Tax Rates and Brackets for 2019

Not to be confused with tax form preparation, income tax planning is the analysis of a financial situation to determine how after-tax wealth can be maximized.

A necessary first step is determining the relevant tax bracket, also known as the marginal tax rate. The table below shows the newly revised tax rates for 2019. They are currently scheduled to expire in 2025.

Rate Individuals Married Filing Jointly
10% Up to $9,700 Up to $19,400
12% $9,701 to $39,475 $19,401 to $78,950
22% $39,476 to $84,200 $78,951 to $168,400
24% $84,201 to $160,725 $168,401 to $321,450
32% $160,726 to $204,100 $321,451 to $408,200
35% $204,101 to $510,300 $408,201 to $612,350
37% Over $510,300 Over $612,350


Important Changes for 2019

Here are some of the important changes of the 2017 Tax Cut and Jobs Act as they relate to 2019 federal income taxes.

  • While the personal and dependent exemptions have been repealed, the standard deduction is now $12,200 for individuals and $24,400 for married couples.
  • The child tax credit is now $2,000.
  • State and local taxes can still be itemized, but they are capped at $10,000.
  • The charitable deduction for a cash donation is now up to 60% of adjusted gross income.
  • The mortgage interest deduction is now capped at $750,000 of loan value instead of $1 million. Home equity loan interest (on a loan up to $100,000) is only deductible if it is used to buy, build, or improve the home.
  • The “miscellaneous itemized deductions” have been eliminated. This includes investment advisory fees, tax preparation fees, safe deposit box rentals, et al.
  • For small business owners, there is now potentially a deduction of 20% of the income earned by a business.
  • Alimony payments for newly divorced couples are now treated similarly to child support payments. They are not deductible to the payer, nor are they taxable to the recipient.


Capital Gains Rates for 2019

Here are the rates for long-term capital gains (assets held for more than a year). Please note that the Obamacare 3.8% investment income tax remains in place, and state taxes are also a consideration when selling assets. It is also important to note that capital gains stack on top of ordinary income. For example, a single taxpayer with $100,000 of ordinary taxable income will pay 15% on long-term capital gains.

Rate Individuals Married Filing Jointly
0% Up to $39,375 Up to $78,750
15% $39,376 to $434,550 $78,751 to $488,850
20% Over $434,550 Over $488,850


How We Increase Your Tax Efficiency

Here are some of the methods used by Clarity to increase the tax-efficiency of our clients’ portfolios.

  • Advising on account types to maximize current tax deductions or future tax-free income.
  • For clients in high marginal tax brackets, municipal bond funds may be used in taxable accounts.
  • For clients in high tax states like California, state-specific municipal bond funds may be used.
  • Tax management of equities is implemented by using only low turnover funds. Furthermore, foreign equities may be limited to holdings that pay qualified dividends.
  • While some advisors use asset location as a justification to have retirement accounts hold only bonds and real estate investment trusts, we do not take this approach because we consider a small gain in tax efficiency to be not worth the cost of having drastically different returns across different accounts.

At Clarity, we will work with your tax professionals to ensure that they have all the information they need from us to properly complete your taxes. Likewise, we will obtain from them the information we need to efficiently trade your accounts such as marginal tax rates and loss carryforwards.