Massachusetts Governor Deval Patrick called last month for an increase in the state’s flat income-tax rate to 6.25 percent from 5.25 percent. President Barack Obama and congressional Democrats want to raise more revenue by curbing tax breaks.
‘Keeping It’
“Instead of giving a couple grand to charity, I’m keeping it,” Franson said. “A good portion of our income and any increase in our income will be taxed at the 39.6 percent federal rate, which doesn’t make us want to work much more.”
Those who want to change residency to another state must be able to prove that they are physically there a majority of the time, said Steve Henley, national tax practice leader at the accounting provider CBIZ MHM LLC. They would want to buy a home, register to vote and get a driver’s license, he said.
Top earners can use less dramatic planning strategies such as maximizing their contributions to retirement plans to reduce their tax bite, Henley said.
Keeping good records of income, expenses, home improvements and charitable donations will be even more important this year for high earners, said Alfred Peguero, a tax partner in the private company services practice at PricewaterhouseCoopers LLP.
That’s partly because the higher federal income taxes apply to taxable income above $450,000 or $400,000, which taxpayers can reduce through itemized deductions, said Michael Eisenberg, a certified public accountant and financial planner at Eisenberg Financial Advisors in Los Angeles.
“Some of these increases are not going to be outrageous” at the federal and state level for couples making $500,000 or $600,000, he said. “Run the numbers before you panic.”