Revenue procedure 2015-53, recently enacted by the IRS, updates rules in the tax code that are regularly adjusted due to inflation. Changes included the income tax brackets for individuals as well as estates and trusts for 2016.
Important note – the income tax rates for individuals and estates and trusts are similar, but it does not take much taxable income to get to the highest tax bracket for trusts and estates.
Married individuals filing joint returns, surviving spouses, heads of household, and unmarried individuals are subject to the following tax brackets: 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%
Trusts and estates tax brackets are: 15%, 25%, 28%, 33%, and 39.6%.
To get to the highest tax bracket (39.6%) for married individuals and surviving spouses, taxable income must be over $466,950.00, for heads of household taxable income must be over $441,000.00 and for an unmarried individual taxable income must be over $415,050.00.
Trusts and estates only need taxable income of $12,400.00 to reach the 39.6% tax bracket.
There are many reasons for clients to transfer their assets into trusts, and different trusts serve different legal purposes, but we must never lose sight of the income tax ramifications of transferring income producing assets into trusts.
Aaron E. Futterman, CPA, Esq. is a partner in the law firm of Futterman & Lanza, LLP with offices in Smithtown, NY and clients throughout Suffolk, Nassau, Queens, Brooklyn, Bronx, Richmond, New York, Westchester and Rockland Counties. He concentrates his practice to Elder Law, Medicaid Planning, Medicaid Applications, Estate Planning, Probate, Estate Taxes, and Estate Administration.