Income tax planning is a complex chore for most high-income people. But for one part of the affluent population, retired people age 65 and up, it will soon become an even greater challenge.
With the help of a tax preparer and a pocket calculator, most taxpayers under the age of 65 can estimate their marginal tax rates in a few minutes, and it is rarely higher than about 40%. For older affluent taxpayers, even the most sophisticated tax advisors will soon have trouble deciding the effective marginal tax rate. If they succeed, they may not believe their eyes.
How soon will this happen? January 1, 2007. Mark it down as a day that will live in infamy for advocates of "tax simplicity." On that day, the top marginal tax rate paid by some seniors could increase to as high as 140%+ on up to four separate slices of income, as we will show.
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