8 Reasons You Will Pay More Taxes in 2013…Guaranteed
1) Increase in Ordinary Income Tax Rates
The highest ordinary income tax rate is 35%. This is scheduled to go up to 39.6%
2) Increase in Capital Gains Tax Rate
The long-term capital gains tax is currently 15%. This is scheduled to go up to 20%.
3) Increase in Qualified Dividends Tax
Qualified Dividends are currently taxed at 15%. These will now be taxed as ordinary income, up to 39.6%.
4) Increase in the Social Security Tax
There is currently a payroll tax cut. Employees are currently paying 4.2% after having this temporary tax cut. This provision is set to expire. In 2013 employees will be back paying the 6.2% rate for social security taxes. You’ll see this tax increase with your first paycheck.
5) The new Medicare Surtax on Passive Income
There will be a new Medicare Tax on Passive Income on higher income earners. This was part of the Patient Protection and Affordable Care Act (ACA). For married couples filing jointly they will be subject to this tax if their Modified Adjusted Gross Income exceeds $250,000. This surtax of 3.8% will be assessed against investment income. Investment income for purposes of this tax is:
* Interest, dividends and capital gains
* Annuities (but not in IRA’s)
* Passive Rental Income
* Other Passive Activity Income
6) Personal Exemption Phase Out
The benefit of the personal exemption begins to phase out for married couples filing jointly whose adjusted gross income exceeds $261,650. (Estimated)
7) Itemized Deduction Phase Out
Itemized Deductions begins to phase out for married couples filing jointly whose adjusted gross income exceeds $261,650. (Estimated)
8) Decrease in the Estate Tax Exclusion
The Federal Estate Tax Exclusion is currently $5,120,000 and the tax rate is 35%. The exclusion is scheduled to decrease to $1,000,000 and the tax rate is increased to 50%. Additionally the gift tax exclusion is scheduled to decrease from $5,000,000 to $1,000,000.
Add it up and taxpayers will be paying a whole lot more in taxes.
Can the government change these rules and provide some tax relief? Sure they can. Will they? Who knows? The government certainly needs the money. The Federal Deficit is staggering.
ACTION ITEM: If you would like help planning your taxes, give us a call at 860-646-2465.