Tax Planning

Marginal Tax Rate

Marginal Tax Rate

People talk about taxes all the time. (Especially during times of  tax reform in Congress.)  Income tax, property tax, sales tax, payroll tax, excise tax, investment income surtax, Medicare tax…..the list goes on and on.

The most widely discussed and most prevalent is the federal income tax. Important pieces of that tax code are the marginal income tax brackets and tax rates.

So what is a Marginal Income Tax Rate?

Good News on Minnesota Estate Tax Law

Good News on Minnesota Estate Tax Law

The majority of these United States (32 of them) do not charge a state-level estate tax (or inheritance tax). Minnesota is currently one of 18 states that does levy an estate tax beyond the Federal estate taxes imposed upon citizens.

The Republican majority MN legislature pushed for and attained higher estate tax limits in this year's state tax bill. Governor Dayton reluctantly signed the tax bill into legislation at the end of May.

The State of our State's Finances

Did you know that our beloved state of Minnesota is $51 billion in debt? I hear a lot about "surpluses" in the media, as though a one-year surplus is some indicator of financial health.

And our state's debt balance is increasing as we speak, not decreasing. The debt balance per state citizen is now at $9,316.

State politicians enjoy talking about "budget surpluses", but rarely (or ever?) do they mention our state's dismal balance sheet (aka net worth). For instance, an article in the Star Tribune from earlier this year about the budget surplus made no mention of the state's $51,283,282,345 of debt (link to article here). In fact, if you do a word search for "debt" in the article, you will see that word does not appear in the article.

Here's a novel idea: let's use the budget surplus to pay down our debt. Our state's current situation is akin to a family with a reverse mortgage that is also adding zero dollars to savings. The debt keeps growing larger, with no plans to reverse the trend.

Digging Deeper on Where to Retire

Digging Deeper on Where to Retire

Here at The Wealth Group, we have a number of retired clients that maintain residency in warm-weather states with lower income tax burdens than Minnesota. Florida is by far the most common state to which our Minnesota clients transplant, but we also see clients establish residency in places like Texas, Arizona, Colorado, and Tennessee.

For any of our clients considering a change in residency (or domicile), our first piece of advice to them is not to have tax considerations be the primary driver of the decision-making process. In other words, if your children and grandchildren all live in Minnesota, you don't mind the cold all that much, and life in Minnesota is generally quite suitable to you, we would tell you not to uproot yourself for 6+ months a year just to save money on taxes.

A Short History Lesson on Income Taxes

A Short History Lesson on Income Taxes

Quiz question: when did the US Government begin taxing individual American citizens on their earned income?

Answer: just over 100 years ago, with the passage of the 16th Amendment to the Constitution in 1913.

The 1913 tax rates started at 1% and topped out at 7%. That first tax bracket of 1% ran all the way up to the first $463,000 of income (in today's dollars). The top bracket of 7% did not kick in until you hit $11,500,000 of income (in today's dollars). Yes, you read those numbers correctly. And no, this is not a joke.