Comparing
Personal Income Tax Rates
To
Trust Income Tax Rates
This information is important
For IRA Accounts that use Borrowed Funds to make an investment
Generally, IRAs make their investments using all cash. However, on rare occasions IRAs use borrowed money to make an investment. The use of borrowed money should be reviewed carefully as it may trigger income tax to your IRA account based on any earnings that are attributed to the use of the borrowed funds. This tax is charged to your IRA account and will be computed at the Trust Tax Rate (not at your personal income tax rate)
The cost to your IRA of the Trust Income tax must be considered before your use borrowed funds.
As you will see below, the tax rates for Personal and Trusts are the same however, the increment at which you move through the “Tax Brackets” is much faster for Trust income.
2012 Federal Income Tax Brackets on
Personal Income
|
Married Filing Jointly If you Earn |
Single If you earn |
Your Personal Income Tax Bracket |
| $0 – $17,400 | $0 – $8,700 |
10% |
| $17,400 – $70,700 | $8,700 – $35,350 |
15% |
| $70,700 – $142,700 | $35,350 – $85,650 |
25% |
| $142,700 – $217,450 | $85,650 – $178,650 |
28% |
| $217,450 – $388,350 | $178,650 – $388,350 |
33% |
| Over $388,350 | Over $388,350 |
35% |
The following is the tax rate charged against an IRA account that earns a profit due to the use of borrowed money. You will notice that the tax rates are exactly the same as the Federal Income Tax chart for individuals. However, the width of each band is much narrower.
For example an individual reaches the highest tax rate when their taxable income exceeds $388,350. However, an IRA reaches the highest rate at only $11,350 of income from a leverage transaction.
2011 Tax Rate Schedule for an
Estate or Trust (Including IRA Accounts)
|
If your IRA Earns the below due to the use of borrowed funds |
Tax Bracket |
|
Less than $2,300 |
15% |
|
$2,300 to $5,450 |
25% |
|
$5,400 to $8,300 |
28% |
|
$8,300 to $11,350 |
33% |
|
$11,350 and over |
35% |
The above information has been compiled based IRS Tax Tables available on the date of this writing. The above is not tax advice. Always consult a qualified tax professional to answer any specific tax or tax form questions.
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- Submitted by Dennis Blitz, The IRA Club
IRA Club, 333 N. Michigan Ave Suite 2220, Chicago, IL 60601
