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Description
Many financial planners do not necessarily have a firm grasp on what tax rates are really associated with certain levels of income, and often underestimate marginal tax rates and overestimate effective tax rates. In this month’s issue of The Kitces Report, we review some of the foundations of tax principles, looking primarily through a lens towards their impact on marginal and effective tax rates. We also look at what kinds of tax rates really occur at varying levels of income.
Learning Objectives
LO #1: Be able to explain how to identify what your tax rate really is. Discuss how income tax brackets are used, and how you arrive at taxable income.
- LO #2: Illustrate an understanding of marginal tax rates. Describe how you arrive at the marginal tax rate, and why there is more to them than meets the eye.
- LO #3: Describe how dividends and capital gains are taxed, specifically qualified dividends and long-term capital gains. Discuss how they are applied under the tax bracket tables themselves.
- LO #4: Explain how the Alternative Minimum Tax (AMT) system works. In doing so, identify the various tax rates, the exemption amounts, and discuss how capital gains and qualified dividends are treated. Show an understanding of where it is applied on the tax return.
- LO #5: Estimate the marginal and effective tax rates for your clients.