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As a high income taxpayer, you can be certain of two things:

  1. You pay a lot of taxes each year, and

  2. You are not eligible to take advantage of most tax saving opportunities that took effect over the last couple of years

To minimize your tax burden, you need capitalize on the tax savings opportunities that are available to you. A few basic strategies are included in this newsletter.


How the Federal Government Squeezes Additional Tax Dollars Out of High Income Taxpayers

If you are a high income taxpayer, you are well aware that you pay a heck of a lot of taxes each year. The top federal tax bracket is currently 39.6%. The next highest tax bracket is 36%.

But did you know that if you are a high income taxpayer, you are actually taxed at rates higher than those listed above? The 39.6% tax rate and the 36% 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 passed into law by congress a few years back.

  • Itemized Deductions: Most high income taxpayers itemize their deductions. If your income exceeds $126,600, you will be required to "phase out" your itemized deductions. For example, if your adjusted gross income is $226,600, you would be required to reduce your itemized deductions by $3,000 [(226,600 - 126,600) * 3%].

  • Personal Exemptions: For 1999, taxpayers are entitled to claim a personal exemption of $2,750 for themselves, their spouses, and their dependents. Single taxpayers whose income exceeds $126,600 and married couples whose income exceeds $189,950 will need to phase out their personal exemptions. Single taxpayers whose income exceeds $249,100, and married couples whose income exceeds $312,450 will not receive any tax benefit for themselves, their spouse, or their dependents.

So What Can You Do?

  1. 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.

  2. 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.

  3. 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%.


Have You Been Contributing $2,000 to an IRA Each Year?

If either you or your spouse is covered under a retirement plan at work, then you are probably not eligible to make a deductible contribution to an IRA You are probably not allowed to contribute to a Roth IRA as well. You do have the option, however, of making a non-deductible contribution of $2,000 into your IRA each year.

The benefit of making a non-deductible IRA contribution is that the money contributed grows tax deferred. We have clients who have been making non-deductible IRA contributions for years and have managed to save quite a bit of money without paying any taxes on the investment earnings.

The downside to this strategy is that if you need the money before you reach the age of 59 1/2, the earnings portion of the amount withdrawn will be taxed at your marginal tax rate plus, in most cases, a 10% penalty. And when you withdraw money from your non-deductible IRAs upon retiring, the income is taxed as ordinary income instead of at the lower capital gains rate.

Variable Annuities

Most of the same tax rules which apply to non-deductible IRAs apply to variable annuities as well. There are many advantages to investing in variable annuities, however, which make them an attractive alternative for people looking to save as much as possible for their retirement.

  • No Maximum Contribution: Unlike a non-deductible IRA, there is no limit to how much can be contributed to a variable annuity each year.

  • Family Protection: Most variable annuities provide protection in the event the investments made within the annuity decrease in value.

  • Investment Flexibility: The owner of the variable annuity can switch among all of the investments offered under the annuity contract, without being subject to income taxes, fees, and surrender charges.




Income Taxes

Saving and Investing


  • To have your returns completed by 4/15, please get us your information by 3/20/00

  • Use your tax refund to pay off some debts, fund an IRA, and/or invest.

1999 & 2000 TAX FACTS

  • For 1999, the standard deduction for a single individual is $4,300 and for a married couple is $7,200. A person will benefit by itemizing once allowable deductions exceed the applicable standard deduction. Itemized deductions include state and local income taxes, real estate taxes, mortgage interest, charitable contributions, and unreimbursed employee business expenses.

  • For 1999, the personal exemption is $2,750. Individuals will claim a personal deduction for themselves, their spouse, and their dependents.
  • The maximum earnings subject to social security taxes has been increased to $76,200 in 2000 from $72,600 in 1999.
  • The standard mileage rate has been reduced to $.31 per mile as of April 1, 1999 from $.325 per mile previously.
  • The maximum annual contribution to a 401(k) plan or a 403(b) plan has been increased to $10,500 in 2000 from $10,000 for 1999.

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