When Paying More Tax, Not Less, Is the Smart Play
Taxpayers should consider whether strategically ‘accelerating’ their income—and paying tax on it—can reduce what they’ll owe Uncle Sam over time
By
Laura Saunders, The Wall Street Journal, Jan. 31, 2025
…
Often, there’s just no way of reducing your taxes by getting into a lower tax bracket. When that’s the case, it sometimes makes sense to use the “headroom” you have in your existing top bracket.
The idea is to strategically accelerate income—if you can afford to pay some more taxes today—so you can reduce overall taxes…“The point is not just minimizing taxes today, but over your lifetime…”
[snip part about RMDs from IRAs]
required IRA withdrawals, Social Security and small pensions could lock them into the highest tax rates of their lives.
And this income can trigger other levies as well. These are often called “stealth” taxes, and they apply even to taxpayers without overstuffed retirement accounts.
For example, a 3.8% surtax can apply to net investment income earned outside retirement accounts. Collections from this surtax have grown over the last decade because its thresholds—$250,000 for joint filers and $200,000 for singles—aren’t indexed for inflation. And seniors with an income spike may find it raises their income-related Irmaa premiums for Medicare, at least for a year…
The good news is that current tax rates and wide brackets help with this planning. In particular, the 22% and 24% brackets are close, and they stretch from almost $100,000 to almost $400,000 of taxable income for married joint filers. …[end quote]
The concept of “headroom” in tax brackets is good. Nobody knows how Congress will re-formulate the tax brackets in 2025 since the 2017 tax law is expiring.
Wendy