At this point in the year, you have either prepared your tax return or are in the process of doing this with your tax professional (or tax software). This month’s newsletter is going to go a little deeper than just listing documents that you need to keep an eye out for. Instead, we’ll cover tax brackets, withholding strategies, and aligning your investment strategies with tax awareness.
Understanding Today’s Tax Brackets
| Tax Rate | Taxable Income (MFJ) – 2025 | Key Planning Note |
|---|---|---|
| 10% | Up to $23,850 | Often applies to dividends & LTCG at 0% rate |
| 12% | $23,851 – $96,950 | Max bracket for 0% LTCG treatment |
| 22% | $96,951 – $206,700 | Common bracket for dual-income families |
| 24% | $206,701 – $394,600 | Roth conversion sweet spot for many HNW clients |
| 32% | $394,601 – $501,050 | Watch for AMT exposure in this range |
| 35% | $501,051 – $751,600 | Qualified dividends still taxed at 20% |
| 37% | Over $751,601 | NIIT is 3.8% and applies to investment income |
| R8C1 | R8C2 | R8C3 |
In 2017 the tax brackets shifted from the old system that ranged from 10% to 39.6% to a system that starts at 10% but stops at 37%. This may not seem like a big difference, but the top bracket was reached at around $467,000 (for Married Filing Jointly, or MFJ) back in 2017, compared to $750,000 today. That is meaningful when we look at how each dollar is taxed. These brackets also present different planning opportunities for individuals, which we highlight below (for MFJ).
Within each of these brackets, taxpayers should consider what withholding is needed, whether being withheld from retirement distributions or from your paycheck. Just because you fall within the 22% bracket doesn’t mean you should withhold at 22%, because we have a progressive tax system that taxes each dollar incrementally more. This means you could be in the 22% bracket, but your actual (or effective) tax rate could be 14%. Therefore, you should have your withholding aligned with that same methodology. In coordination with your tax professional, we can help you think through withholding.
Aligning Withholding with Your Real Tax Rate
Ensuring you give the correct amount to the IRS is important, but reducing the amount of tax generated by your portfolio can be even more impactful. Think of your portfolio like a house with three different rooms, each with its own tax rules. The first room contains your pre-tax accounts, such as a traditional IRA or 401(k), where you get a tax break today and pay taxes when you withdraw later. The second room holds your Roth accounts, where you pay taxes now and never again on that money. The third room is your taxable brokerage account, which has no special tax treatment but gives you the flexibility to access money without restrictions.
Building a Tax-Aware Portfolio Strategy
The goal is not just to fill these rooms with money; it is to be intentional about which investments go in which room. A simple example: a bond fund that pays taxable interest every year belongs in a pre-tax account, where that income is sheltered. An index fund you plan to hold for decades can sit comfortably in a taxable account. And a high-growth private investment where you want every dollar of appreciation to be tax-free? That belongs in Roth. Getting this right does not require a complicated overhaul but it does require stepping back and looking at the full picture, which is exactly the kind of review we do with clients.
Why Tax Planning Extends Beyond Filing Your Return
Tax planning is not a once-a-year conversation that ends when you hit “submit” on your return. The brackets, the withholding, the account structure, these are all levers that should work together throughout the year. Small adjustments made with intention create compounded benefits over time, just like the investments themselves. If any of what we covered today raises a question about your own situation, that is exactly where we can help. Reach out to start the conversation; there is no better time than right now, while taxes are top-of-mind.
