How to Defend Against Bracket Busters

I know my tax advisory and representation office suite in Maple Valley, WA is not the only office that has a carefully selected 2023 NCAA tournament bracket posted to the wall.  As a Gonzaga University alum, I feel it is an honored tradition more than obligation to publicly post support for the teams competing on the hardwoods.  Don’t worry IRS or Gaming Control Board, our wagers are for bragging rights only and possibly the public display of support for an opposing party’s alma mater.

Although history may give us a reference point and even a false sense of certainty at times that previous events may repeat, there is no guarantee that a 16 seed will overcome a 1 seed in the first round.  Yet every year there are likely millions of spectating participants who have their tournament brackets busted after the first round.  Sure, there are probability analyses and correlation studies that may help your odds and further research may assist your selection process, but that is not what my tax advisory practice helps owners of closely held businesses do.

The U.S. tax system currently assesses individual income tax on your taxable income using a graduated rate method.  For those of you completing your 2022 individual income tax returns during the 2023 filing season, there are seven tax brackets that apply, 10%, 12%, 22%, 24%, 32%, 35% and 37%.  While not as enthusiastically followed in wagering contests or referred to with a catchy nickname in March, managing your federal tax bracket can be very rewarding.  I enjoy the thought of watching a Baylor alum don a Gonzaga shirt at work all day just as much as the next guy but at the end of the day, paying less tax to the federal government takes the win and cuts the net.

Proactive tax planning is the go-to play for managing your tax bracket.  There are many strategies and methods available to legally reduce your income subject to tax while still making progress towards to your individual goals and supporting your priorities.  Does it take some effort, sure - developing a plan, implementing strategies and following through with documentation requirements; however, with the right coaching and support, you won’t have to break a sweat like the young college athletes we’re watching on T.V. this time of year.

Moving from the 24% tax bracket to the 32% tax bracket looks like an 8% increase in tax at first glance.  Apply the tax rates to your next $10,000 of taxable income and see what really happens.  Instead of paying $2,400 on the $10,000 income, your tax liability is now $3,200, an increase in tax paid of over 33%.  Wouldn’t you rather stay inside the 24% tax bracket now? 

Whether you are looking to ladder a Roth conversion, shift income to another party or tax period, maximize deductions allowed through effective use of the tax code or use tax efficient investment products, understanding how to manage your tax brackets is a key to the game for strengthening your financial future.

Proactive tax planning is a core service of our tax advisory practice.  When you are ready to stop overpaying your federal income taxes and take control of managing your tax brackets, schedule your tax analysis.  Until then, Go Zags!