2013 Tax Changes Require Thorough Year-End Tax Planning
Taxpayers making more than $250,000 (married filing jointly (MFJ)), or $200,000 (single), may experience 2013 marginal tax rate increases ranging from 13% to 189% over current 2012 rates – Taxable estate of $5,120,000 will see an increase of 22,659,990.00% over 2012 – if your estate is over $5,120,00 have your food tested at all family holiday parties. (SEE CHART BELOW)
It’s anyone guess if congress will take any action prior to the end of the year. So having a plan in place early is critical. If you own a crystal ball I would love at least 10 minutes.
- Wages & Self-Employment Income over $250,000 (MFJ), $200,000 (single), or $125,000 (married filing separately (MFS)) will be subject to an additional .9% Medicare Hospital Insurance Tax – depending on your W-4 on file with your employer once you cross these thresholds your employer is automatically required to withhold the additional .9%
- Qualified Dividends will now be taxed as ordinary income. Tax rates increase from 15% to (39.6 + 3.8) 43.4% for $250,000 (MFJ), $200,000 (single), or $125,000 (married filing separately (MFS))
- Long Term Capital Gains increase from 15% to 20% or 23.8% for MAGI over $250,000 (MFJ), $200,000 (single), or $125,000 (married filing separately (MFS))
- Plus all passive income from Interest, Rents, Royalties, Annuities for MAGI over $250,000 (MFJ), $200,000 (single), or $125,000 (married filing separately (MFS)) is subject an additional 3.8% Medicare Hospital Insurance Tax
- Federal Estate and Gift Tax Exemption drops to $1,000,000 from $5,120,000 – Taxable estate of $5,120,00 will see an increase of tax of $2,266,000 from zero
|
Income Type |
Maximum Marginal Tax Rate |
Maximum Marginal Tax Rate |
New Medicare Hospital Insurance tax (HI tax)* |
New Net Investment Income Tax (other than earned income)* |
Combined Maximum Marginal Tax Rate |
Net Percentage Increase |
|
Current Law (Pre-1/1/13) |
(Post-12/31/12) |
(Post-12/31/12) |
(Post-12/31/12) |
(Post-12/31/12) |
(2013 vs. 2012) |
|
| Wages and S/E income > $250,000 (MFJ)/>$200,000 (Single) |
35% |
39.6% |
0.9%** |
N/A |
40.5% |
15.7% |
| Long-Term Capital Gain — Maximum Rate*** |
15% |
20% |
N/A |
3.8% |
23.8% |
58.67% |
| Qualified Dividends |
15% |
39.6% |
N/A |
3.8% |
43.4% |
189.33% |
| Passive Interest, Rents, Royalties, Annuities, Other (IRA’s not Subject) |
35% |
39.6% |
N/A |
3.8% |
43.4% |
24% |
| Flow through Income — Active Trade/Business |
35% |
39.6% |
N/A |
N/A |
39.6% |
13.14% |
| Flow through Income — Passive Trade/Business |
35% |
39.6% |
N/A |
3.8% |
43.4% |
24% |
| Estate & Gift Tax Rates Federal Exemption from $5,120,000 drops to $1,000,000 |
35% over 5.12 Mil |
55% over 1 Mil |
N/A |
3.8 % added on to Trust & Estate non-distributed income |
55% |
22,659,990.00% |
Our next blog will discuss strategies and planning – unless of course I get my hands on that crystal ball!
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