We’re now in our second year of the new Medicare surtaxes. If these surtaxes affect you, we will help you develop a tax plan to take them into account and keep them to a minimum.
Take Steps to Deal with Medicare Surtaxes
1. Earned income
- To help minimize the surtax on earned income, try to defer excess discretionary earnings (such as commissions or bonuses) to a lower-income year.
- If you are self-employed, consider maximizing payments of deductible expenses in high-income years while deferring late-year customer billings to the following year.
- Think about increasing your withholding or quarterly estimate payments to cover any additional liability.
2. Investment income
- The surtax on net investment income is trickier but provides more planning opportunities. To reduce this surtax:
- Consider liquidating depreciating stocks to offset capital gains.
- Shift some investments to tax-deferred annuities, municipal bonds, or other vehicles that don’t generate taxable income.
- Maximize deductible contributions to traditional IRAs, 401(k) plans, or similar sheltered investments. Their earnings are excluded from NII, and the contributions reduce your MAGI.
- Donate appreciated stocks to charities rather than selling them.
- Try to make otherwise taxable investments through a Roth IRA. The earnings won’t be part of NII, and subsequent tax-free withdrawals won’t count toward the thresholds.