1. 7 Tax Changes to Expect in 2013

    “The estate and gift tax exemptions will revert to $1 million with a maximum tax rate of 55% on the excess over the exemption.  The GST tax exemption will also revert to $1 million (adjusted for inflation).  Also, the concept of portability for estate and gift tax exemptions between spouses taxes will no longer be available.” (Poyner Spruill)

    By now you’ve undoubtedly heard the news that in 2013 historically low gift and estate taxes will revert to pre-2010 levels. But tax changes scheduled for the end of the year involve much more than estate planning. For your reference, here’s what you might expect:

    1. Income tax rates will go up:

    “Currently the lowest tax rate at the federal level is 10% and that would be increased to 15%. Additionally, for married taxpayers who earned between $58,900 and $70,700 during 2012 … the tax bracket would increase from 15% to 28% as a result in the increase in marginal rates as well as the decrease in the income level for married taxpayers at this level. For single taxpayers earning more than $85,650 and married taxpayers earning more than $142,700, the tax rates will all increase by a minimum of 3% with the highest rate jumping from 35% to 39.6%.” (Davis Brown

    2. Capital gains taxes will increase:

    “Clients considering M&A transactions, property sales, or causing dividends to be made should take into account the combined impact of two significant tax increases set to be effective January 1, 2013. The tax rate on capital gains will increase by over 50%, and the tax rate on dividends will more than double in many instances.” (McKenna Long & Aldridge

    3. There will be a new Medicare tax:

    “Under current law, wages are subject to a 2.9% Medicare tax, with individuals and employers paying 1.45% each. However, with the implementation of the additional Medicare tax, individuals whose income exceeds a threshold amount will have to pay an additional 0.9% Medicare tax on wages in excess of the threshold. As a result, in 2013, the top Medicare tax rate for individuals will be 2.35% (1.45% plus 0.9%) for wages above the threshold. There is no corresponding Medicare tax increase for employers.” (Morgan Lewis

    4. Medicare taxes on investment income will be due:

    “The Medicare Contribution Tax will be levied on net investment income and higher-income bracket trusts, estates, and individuals. A taxpayer will be required to pay 3.8 percent of the lesser of the taxpayer’s net investment income, or the amount by which his or her modified adjusted gross income exceeds $250,000 (for a couple filing a joint return), $125,000 (for married individuals filing separate returns), and $200,000 (for all other individual taxpayers). Net investment income includes interest, dividends, annuities, royalties, rents, capital gains, and passive activity income.” (Pepper Hamilton

    5. Social Security tax cuts will end:

    “…the temporary 2% cut in the employee Social Security tax rate is scheduled to expire on December 31, 2012. The current 4.2% rate will revert back to 6.2% unless it is extended in federal legislation.” (XpertHR

    6. Itemized deductions for higher-income taxpayers will be phased out:

    “Once again, an amount of a taxpayer’s itemized deductions equal to 3 percent of adjusted gross income in excess of $100,000 (adjusted for inflation) will be disallowed, but not in excess of 80 percent of the taxpayer’s total itemized deductions. The disallowance rule applies to all of a taxpayer’s itemized deductions except for medical expenses, investment interest, and casualty and theft losses. For 2009, the last year to which the phase-out previously applied, the $100,000 amount had been inflation adjusted to $166,800.” (Loeb & Loeb

    7. The gift tax exclusion should increase: 

    “Taxpayers can make annual exclusion gifts of $13,000 each year per recipient, without incurring a gift tax and without using up a portion of their unified credit. This amount was originally at $10,000, and is now indexed for inflation. After spending a few years at $13,000 it is projected to move to $14,000.” (Charles “Chuck” Rubin

    Every little bit helps, right?


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