a portfolio of stocks and tax-efficient mutual funds
since gains on investment assets held for more than one year before
being sold are only subject to federal income taxes at a rate of 20%.
Relief
is On The Way
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The
limitation
on itemized deductions for
higher-income taxpayers, which can result in their losing up to 80%
of their itemized deductions, will be gradually repealed starting in 2006.
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The
phase-out
of the personal exemptions for
higher-income taxpayers will be gradually repealed beginning in 2006.
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