If you missed yesterday’s email, got back read it first so you know what the deal is with Biden’s new tax
proposal.
Go ahead, we’ll wait…
While we’re waiting, if you are a Financial Zen Member we will do this math for you as long as you get us
all the information.
Okay, here it goes. You’ll need to complete the Year-End Tax Analysis Framework:
1. Calculate current year’s projected income2. Calculate next year’s projected income3. Compare the two
projections4. Accelerate or decelerate income accordingly.
1. Calculate current year’s projected income
Add your year-to-date income from your most recent paystub to what you have remaining for the rest of
the year.
For most people, you’ll have 7 pay periods left, so multiply your paystub taxable income by 7.
Then review your taxable brokerage accounts for any recognized capital gains for the year.
Add it all up and you have estimated your Adjusted Gross Income (AGI) for this year.
2. Calculate next year’s projected income
This one’s pretty easy. Take your projected AGI for this year and add or subtract any expected changes
for next year.
Maybe you’re getting a pay raise or a big bonus which will increase your AGI.
Or maybe you’re going back to school or taking a sabbatical which will decrease your AGI.
3. Compare the two projections
Compare the two numbers.
Is one significantly higher than the other or are they pretty similar?
4. Accelerate or decelerate your income accordingly
The best example of this is for people actively de
risking and diversifying company stock.
If your projected income this year is lower than next year, then consider selling extra this year.
Or vice versa if you’re income is higher this year. In that case, consider holding off selling any more until
January 1.
This is also how we can plan around Biden’s tax plan.
Even if your income for next year will be similar, if income tax and capital gains tax rates increase, consider
selling more this year before rates go up.
Unfortunately, for W2 employees there are not a lot of levers to pull for “tax engineering”.
But comparing your projected income and accelerating or decelerating accordingly could be an
opportunity for you to pay less taxes over the next two years.
